Good news for the economy: People are traveling and buying stuff

The Dow Jones Transportation Average (DJT), a group of 20 stocks that includes major railroads, truckers, airlines and freight companies, is up about 7% this month and is flat for the year.
Meanwhile, the more widely-known Dow Jones Industrial Average, which includes blue chips like Apple (AAPL), Coca-Cola (KO) and Disney (DIS), is down 5% in 2022, as investors grow nervous about rising interest rates and inflation.

When the Dow transports outperform the rest of the market, that is often viewed as a positive macroeconomic indicator.

It means consumers are buying lots of stuff from Amazon and Walmart that needs to be shipped to warehouses and retailers. And it’s a sign that people are traveling again, for both leisure and business.

Rental car firm Avis Budget (CAR), railroad Union Pacific (UNP), trucking company JB Hunt (JBHT) and the airlines Alaska Air (ALK), Southwest (LUV) and JetBlue (JBLU) are among the top transportation stock performers this year.
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The strength in transportation stocks is even more remarkable given the surge in energy prices. Oil has soared more than 50%, to around $115 a barrel in the United States.
Potential problems remain for the sector, of course. They include supply chain woes, trucker labor shortages and the resulting need to raise wages and a recent surge in Covid cases.

Economic headwinds but consumers still traveling and shopping

But many transportation firms have been able to withstand these pressures, as the economy’s broad rebound in 2021 has offset much of the industry’s challenges.

“Demand for travel continues to move in the right direction,” said Andrew Harrison, chief revenue officer and chief commercial officer for Alaska Airlines, on the company’s January earnings call.

“Spring and summer travel should be strong on the leisure side, and benefit from the further unlocking of business and international travel,” Harrison added.

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Americans also are buying more of everything, which is great news for railroads, truckers and other shipping firms.

“Consumers are flush…they’re financially healthy. So as long as their confidence isn’t rattled, they seem to be postured to continue to purchase through the year,” said Union Pacific CEO Lance Fritz on the company’s earnings call with analysts in January.

“A lot of my industrial peers feel pretty confident that their marketplaces look pretty good to them,” Fritz added, saying that executives in the housing and construction markets remained upbeat about the 2022 outlook.

Trucking company JB Hunt is optimistic too, despite the difficulty in finding drivers. “For our customers overall? I would say demand is very strong across all of our services,” said chief commercial officer Shelley Simpson during the company’s most recent earnings call in January.

Supply chain challenges aren’t hurting shippers too much, either.

“Consumption trends remain elevated and retail and e-commerce demand remains strong,” said Matthew Cox, CEO of ocean freight and logistics company Matson, during a February earnings call with analysts.

Matson (MATX) shares have soared 33% this year, making it one of the top performers in the Dow Jones Transportation Average.
Still, not all transportation companies are benefiting from the upswing. Shares of FedEx (FDX) have fallen nearly 15% this year, making it one of the worst performers in the DJT. FedEx reported earnings last week that missed forecasts. The company has been hit by rising labor costs and higher fuel prices.