Rail traffic has remained very strong in recent months despite concerns over recession.  This week’s data doesn’t alter the trend, but is certainly an alarming decline that is worth keeping a close eye on.  Overall intermodal traffic was down -9.3% while carloads declined -3.7%.   This index has been somewhat volatile as of late and clearly one week doesn’t make a trend, but rail has served as a superb harbinger of recession over the last few cycles….More from the AAR:

“The Association of American Railroads (AAR) today reported a decrease in weekly rail traffic for the week ending January 7, 2012, with U.S. railroads originating 274,862 carloads, down 3.7 percent compared with the same week last year. Intermodal volume for the week totaled 193,812 trailers and containers, down 9.3 percent compared with the same week last year.

Five of the 20 carload commodity groups posted increases compared with the same week in 2011, with metallic ores, up 29.2 percent, having the greatest gain. The groups showing a decrease in weekly traffic included: grain, down 20 percent; farm products excluding grain, down 18.5 percent, and iron and steel scrap, down 17 percent.

Weekly carload volume on Eastern railroads was down 13.8 percent compared with the same week last year. In the West, weekly carload volume was up 2.7 percent compared with the same week in 2011.

For the first week of 2011, U.S. railroads reported cumulative volume of 274,862 carloads, down 3.7 percent from last year, and 193,812 trailers and containers, down 9.3 percent from last year.”


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Cowpoke

    FINALLY, I was starting to feel like the Chinese Govt was releasing these stats.
    I have been amazed at talking to people who are layed off, on the bench or say that things are slow, but then see raill trafic always humming along.

  • kman

    Can’t be right Cullen, the market is breaking up and out. Something is wrong in the matrix.

  • Leverage

    What’s up with that extreme sigma data :D A patient dying of the last credit and over-leverage shoots? There isn’t enough central bank voodoo to stop the popping of this bubble.

    Anyway, the irrelevancy of this data set still is (good or bad) on its own, well, irrelevant. This isn’t even a leading indicator.

  • Imtheknife

    I would really love to see a chart showing rail traffic, diesel prices, and oil prices on the same graph.

  • http://calamitycountdown.blogspot.com Randy Pickard

    One factor that may have reduced shipments is a hangover from a surge of orders that may have been pushed into late December due to the expiration of year end of tax credits.

  • Mercator

    Over the next 12 months, imagine a reduction in deficit spending, and an increase in the savings rate, that holds. Those that say we never came out of recession will have the last word.

  • http://merrillovermatter.blogspot.com Greg Merrill

    Look at the spike before the drop? What if its merely an end of year / Christmas / News Years affect? I wouldn’t put much stock in it until we see the trend continue a bit further. Same stuff maybe happening in unemployment claims.


  • Jay

    I LOVE Cullen’s site and am eternally grateful for everything he and pragcap has taught me. But I do NOT share his optimism for the US nor do I concur with his outlook for a “muddle-through” scenario. Put me in the Gary Shilling/ECRI shallow “recession” basket. The latest rail traffic data seems to be hinting that all is not so rosy out there.

  • Chad M

    I’d agree with you Greg, we see a lot of mean reversion type of moves after big spikes on the chart Cullen posted. We definitely need to see a few more weeks numbers before a new trend can be confirmed.

    I like to look at the Dry Bulk Index daily and it has been plummeting to the tune of 30% or so in the last 3 weeks. The problem is that index is distorted as there has been a massive increase (and continued build out)in new ships thanks to Recency Bias and shippers/ship-builders thinking the good times of 04-07 would continue on at that dramatic pace…Fail.

  • http://merrillovermatter.blogspot.com Greg Merrill

    Yeah. I noticed the bulk index fall off a cliff in the new year. Supply (more ships) can make a difference longer term but damn! It really pulled a Wyle Coyote over last couple weeks…


    1700 -> 1100 ? Wow

  • http://merrillovermatter.blogspot.com Greg Merrill

    Run for the hills! The Rochematic is shorting!!!!
    Hey I like that.

  • http://www.pragcap.com Cullen Roche

    Not shorting. Just moved equity portion to cash. :-)

  • DGlanzer

    How much of this YoY% decline is attributed to one of the spikes during last January? The chart is not detailed enough to see if the current week lines up with the spike in January 2011. If so the bar is artificially high for a week or two in January 2012.

  • http://pragcap.com BILL

    I recall posting 3-4 weeks ago with layoff/car storage info regarding the Class 1 RR I work for. I can inform you that we are now placing hundreds of locomotives (lugo) “laid up in good order” in storage around the system. Peak season is over…

  • Mercator

    Some say it’s as simple as following the Shanghai index. That strategy says get out too! I’m paring a little, but it’s hard to dump a solid company with a low PE ratio, high estimated PE ratio, and high yield, especially if insiders are not dumping. Some ETF’s are equally as attractive.

  • Mercator

    high/low, not low/high

  • hangemhi

    Wow, an algorithm mention…. I’ve been wondering if we’d ever see it again :)

  • http://exertia.wordpress.com exertia

    Thanks Cullen, like many other readers, I had been waiting for your next algo signal.

    Good thing before market-close today, I moved 50% of my equity holdings today to cash and have started booking gains in the high beta stocks (NFLX, RIMM etc). I thought the market had been overbought now and especially the macro situation seems to be gradually worsening by the day. All the open risks (Euro, China etc) are still not contained in any meaningful way.

    Would do your readers a great favor if you have a box in the upper-right corner of your site with the latest algo signal!

  • pflynnharv


    Interesting comment about your algorithm. I too have heard from peers that their algos have signaled a change. Paradoxically, the components of a few of them have different factors/inputs, but came to a similar conclusion. Is this an algorithm that you created, if so, what is your strategy and do you provide it to your clients.

  • quark

    Oh I guess retail sales were really up just .1% which goes to show that their are two sides to retail sales, the number of widgets being sold and the price paid for the widgets.

    sorry Cowpoke but the AAR outsourced their data gathering to the Chinese as well.
    Other outsourced statistics: shadow inventory numbers, bank assets, bank earnings, cash flows into pensions holding mortgages, the value of a mortgage, the value of the real estate market, home sales…i think the real estate industry a few weeks back cancelled the contract for this outsourced activity and brought it back in house as I recall the adjusted their sales numbers about the same time oh and real estate values.

    Has anyone given it any thought on how those who are holding garbage real estate mortgages bundles are going to realize their cash flows and how these assets are being supported. Time to cash out on your pensions.

    Michael Olenick estimates the damage: http://www.nakedcapitalism.com/2012/01/michael-olenick-10-million-shadow-inventory-says-housing-market-is-a-long-way-from-the-bottom.html

  • VII

    Your funny…”for those who care”.

    Like walking into the cinema and casually saying, “theres a fire in the balcony…for those who care”

    You sly fox…you always slip that in just to see if were paying attention.

  • rufusmcbufus

    I just gotta laugh. Cullen has been using this chart FOR MONTHS NOW to basically declare anyone bearish an utter moron. Now what?

  • LRM

    Also check out PCI (Ceridian-UCLA Pulse of Commerce Index)
    The pdf on the right side of the page is worth a look as it has some good info
    Worth the read

  • VII

    @ rufus

    Cullen is right again. I’m bearish… and if you read my comments I’m a moron.
    What R U investing in here?

  • LRM
  • DGlanzer

    How typical is “hundreds” at this time of year?

  • http://www.pragcap.com Cullen Roche

    I have hardly been declaring people morons. And hey, if a recession appears in Q1 2012 I’ll be the first one to fess up and say I was wrong….

  • Andrew P

    I noticed teh same thing. The spike and the drop are about equal magnitude.

  • Jonh

    Another thought on the rail drop, is Chinese new year came a little earlier this Jan. It is usually a squeeze to get all the shipments in Dec/Jan, therefore taking CNY into account looks like quite the drop off maybe real. The next numbers keep in mind CNY is usually very busy for Dec/Jan shipments

  • http://. Octavio Richetta

    Nice sample of the geniuses’ analytical skills at the FED. I had a lot of fun reading thru this sample of high level BS thinking.


    BTW, bought some JUNE 16 SPX 1300 puts at the low of the day 28 ( I was the last trade of the day); Very possibly too early but hopefully we are not too far from a top.

  • http://. Octavio Richetta

    Just a small sample:

    Guynn, June ’06: “…Of greater concern to me, however, is the inflation outlook.”

    Guynn, June ’06: “We are geting reports that builders are now making concessions… even throwing in a free Mini Cooper — [LAUGHTER].”

    Fed staff report, June ’06: “We have not seen—and don’t expect—a broad deterioration in mortgage credit quality.”

    Bernanke, March 2006: “Again, I think we are unlikely to see growth being derailed by the housing market.”

  • http://. Octavio Richetta

    Ups! I meant 78. I wish they were 28:-)

  • Ranger

    Welcome to nominal recession 2012, Cullen. No one, at least no one intelligent and mature and respectful enough, will fault you for disagreeing. 2012 will be what some call the “mid-gap recession” (aka a recession in the midst of an already formed output gap.

  • http://www.conventionalwisdumb.com Conventional Wisdumb

    From that press release:

    “Although December’s news is positive, the combined effect of the three consecutive positive months was not enough to offset the weakness of trucking last summer and the PCI in December 2011 is 1.2 percent below its June 2011 level. In the past three months, compared to the prior three months, the PCI increased at an annualized rate of 0.5 percent. On a year-over-year basis, the PCI was down 0.7 percent in December compared to the 0.9 percent year-over-year increase in the prior month.

    “Many Wall Street economists have jacked up their ‘backcasts’ for fourth quarter GDP growth to 3 percent but the PCI does not support this view,” said Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and Director of the UCLA Anderson Forecast. “The PCI measures inventories destined for factories, stores and homes, and the decline in the PCI in the third quarter correctly anticipated the large negative contribution of inventories to GDP growth.” With all three months of the fourth quarter now available, the PCI suggests fourth quarter GDP growth of 2.0 percent or less.”

  • JCR

    Ironic? – see previous article

  • Ilya

    i am a bear but you have to average last two data points since the timing of holidays within weeks skews data. so no panic yet.

  • CHET
  • witt

    What falls under the category of metallic ores? Any way they might publish even more fine tuned data – for instance, if it includes precious metals or is it just finished metals that have been refined from scrap?

  • Work

    Thanks for sharing that. How long did the buy signal last? With the holidays I wasn’t out here every day!

  • http://exertia.wordpress.com exertia

    Cullen, is one to deduce that the rail traffic report constitutes one of the important factors of your algorithm :-)