RAIL TRAFFIC SHOWS CONTINUED ECONOMIC EXPANSION
This week’s rail traffic trends continue to show a growing economy. Through the first 51 weeks of the year total carloads were up 2.2%. That’s about consistent with the economic growth we’ve been seeing at the GDP level. This week’s data was particularly strong with intermodal traffic surging 23% compared to last year. The AAR has more details:
“The Association of American Railroads (AAR) today reported gains in weekly rail traffic, with U.S. railroads originating 287,137 carloads for the week ending Dec. 24, 2011, up 11.9 percent compared with the same week last year. Intermodal volume for the week totaled 217,952 trailers and containers, up 22.9 percent compared with the same week last year.
Sixteen of the 20 carload commodity groups posted increases compared with the same week in 2010, including: crushed stone, sand and gravel, up 59.7 percent; nonmetallic minerals, up 39.6 percent, and petroleum products, up 36.4 percent. The groups showing a decrease in weekly traffic included: coke, down 2.6 percent, and grain, down 2.4 percent.
Weekly carload volume on Eastern railroads was up 17.8 percent compared with the same week last year. In the West, weekly carload volume was up 8.5 percent compared with the same week in 2010.
For the first 51 weeks of 2011, U.S. railroads reported cumulative volume of 14,910,326 carloads, up 2.2 percent from the same point last year, and 11,711,214 trailers and containers, up 5.4 percent from last year.”
Source: AAR
I would give world events a better than even chance of overwhelming our muddling growth and would guess that the betting will revolve around the consensus estimate of the liklihood of negative world events effecting our economy. Formula for chop? BTW it is very refreshing to see someone stick to their guns, Cullen, you’ve been calling it this way for a while. I also like the “Old School” transports approach.
I must admit that your call of a muddle through economy is playing out the question that I have is how will this effect equity valuations? If this is all that there is, there is nothing that will drive valuations higher while there are plenty of external events that could be a major drag on the economy and equity valuations. Or am I missing something?
I think muddle through will probably not happen in 2012. External forces will be a neutral or a strong negative most likely I think. So what will it be, strong or stink? I don’t know how it resolves. 2012 is already an interesting year.
I confess to being a little unhappy with a direct comparison from year to year of traffic volumes automatically suggesting a rise in GDP. In my opinion you need to take into account changes in commodity prices and margins to get a full picture.
Stone, gravel and sand being up 60% from a year ago may indicate a change in sourcing of the commodity due to price changes. Up until this last report this commodities transport volumes were up considerably in Mexico.Do you think the construction industry is really picking up ?
If you delve into the reports published either weekly or monthly by the individual railroad operators, you can see other things going on. Like the marked uptick in refining scrap metal in some areas, some channel stuffing of new autos for the new year. One thing that is consistently up is metallic ores, but you also need to take into account outgoing shipments of metallic ores to likes of India and China. You also need to look at port data which is not showing the same growth in exports and imports.
There are also hints in PMI data where inventory levels are matching production but back orders seem to be reducing. My guess based on the drop in sand,stone and gravel in Mexico over the last week is that we might see a drop in rail traffic over the next week or so. I also worried that inventory levels suggest margins might be squeezed so GDP might not rise in tandem with traffic.
The good news I would say is that internal traffic is holding up at the moment. The bad news would be that oil pipeline changes at cushing will mean a higher level of oil prices for the US going forward from this point.Maybe some bright bank analyst will really delve into these numbers and give us a good insight.