RAIL TRAFFIC TURNS NEGATIVE
After a persistent steady year over year climb in weekly rail traffic trends, the data has finally succumbed to the weakening economy and turned negative. While this is only a one week trend it is worth keeping an eye on the trend. Recent data has been positive, but persistently weak. The last time the monthly data turned negative was January 2007 before the economy began slipping into a deep recession. Charts have been attached below.
The AAR elaborates on this week’s data.
“The Association of American Railroads (AAR) today reported a slight dip in weekly rail traffic, with U.S. railroads originating 299,943 carloads for the week ending August 27, 2011, down 0.8 percent compared with the same week last year. Intermodal volume for the week totaled 236,051 trailers and containers, down 0.5 percent compared with the same week last year.
Eleven of the 20 carload commodity groups posted increases from the comparable week in 2010, including: metallic ores, up 26.1 percent; iron and steel scrap, up 20.2 percent; and motor vehicles and equipment, up 13.2 percent. Groups showing a decrease in weekly traffic included: waste and nonferrous scrap, down 21.1 percent; farm products excluding grain, down 20.5 percent; and grain, down 17 percent.
Weekly carload volume on Eastern railroads was down 1.2 percent compared with the same week last year. In the West, weekly carload volume was down 0.6 percent compared with the same week in 2010.
For the first 34 weeks of 2011, U.S. railroads reported cumulative volume of 9,830,960 carloads, up 1.9 percent from the same point last year, and 7,697,679 trailers and containers, up 6.1 percent from last year.”
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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21 Comments
Cullen, for the timeframe covered in this report, wouldn’t the whole impact be attributable to Hurricane Irene along the East Coast?
Could be, but this weekly data trending down has been pretty consistent. Keep an eye on it. One of the major leading indicators for recession in 2007 was the monthly rail data.
Also note that volumes were down 0.6% in the western US YOY. Perhaps ~half of the decline in the eastern US due to Irene?
That intermodal graph is attention-grabbing. Similar decline into 2003 was followed by large tax cuts (along with some certainty over US policy in Iraq). The 2006-07 decline was accompanied by regulation-happy Dems swarming Congress and yielding the PAYGO bludgeon. Today, Tea Party’s doing essentially the same thing without realizing it. Not good…
This is somewhat off topic but I finished your 8/5/11 paper “understanding the modern monetary system”. I often do my deepest thinking while mowing the yard (loud machines and sweat tend to keep neighors and teenage sons away) but I may need to do a couple of yards to work through that one. I really did enjoy it; it was very readable and made its points clearly.
Question if I may…when governments runs surpluses, which in MMT leads to monetary contraction, is it simply leverage that leads the private sector to try and fill the void? If so, arn’t banks creating money? I am trying to figure out why there is a lagged effect from surpluses to economic weakness.
Re: Lag. I’ve had the same thought. Probably just takes time for such a huge system to react to new conditions?
Re: Banks creating new money. Banks don’t create net financial assets. When banks create money, there are corresponding liabilities created simultaneously. Only the Government can create net financial assets. (horizontal v vertical).
Check out Keen’s work he shows that credit creation both leads and correlates to GDP by 6 months.
Ocean,
I’m pretty lazy, do you have any links you suggest?
Best
The first is more relevant to GDP, the second is the more current and employment related.
http://www.debtdeflation.com/blogs/2010/09/20/deleveraging-with-a-twist/
http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/
Thanks, O.
Right Chris. Thanks for that.
Bill,
Nothing like manual labor to get the brain going! I do much of my best work outside or in the garage banging on things. Study the sectoral balances section of the paper. Maybe search the site a bit as well. You’ll find that a budget surplus is necessary to offset the effects of a current account deficit. And in general, countries will run deficits over the long-term for obvious reasons. When a nation with a CA deficit runs a budget surplus they are draining the pvt sector of the currency with which it must transact. The only way to obtain currency in this situation is to go into debt. That’s why it’s not surprising that debt levels spiked as the Clinton surplus (and small deficits) were in place. I hope that helps. Feel free to email with questions. It takes me a while to get around to all the emails, but I generally do.
Thanks,
CR
“Question if I may…when governments runs surpluses, which in MMT leads to monetary contraction, is it simply leverage that leads the private sector to try and fill the void?”
First off, for clarity, a government can potentially run a surplus without over leveraging the private sector. If there is a sufficiently large trade surplus then a government may be able to obtain a surplus without forcing the private sector to net dis-save (net borrow).
“If so, arn’t banks creating money?”
Yes, it’s commonly called horizontal money creation and as Different Chris points out it does not create net new financial assets.
“I am trying to figure out why there is a lagged effect from surpluses to economic weakness”
The private sector is a currency user. They can only take on so much debt that is unproductive before they go broke or are forced to slow their spending to service the debts they aquired. A monopoly issuer of a freely floating fully sovereign currency does not have that constraint.
It is playing out according to script…. My risk-off post early this morning turned out to be right at the end. We seem to be headed for recession and even when the Fed had a lot more room to maneuver at this juncture we may have passed the point of no return. Recession here we come despite trillion dollar deficits and ZIRP/QE^n.
Cullen, didn’t you say in the past that rail traffic is the first down going into a contraction and the first out as well?
Didn’t work as a leading indicator out this last recession, but then again, you could easily argue that we never really came out…..Rail has been a VERY good leading indicator into recession the last few recessions.
look like the Jul/Aug/Sept 2010 had spikes in both directions. So it’s not clear how much noise is in there. Weren’t we contending with some Auto strikes back then?
Still, looks like the trend has definitely rolled over but markets seem to be braced for a no-growth economy.
Chanos about to be vindicated? http://www.abc.net.au/news/2011-09-02/short-sellers-fuel-fears-on-chinas-growth/2867528?section=business
Demand has cdrtainly been soft, but much of the rail weakness has been due to supply constraints from extreme weather. Western roads have had persistent operational challenges which began with heavy snowfall and then continued to Midwest flooding. The eastern roads were absolutely impacted by the flooding from the hurricane. It can take a substantial amount of time to rebuild infrastructure which may cause bottlenecks for traffic detoured to lines that are not designed to handle heavy volume. There are major lines in the west that have been out of service for months.
Investors seem to ignore this info because the investors’ sentiment has improved lately. They seem to look at the stockmarket charts and not at the fundamentals.
Do any longer-term charts of rail traffic exist? say 10 years? it would likely take a sustained month or 2 period of negative yoy comps to really suggest recession. Of course, by then its probably too late from an investing standpoint.
The monthly chart I posted is 10 years….