July 2012 Rail Movements: Economic Winds Changing?

Written by Steven Hansen

Could it be that rail is warning of an economic pivot point?  Reflecting on the July 2012 rail data which we report on weekly – the trends within the data have changed.  Is it just one month of data?  A quote buried in the Association of American Railroads July report caught my eye.

…. for carloads of other more economically sensitive commodities, we get a mixed message in July. While some commodities (e.g., lumber and wood products, autos and auto parts) still saw strong growth in July, others either grew more slowly or actually fell. It remains to be seen if July was just a blip on the road to more rapid growth or a sign that something more serious might be going on.

In the weekly data, we have noticed less of a drag on the rail counts from coal and grain – being offset by a general decline in the more economic intuitive elements of transport.  [Coal can (and is being) substituted for other forms of energy depending on costs, while grain shipments vary and do not relate specifically to economic fluctuations.]  This effect has happened in the month of July, and was not seen before.

Overall, the monthly summary data says:

  • carloads down 0.7% year-over-year (compared to down 1.3% last month)
  • excluding coal and grain (which are not economically intuitive), carloads in June 2012 were up 1.4% year-over-year.
  • intermodal (containers or trailers on railcars) up 5.6% year-over-year (compared to up 5.2% last month). That’s the highest average for any July in history.
  • total carloads plus intermodal up 1.2% year-over-year (compared to up 1.6% last month).

On the surface, the data looks good because the overall numbers are better.  The Association of American Railroads (AAR) reports this data in three parts:

  • railcars
  • intermodal (sea containers or trailers on special railcars)
  • total railcars plus intermodal

AAR rail traffic data are reported as carloads or as intermodal units. Carload traffic is classified into one of 20 different commodity categories and is carried in a variety of rail car types (e.g., tank cars, covered hoppers, gondolas, boxcars, etc.). A unit of rail intermodal traffic is either a shipping container (currently about 87% of U.S. rail intermodal traffic) or a truck trailer (about 13%) carried on a railroad flat car. Intermodal is not included in carload figures. Commodity detail on the freight inside the container or trailer is not available.

Econintersect uses rail movements to add to understanding of possible economic dynamics in coming months – as rail movements come months before retail sales. As long as growth remains positive, it bodes well for a positive economic outlook. From a past AAR report:

Freight railroading is a “derived demand” industry: demand for rail service occurs as a result of demand elsewhere in the economy for the products railroads haul. Thus, rail traffic is a useful gauge of broader economic activity especially of the “tangible” economy.

As coal and grain comprises well over half of all commodities transported, and coal / grain have major demand fluctuations unassociated with the economy – the below graph removes coal from the equation – and shows a 1.4% gain year-over-year (versus 4.2% last month).   This is the second month of decline – and is the basis of economic concern.

The graphic below compares non-seasonally adjusted total rail movements (including coal and grain) year-over-year.

Most finished consumer goods which travel on rail move in intermodal units, containers and trailers, on rail cars. If there was only one pulse point to watch – it is this one. A caveat here: this needs to be viewed with trucking data to get a complete picture – as this same service is provided by both modes of transport.

Rail is among the first reporters of July 2012 data. So far other major transport indicators are mixed but the transport data overall is showing weak growth:

For container counts, only import counts are economically intuitive. Using transport as an economic barometer – the real economic growth in the USA seems to be between 2% and 3%.

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