Derailed? What Rail Traffic Tells Us About The U.S. Economy

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Submitted by Erico Matias Tavares of Sinclair & Co.

The US Economy: Still On Track?

Raw materials and goods need to be transported regardless of how modern or sophisticated an economy is.

Every week the Association of American Railways (“AAR”) posts a free report on rail volumes transported across North America by major category. This provides some decent clues on the condition of the US economy, almost in real time.

Let’s see what the latest report covering virtually all of 2015 is telling us.

The rail intermodal traffic category registers the long-haul movement of shipping containers and truck trailers by rail whenever combined with (a much shorter) truck movement at one or both ends.

In addition to its large relative size – accounting for 22% of 2014 revenue for major US railroads, more than any other single commodity group – intermodal is quite an important category since it covers a broad range of goods that Americans use every day, from computers to frozen chickens.

The graph above shows the year-on-year percentage change on a weekly basis going back to mid-2006. The weaknesses leading up to the 2008 financial crisis is pretty noticeable, as is the subsequent rebound. For the most part this indicator has remained positive since then, suggesting continued economic growth. That being said, the latest reports show a cluster of negative readings (red circle) which is a novelty in this cycle (by count, not magnitude). We will keep an eye on this one.

Now, let’s look at some major commodity groups.

Last March we looked at crude oil volumes transported by rail across North America. Here’s an update of the US petroleum products chart:

The gray shades represent the range between the minimum and maximum readings over the 5 years prior to 2015; the green line depicts 2015 readings. We can see that falling crude oil prices have finally impacted volumes transported by rail, with the latter part of the year showing a steep decline versus the top of the range (set in 2014). This reversal in trend is clearly not the friend of US oil & gas workers and their communities.

We had also indicated back then that this volume reversal could be gauged by the evolution of the WTI-Brent price benchmark spread, which as we know has virtually disappeared in recent months. A supply glut remains in force, although softness in demand in parts of the industrialized world also played a role.

Let’s move on to forest products, which includes lumber, a major component of house construction in the US.

After a very robust start of the year, volumes have fallen almost off the chart towards the end, breaching the low end of the range in the last week of December. This trend is clearly not a good omen for US employment and economic vitality in general given the importance of the housing sector.

The motor vehicles and parts category includes all kinds of vehicles (used and new), passenger car and bus bodies, parts and accessories and other related equipment.

The series has been very strong all year, setting new highs in this cycle on several occasions. Not much detail is provided so we can’t really say if these are predominantly new cars being built or used ones being sold, for instance. As such, this tells us more about the consumer than the underlying industrial activity.

What about grains? Given that corn, wheat and soybean prices remained depressed for most of the year volumes should have been strong right?

Well, not quite. 2015 touched both ends of the range at different times of the year, although on the whole total volumes mildly surpassed 2014. Different crop compositions can affect intra-year comparisons, as well as farmer decisions on when to ship (especially in a low price environment). The picture should become clearer in the coming months.

The metallic ores category, which includes all kinds of ores (iron, copper, lead, zinc and so forth) and waste scrap, has been decimated in 2015. This is not surprising given the substantial correction in the price of those commodities, evidencing at the same time the difficulties of the US mining sector. We may still need to see further volume reductions worldwide so that prices regain a solid footing.

We will conclude this summary review with coal, by far the single largest commodity transported in US railways.

Coal miners have also been badly bruised in 2015, as a result of a perfect storm in the sector: tightening environmental regulations, natural gas prices crashing, uncooperative weather patterns and enhanced electrical efficiency (we have talked about the latter last June, in the context of gauging US economic performance through electrical consumption). The latest reading is the lowest in our series going back to 2005, and less than half of the maximum amount over that period.

What to make of all this?

Our analysis of rail volumes provides a mixed picture of the US economy at this point: oil & gas and mining-related sectors are taking a real beating, some consumer sectors seem to be holding up and there are signs of weakness in the housing sector. 2016 should witness some type of a resolution here.

Happy New Year.

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Sun, 01/03/2016 - 10:16 | 6990411 johngaltfla
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It's not going to be a resolution. It's going to verify the recession which started in December of 2015 and will last until mid to late 2017. The BEA can not accurately report this under penalty of death from the regime.

Sun, 01/03/2016 - 10:23 | 6990423 NotApplicable
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As if they want to.

Sun, 01/03/2016 - 10:24 | 6990426 Shocker
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Can only call it a recovery for so long

Layoff / Closing  List: http://www.dailyjobcuts.com

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Sun, 01/03/2016 - 10:39 | 6990472 Eyeroller
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It will be called a recovery until after November 2016.  Must protect Obola's legacy at all costs.

Sun, 01/03/2016 - 11:55 | 6990673 ejmoosa
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Look at the charts from 2008...

When did the market decline start in earnest?  When Clinton dropped from the race and Obama was the nominee...

Investors do not wait until election day, which is the arbitrary point most of the media focuses on.  

The WH will change parties because people will vote with their wallets this time around.  They are not attemtping to square up racial guilt, and Clinton is not someone that will win because she is a woman.  She is not even as popular as she was in 2008, when she lost to Obama.

 

Sun, 01/03/2016 - 14:18 | 6991335 macholatte
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Our analysis of rail volumes provides a mixed picture of the US economy at this point:

 

No kidding! Those charts look more like an EKG.

 

https://www.aar.org/data-center/rail-traffic-data

Sun, 01/03/2016 - 10:27 | 6990435 Croesus
Croesus's picture

Exactly: 

Government statistics are almost as phony as Hillary Clinton's public personality. 

Sun, 01/03/2016 - 10:28 | 6990440 NoWayJose
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They will announce the recession a month after Trump takes some type of action as President.

Sun, 01/03/2016 - 15:32 | 6991574 TonyRUs
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That is why we are doomed. The economy is on the virge of disaster and the progressives are waiting for a republican/concervative to blame it all on....and the sheeple that don't understand any of this will belive every word.

Sun, 01/03/2016 - 15:32 | 6991575 TonyRUs
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That is why we are doomed. The economy is on the virge of disaster and the progressives are waiting for a republican/concervative to blame it all on....and the sheeple that don't understand any of this will belive every word.

Sun, 01/03/2016 - 10:32 | 6990451 stumbLebum
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When the 'regime' reports bad data, you say 'see, I told you so!'  

When the data's good, it's all a big conspiracy, isn't it? 

Sun, 01/03/2016 - 13:03 | 6990991 Midas
Midas's picture

Hard to say, when do they report bad data?  Other than the stuff caused by the Chimp, nothing has gone wrong.  (A Bush reference, not a Michelle reference, because the former is funny and the second would be racist)

Mon, 01/04/2016 - 00:47 | 6993882 nidaar
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As long as things seemingly going well, all warnings are conpiracy.

But when reality catches up "no one saw that coming!" isn't it?

Sun, 01/03/2016 - 11:14 | 6990545 3rdWorldTrillionaire
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I don't disagree with the recession.

However, I told you mooks on that trucking story that intermodal rail was the cause of the trucking decline and not the 'economy'. Lumber in December? Who builds a house in January? That's a seasonal thing... the real story is the commodity shitshow (mainly oil) and the government/gas shitshow (coal). Those two are dragging down rail traffic as indicated above. And they may or may not ever come back (even US coal exports are down 20% YoY)... pipelines and gas may be here to stay for a while. Especially with many new LNG facilities coming online over the next five years.

Intermodal will continue to remain strong though -- until the bottom does completely fall out below. Even then, my shitty generation will still want their materialistic crap so it may hold up better than other rail freight.

Sun, 01/03/2016 - 12:58 | 6990963 Fullthrottle
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I reside in a small city outside Grand Rapids Mi. during the summer, i live within a mile of an active CSX Railine, the amount of Rail activity has dropped off the earth the last two months. Some days there isnt any at all. Shit will hit the fan and itll be sooner than later. 

Sun, 01/03/2016 - 13:52 | 6991215 3rdWorldTrillionaire
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During peak times that you observed, what cars were the trains predominantly made up of? What are they now when you see the trains?

Sun, 01/03/2016 - 15:23 | 6991532 Man-Bear-Pig
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I concur.  Here in Vancouver, Canada the same thing is happening.  Not only can we see port traffic, but rail traffic in and out.  Trains headed EAST are empty, meaning that Chinese exports are damn near non-existent.  Ships are at anchor in the harbour far longer than usual.

The coal terminals are at reduced capacity -- well below what they were just a year ago.  Meaning that Chinese imports of coal are poor.

China is the barometer we need to be watching.  It has replaced the US in manufacturing.

Of course there are a lot of smart individuals here that already know we are fucked, and that China is the thing to be watching.  I am merely pointing out what I see from my window each day.

 

Sun, 01/03/2016 - 11:39 | 6990611 ejmoosa
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The recession started well before that.  One must remember that the GDP numbers have been adjusted and readjusted.  Remove Obamacare and music and movie rights and all the other bs they added, and we have been in a recession for quite some time.

 

Profits have been in a recession since the 2nd quarter of 2014....

Were the rail traffic to have dipped after a serious spike up, that would be one thing.  But it's dipping hard on the downtrend line, and that indicates real weakness.

 

No Profits no Growth.

Know Profits Know Growth.

Sun, 01/03/2016 - 10:22 | 6990421 oddjob
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The super bowl is coming, boxcar loads of disgusting chicken wings and weak beer will pick up.

Sun, 01/03/2016 - 10:31 | 6990446 NoWayJose
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I have had 'weak' beer at two different places recently - very unexpected and definitely not what I remembered. One was a Guinness too. Hope that is not a trend.

Sun, 01/03/2016 - 10:33 | 6990454 TurnwiseWiddershins
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Don't forget to buy the jersey of your (or your wife's) favorite muh-dik and help some poor starving team owner pay his rent. 

If we don't buy enough $150 player jerseys all these teams might need taxpayer help in order to build stadiums....

Sun, 01/03/2016 - 10:38 | 6990466 GhostOfDiogenes
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Most sports teams are owned by jews.

Go figure.

Overpriced bread and circuses (beer/pizza and football).

And the jews laugh all the way to the bank.

Sun, 01/03/2016 - 10:48 | 6990490 BiPolarFrenchman
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My personal favorite feature of stadiums in America is that now they're almost all named after banks and insurance companies.  Put good use to that bailout money they stole from the American people.

Sun, 01/03/2016 - 11:01 | 6990509 bamawatson
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i copied this absolutely brilliant comment after last night's alamo bowl

Maybe it's Oregon football that needs to go. The Ducks have being playing "Pretty Ball" long before Helfrich, and with the same results. The Ducks get plowed every time they run into an opponent that doesn't hug trees and sip Starbucks. The Fancy Ducks are all style and no substance. 

i wish the clever writer had inserted a pithy nike reference

Sun, 01/03/2016 - 11:09 | 6990534 TurnwiseWiddershins
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The fact that you know so much about "Oregon Football" is part of the problem dude.  Disengage entirely and keep your money in your family's hands.

Ducks, schmucks, the owners don't care as long as you're making them $$$.  Thanks goyim!!!  They are indeed laughing all the way to the bank.

Sun, 01/03/2016 - 11:11 | 6990539 Lucky Leprachaun
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Totally agree but speaking for myself it's a very difficult thing to do. 

Sun, 01/03/2016 - 11:10 | 6990535 Lucky Leprachaun
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They own the teams and stadiums (same with soccer) but they hardly ever play the game.....if you get my drift.  Bread and circuses baby.

Sun, 01/03/2016 - 10:49 | 6990491 oddjob
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Where the players name goes, you can have 'chump' or 'sucker' embroidered.

Sun, 01/03/2016 - 11:05 | 6990524 Tyrone Shoelaces
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And Star Wars crap.

Sun, 01/03/2016 - 13:00 | 6990971 Fullthrottle
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Growth hormones included. 

Sun, 01/03/2016 - 10:27 | 6990434 NoWayJose
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Judging by the amount of leftover Christmas crap, warm clothes, and small appliances/electronics still sitting in stores - I don't see the consumer 'still holding up'.

Sun, 01/03/2016 - 10:34 | 6990457 Berspankme
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I was out yesterday at a Target store and was surprised by the lack of stuff on sale. Led me to believe Christmas must have pretty good? I was surprised because the pre Christmas discounts around here were huge

Sun, 01/03/2016 - 10:45 | 6990480 two hoots
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Gift Cards.  After that wears off, then sales.

Sun, 01/03/2016 - 13:01 | 6990983 Fullthrottle
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Thats because the shits been discounted to rock bottom already theyre at break even prices now. 

Sun, 01/03/2016 - 10:38 | 6990467 Cautiously Pess...
Cautiously Pessimistic's picture

The Home Depot I go to still has TONS of those quickie Christmas generic tool set type of gifts.  I mean literally it looks as though they ordered 18 metric tons of cheap stuff and sold very very little of it.  Somebody's gonna have to choke on that inventory. Or, maybe they just carry it over until next year??

Sun, 01/03/2016 - 13:03 | 6990990 Fullthrottle
Fullthrottle's picture

Funny you say that, i was in one the other day and thought i was at Harbor Freight. More crap from China no thanks. 

Sun, 01/03/2016 - 10:29 | 6990442 Tinky
Tinky's picture

Just got off of the phone with Krugman, and, to be fair, he points out that those graphs fail to take into account the highly stimulative effects of the chemical and oil train derailments that took place in 2015.

After all, those charred cars need to be replaced, the tracks required repair, and local hospital burn units racked up some serious profits!

Sun, 01/03/2016 - 11:36 | 6990603 Greenie
Greenie's picture

Hopefully a few funeral homes got in on the action too!

/sarc

Sun, 01/03/2016 - 12:39 | 6990878 divingengineer
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Synergy!!   Yeah babby, yeah!

 

 

Sun, 01/03/2016 - 10:29 | 6990443 TurnwiseWiddershins
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I'm crying now thinking about Grandpa Buffet.  Without his train money he might have to live off of SS like the rest of the retired poors.

Sun, 01/03/2016 - 10:33 | 6990445 orangegeek
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Buffet's on the case.  Buffet will blow up some pipelines to advance "oil by rail car".

 

Rail traffic goes up.  Costs go up.

 

Only one problem.  Deflation has been hidden for years by the MSM and it's really ramping now.  Goobermunts can fraudulently raise prices, but if the masses are not buying anything, then banks will be taking delivery of beef, pork, oil, natural gas and other commodities.

 

I don't think you can safely store delivered feeder cattle in bank vaults.  Might get smelly.

 

Check out any commodity index - below March 2009 lows for several months now.

 

You can run, but you cannot hide yellen.

Sun, 01/03/2016 - 11:15 | 6990547 assistedliving
assistedliving's picture

A coal miner was real depressed.  He went back down into the mine to have some sex

He got arrested for having sex with a miner.  

 

Sun, 01/03/2016 - 11:30 | 6990593 ZombieHuntclub
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Here's what I know about the rail traffic, every night at 3:05am and 4:15am the bastard engineer lays on the horn like he's paid by the minute on the damn things. 

 

Maybe the rr tycoons like Buffet will lose a dime or two. 

Sun, 01/03/2016 - 12:31 | 6990838 I Write Code
I Write Code's picture

Good charts, good post.

But maybe it just means that trains and trucks are obsolete, now everything either downloads on your 4G or arrives by drone.

Sun, 01/03/2016 - 18:54 | 6992409 57-71
57-71's picture

The trucking industry released a report a few days ago that indicated they see a need to hire 960,000 drivers in the next few years. Retirements and industry growth are cited driving the need.

Sun, 01/03/2016 - 12:42 | 6990889 Consuelo
Consuelo's picture

 

 

These things are essentially 'incomplete' - in a BIG way, without a corresponding underlay or overlay, of QE and all of the various $$$open market operations over the same period.   The 'subsequent rebound' post 2008 didn't just happen by accident, or a result of a true market-clearing event making way for a fresh start...

Sun, 01/03/2016 - 13:10 | 6991028 Fullthrottle
Fullthrottle's picture

I make monthly drives from Az to Mich, truck traffic has dropped bigtime. The truckers ive spoke with at ones i hit for gas have said so as well. Many wait around for days just hanging out waiting for their dispatcher to call for a pickup. Its getting nasty out there. All the Greek hookers might be well served to come over here cuz theyd make more than 5E an hour. 

Mon, 01/04/2016 - 10:16 | 6995047 Vin
Vin's picture

To this info add the data from the Baltic Dry index and containerized shipping volumes and you get an awful picture of world economic situation.

Mon, 01/04/2016 - 19:25 | 6997636 reptillian overlord
reptillian overlord's picture

Yeah, it's definitely looking grim on that front.  That being said, I'm not seeing rail cars clogging the rail yards like the last few Events.  So we're not there... yet.

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