With global freight costs collapsing, as China trade dries up, status-quo-hugging talking heads have point to America's car sales and picture some islandic isolation that means investors in US equities are immune. Well that little dream just burst. Rail freight carloads tumbled 5.1% in October, dramatically accelerating the 1.6% drop in Q3 as a strong dollar crimps exports, retailers whittle down excess inventory and energy investment stalls. Until recebtly, the one bright spot in rail traffic was auto shipments... but even that just plunged and is now at the seasonally weakest since 2008.
Everything was awesome... then October hit and a decline in consumer-related cargo this quarter is adding to weakness in industrial and energy traffic.
[5]
While it’s too early to tell if something “drastic” is happening to the economy, “it does feel kind of like a soft, flat, sort of wait-and-see environment,” said Union Pacific Chief Financial Officer Rob Knight at a Credit Suisse Group AG conference last week. The rail industry provides detailed weekly carload reports with only a three-day lag, giving one of the most current looks at shipping demand.
The railroad weakness adds to U.S. economic indicators that have been sending mixed signals.
Railroad intermodal traffic, which rose in the previous two quarters, has fallen 1.3 percent since the beginning of October. Intermodal consists mostly of consumer goods that are moved in containers that can be switched between ships, trains and trucks, and accounts for almost half of the industry’s carloads.
The excess inventory that’s dragging on intermodal carloads is also hurting U.S. growth, said Tim Quinlan, an economist at Wells Fargo & Co. The economy in the fourth quarter may expand about 1.5 percent at an annualized rate, he said. Growth was 2.2 percent in the third quarter from a year earlier.
“That slowing is due mostly to a drag from net exports and a significant drag from inventories,” Quinlan said.
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One of the few bright spots for railroads has been automobile shipments... but seasonally, it is now at its weakest since 2008 on a percentage change basis...
[7]
Rail and truck stocks have pointed to economic weakness the entire year, said Jason Seidl, a railroad and trucking analyst at Cowen & Co...
“The economy is sluggish. That’s clear,” Seidl said. “We’ve seen a slowdown for sure.”
