Derail: Traffic Declines Across US Railroads Signals Broad Industrial Slowdown

New data from the Association of American Railroads (AAR) reported US Class I rail traffic for the week ended July 27, of 534,498 carloads and intermodal containers, down 4.4% compared with the same week last year, reported Railway Age.

The slowdown in rail traffic is the result of a broad-based industrial downturn that is hitting American manufacturers, originating from Asia and Europe as a global synchronized structural decline. Trade disputes between the US and China have accelerated the downturn on almost every continent, sending world trade volumes lower.

Total carloads for the week were 261,706 carloads, declined 3.5% YoY, while US weekly intermodal container volume was 272,792 for the week, slipped 5.3% YoY.

About 70% of carload commodity groups posted negative YoY change versus the same week in 2018. Only nonmetallic minerals, petroleum and petroleum products, and "other" posted gains for the same week in 2018.

For the first 30 weeks of 2019, railroads reported the cumulative volume of 7,549,879 carloads, down 3.2% from last year. Intermodal containers for the first 30 weeks posted 7,963,475 units, down 3.6% from last year. All rail traffic combined for the first 30 weeks this year was 15,513,354 carloads and intermodal container units, a drop of 3.4% compared to last year.

One of the main reasons behind the sudden rail decline in the US could be the broad-based industrial slowdown that started shifting US manufacturing PMIs lower in late 2018.

Economic Cycle Research Institute's (ECRI) US Leading Index of Manufacturing PMIs (USLIMPMI) anticipated the current cyclical industrial downturn in late-2017, has since shown up in declining ISM and Markit manufacturing PMIs.

The USLIMPMI now points to an industrial slowdown that is gaining momentum across the country. ISM PMI recently slipped to a nearly-three-year low and the Markit PMI fell to a nearly-ten-year low in July. This weakness in growth will further lean on rail volume through summer into fall.

The industrial slowdown isn't limited to just the US; it started in Asia and then spread into Europe in 1Q18. Global manufacturing surveys are signaling growth is over (and in most cases, outright contraction is upon us).

JPMorgan's Global Manufacturing PMI fell to its lowest level for over six-and-a-half years and posted back-to-back sub-50.0 readings for the first time since the second half of 2012.

Rail freight is alternative data that gives us a more transparent measurement of what's happening in the real economy, without government numbers that could be significantly altered for a political agenda

The decline in rail freight is an ominous sign that the economy is headed for a cycle of vulnerability that could trigger a shock so great that a recession would shortly follow.