Home » Fred Frailey » So are we going into a recession or not? Rails provide the answer

So are we going into a recession or not? Rails provide the answer

Posted Thu, Oct 6 2011 4:06 PM by Fred Frailey

To hear the politicians in my adopted hometown of Washington talk, we need President Obama’s expensive jobs-creating legislation because the economy is possibly headed into the toilet (Democrats), or we cannot afford the legislation because the economy is possibly headed into the toilet (Republicans). That begs the question: What is going on with the economy? In another lifetime, I used to write about the economy and interview economists; boy, was that a dull life. (Did you hear about the one-armed economist? Poor man was unable to say, “On the other hand ...”)

Probably the best single read on the health of the U.S. economy comes from rail carloadings. It’s increasingly so that when the wheels of commerce turn, they run on steel rails. The raw materials that feed the factories, the ocean containers that stock the store shelves, come by rail. So what do the railroads tell us?

Forget the toilet. We’re not in it. The latest report from the Association of American Railroads, covering September and the first nine months of 2011, show carloadings up 1.1 percent for September from the year before, and up 4.7 percent for the latest week. For the year to date, carloadings rose 1.8 percent. So far in 2011, rail carloadings are running at 87 percent of what they were in 2006, the record year for railroads.

Intermodal numbers are somewhat better. Compared with a year ago, containers and trailers handled are up 4.4 percent for the latest week, 2.3 percent for September, and 5.4 percent for the first nine months. At 96 percent of 2006 levels, intermodal is close to setting all-time records.

Now let’s peel back the onion a little bit. What’s hot? In number of cars loaded during September, it’s coal (up 6,400 cars), primary metal products (up 5,300 cars), and motor vehicles and parts (up 4,400 cars). In percentage terms, the biggest September gainer was petroleum and byproducts, up 16 percent. In other words, stuff related to energy and heavy industries.

What’s not doing well? Grain carloads were down 16,800 carloads, or 18 percent, in September, continuing a slide that began three months ago. Shipments of primary forest products continue to decline, as are those of waste and nonferrous scrap, which is partly a byproduct of construction.

Put this together and you have an economy that continues to move forward, with no help at all from the once-vital construction sector. Or as AAR’s John Gray, the senior vice president, puts it: “Rail traffic is consistent with an economy that is probably still growing, but far more slowly than any of us would want.”

I’ll take good news any way I can get it, and this is good. Meanwhile, railroads added almost 1,200 jobs last month, to 160,100, and another 11,100 freight cars came out of storage. Alas, 17 percent of the North American fleet remains in limboland.

The last time we had a financial panic of the sort we saw in 2008 was 1929, and you know what came next. We’re clearly not headed there now. But financial recessions, as opposed to general business recessions, are notoriously slow to unwind and resistant to political fixes. To keep your eye on the economy in the months ahead, watch those rail carloadings closely. — Fred W. Frailey

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efftenxrfe wrote re: So are we going into a recession or not? Rails provide the answer

on Thu, Oct 6 2011 8:07 PM

you're sighting 1929 and 2008. if we are clearly not headed there now can you project financial vs. business hiccups when manufacturing, call-centers, ocean-shipping, resource and reclamation of material...it might get through to you that those predictors may be...probably...likely faulty

JustaWatcher wrote re: So are we going into a recession or not? Rails provide the answer

on Thu, Oct 6 2011 8:30 PM

Good article Fred - I just wish that I could find a job.

Fred Frailey wrote re: So are we going into a recession or not? Rails provide the answer

on Thu, Oct 6 2011 9:29 PM

Efftenxrfe,

We are clearly not heading to 1929 yet. Do you not agree? I say rail volume is a good short-term indicator. What is your point, my friend? You seem to disagree without showing your hand. A simple man like me would benefit from your wisdom. Best,

Fred Frailey

cns12277 wrote re: So are we going into a recession or not? Rails provide the answer

on Thu, Oct 6 2011 10:26 PM

EFFTEXRFE, the word is citing, not sighting. I do not see any automobile-rack cars sitting on the former Southern Pacific rails here in Houston, as I did eighteen months ago. That's all I know about the economy.

TEXAS PHIL

Dakguy201 wrote re: So are we going into a recession or not? Rails provide the answer

on Fri, Oct 7 2011 4:11 AM

Is it possible that what you are seeing in the data is a shift in mode of transportation being used? That would not be true for coal, but the other items could be (in part) a movement away from trucking.

jeffhergert wrote re: So are we going into a recession or not? Rails provide the answer

on Fri, Oct 7 2011 10:22 AM

For some people it isn't 1929, it's 1931 or 1932. (When your neighbor loses a job it's a recession. When you lose your job it's a depression.) Our economy, as defined by business activity may be improving, albeit slowly, but with increasing automation and globalization etc, this dosen't always translate into more jobs. Companies can either do more with less and/or move production to lower cost countries. So the tide may be rising, but it's not lifting all the boats at this time. Some "experts" think some people's boats will have holes in them for some time.

Jeff (I liked the economist humor BTW :-)

jeaton wrote re: So are we going into a recession or not? Rails provide the answer

on Fri, Oct 7 2011 10:31 AM

Yours would not be the first time that I have seen the suggestion that freight movement is a leading indicator of the direction of business activity. It seems to make most sense when looking at the movement of the raw materials and parts that go into finished goods. Business tends to be fairly good at forecasting demand for their products and obviously adjust their purchasing.

Now if we can get those who buy stock to pay attention...

sunbeam wrote re: So are we going into a recession or not? Rails provide the answer

on Mon, Oct 10 2011 10:07 AM

How are carloadings of aggregate doing? I've noticed in central Texas we seem to grow a lot of rocks, and there's lots of gons out on the rails full of the stuff - I guess it may be going to the Houston area.

tomstamey wrote re: So are we going into a recession or not? Rails provide the answer

on Mon, Oct 10 2011 4:36 PM

Yes I noticed the upswing in traffic months ago and also noted that there is no shortage of 18 wheelers on the highways. It has confused me as to why the country was not progressing in the employment area. A lot of people are buying things so somebody has to be getting jobs. The railroads have been calling back employees for more than a year now. But, there still are some BNSF locomotives stored in the Saginaw Yard. So it is not back to where it used to be.

Pasadena Bound wrote re: So are we going into a recession or not? Rails provide the answer

on Mon, Oct 10 2011 6:35 PM

The economy has become based on one identifier which is TRUST and there is very little of that commodity around. Political opportunists began this economic maelstrom in 2008 by trying to print money to save us from excessive stupidity, criminality and debt (China-Japan).

Add to the above a European economy which is trying to skate on the edge of a razor blade without cutting their foot where people can no longer expect ALL they WILL from a socialistic way of life.

Just imagine some in Europe are rioting because they have to now pay tuition in order to attend school; Land o’ Goshen what happened to “MY” free lunch?

Please don’t put your hopes on all those COFC’s from the Far East; there is a limit to the amount of “stuff” we can purchase to throw away!

I would rather see car carries originating in the States, flat cars loaded with Caterpillar heavy equipment and General Electric USA products to support increased employment.

If you’re not working you’re not spending! (Econ-101)

Pasadena Bound wrote re: So are we going into a recession or not? Rails provide the answer

on Mon, Oct 10 2011 6:36 PM

Add to the above a European economy which is trying to skate on the edge of a razor blade without cutting their foot where people can no longer expect ALL they WILL from a socialistic way of life.

Just imagine some in Europe are rioting because they have to now pay tuition in order to attend school; Land o’ Goshen what happened to “MY” free lunch?

Please don’t put your hopes on all those COFC’s from the Far East; there is a limit to the amount of “stuff” we can purchase to throw away!

I would rather see car carries originating in the States, flat cars loaded with Caterpillar heavy equipment and General Electric USA products to support increased employment.

If you’re not working you’re not spending! (Econ-101)

Art S wrote re: So are we going into a recession or not? Rails provide the answer

on Mon, Oct 10 2011 11:58 PM

Unemployed persons judge the economy on hiring. Car loadings may be increasing but employment is not. Hence the need for the job creation program. Railroads are an example of the problem. Added railroad traffic can be handled without much increase in railroad employment.

Valleyline wrote re: So are we going into a recession or not? Rails provide the answer

on Tue, Oct 11 2011 7:13 AM

I'm not sure that rail freight traffic is a good predictor of economic progress when the main problem seems to be unsolvable difficulties in the world's debt situation and the teetering condition of financial institutios.

gg1bob wrote re: So are we going into a recession or not? Rails provide the answer

on Wed, Oct 12 2011 5:56 AM

I wonder what John G. Kneiling would have to say? Does anyone know what happened to him?

MP173 wrote re: So are we going into a recession or not? Rails provide the answer

on Wed, Oct 12 2011 8:47 AM

Fred, I hope you are correct. It seems like freight of all kinds is holding up ok right now. Of course it is the end of the year holiday rush.

Personally, I think we are heading for another dip, if not already there. My sales (transportation equipment related) has fallen off the table the past few months. Just no activity whatsoever. I realize that doesnt necessarily mean anything, but my customers (typically trucking companies) are pulling back.

I read John Hussman's weekly blog on economics (every Monday) and his indicators are pointing to recession.

Regardless of whether or not we are in a recession, the past few years have dramatically changed how business is conducted and margins are thin...very thin. Not just for me, but everyone comments "things have changed."

notch8/air wrote re: So are we going into a recession or not? Rails provide the answer

on Wed, Oct 12 2011 4:12 PM

Companies have realized that they can and/or NEED to get by with fewer people and many consumers have come to realize that they can get by with less. That may mean not building that dream house or putting off buying that car they used to trade in every couple of years. Maybe getting three years out of their computer instead of two. Perhaps people are also realizing that you really don't need that time-share in Florida, etc. All of these things add up to certain segments of the economy showing continued weakness. It doesn't mean that the whole thing is a mess! I am a professional railroader and we are *** busy on our little road and so are our customers. If your area of expertise and ideal employment is one of those weak sectors, there is no question that things might look bleak. Best of luck to those of you who are in those areas. I count my blessings every day and hope you can do so soon.

EMD#1 wrote re: So are we going into a recession or not? Rails provide the answer

on Wed, Oct 12 2011 7:56 PM

Wait and see what the numbers are by the end of the first quarter next year. Right now you are seeing the fall rush for intermodal, power companies stock piling coal for the winter, car dealerships filling their lots with 2012 models. Domestic Intermodal is where the class one railroads are focused on growing market share. And my observation is that it is working. Alas, but I am only an engineer that checks the side mirror from time to time to see what is following behind three big black engines in run 8 screaming for all their worth as the trains behind me get longer and longer!