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

Posted by Fred Frailey
on Thursday, October 6, 2011

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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