Summary
The volume of railroad traffic for the week ending August 29th was the highest since the end of 2008 and continued the slight upward trend in weekly car loadings that began in early July. Most of the gains appeared to be related to the cash-for-clunkers program, which means it may not continue in coming weeks.
Analysis
Automotive and steel traffic increased significantly in recent weeks, and intermodal traffic has also perked up since the start of the cash-for-clunkers program this summer. It remains to be seen if this traffic will continue to grow or fall back when the program has lost its punch in the auto dealer showrooms.
Grain traffic was also up for the past few weeks, reaching levels recorded during the winter shipping season. Although the latter was unusually low, it is still surprising to see grain shipment rise in the third quarter ahead of the fall harvest. This traffic is more related to world agricultural output than US economic developments and will return when farm output in other regions of the world are less bountiful.
Coal traffic is still well below levels recorded in the first quarter, but slightly higher than the weekly totals for the second quarter when the electric utilities were adjusting their stockpiles. With the increase in Wind Power and the low price for natural gas, coal traffic is not expected to significantly increase in the near future and may stay depressed until the economy is back to pre-recession levels.
Intermodal traffic is related to imports, which are dependent on retail sales. The big question for the economy is whether US consumers will soon resume their profligate spending habits, thereby boosting imports and intermodal traffic, or maintain their frugal ways for a while longer in order to pay down debts and refill retirement coffers.
Railroad traffic is a good coincident indicator of economy activity, and notwithstanding the current gains in the weekly traffic volumes, it does not yet point to any significant improvement in the US economy.
Toby Kolstad consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
