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The American Association of Railroads ((AAR)) just came out with their monthly report on railroad traffic. The major news is that railroad carloads declined in June as compared to May by 1.3%. This will mark the second consecutive monthly decline in railroad carloads. However, carloads were up 10.6% year over year in June.

One would expect some improvement considering we were at depression levels last year. But as you can see from the chart below, railroad volume has never fully recovered from the highs in 2006 and 2007, which shows that despite all the hype about a recovery, the US economy is still depressed.

If you are worried that this indicates a possible double dip, the AAR is quick to set you straight:

The declines in rail carloads over the past couple months have not been huge,and theycertainly don’t prove that the wheels are coming off the economy’s bus. After all, theimprovement in carloads this year over last year is still significant: U.S. railroads originated 136,136 more carloads in June 2010, and 454,708 more carloads in the second quarter of 2010, than they did in the comparable periods in 2009.

It was the AAR which had the first sentence in bold to make sure you don't get the wrong idea. I guess the AAR is part of the "hope bandwagon" which believes that a recovery is possible as long was we all believe in it. Forget data, forget facts, logic, reason, etc--just believe. Then right below the above paragraph, the AAR throws viewers a screwball statement like:

That said, an economy several months into a recovery from the worst recession in decades should be yielding rail traffic levels heading north, not south. (Remember, demand for rail service occurs as a result of demand elsewhere in the economy for the products that railroads haul.)

If you are confused by the two seemingly contradictory statements, you are not alone. On one hand, you are supposed to ignore the decline in carloads as just another inconvenient truth about the economy, but, on the other hand, remember that carload data is an important economic indicator. What are we to believe? Oh, it is so easy to just drink that bullish Kool-Aid, but for some of us, the Kool-Aid has a foul taste.

Disclosure: No positions

Source: Rail Traffic Indicator Derailed