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Rail traffic being up 7.3% YoY is a good gauge of economic expansion. In last month’s analysis, EconIntersect suggested that rail transport YoY improvement would narrow further in December – and happily we were wrong as the YoY percentage gain widened. Rail traffic historically declines MoM between October through December.

Here are the headlines from the AAR (Association of American Railroads) for the period ending December 2010:

Way better than 2009, but still lots of room to grow. That sentiment sums up U.S. rail traffic in 2010. Total carloads for the year were 14.8 million, up 7.3% over the 13.8 million in 2009. Total intermodal volume in 2010 was 11.3 million trailers and containers, up 14.2% over 2009’s 9.9 million units.

click to enlarge images

As 2010 finishes, EconIntersect believes it is prudent to concentrate on trends going into 2011.

Overall rail traffic has an upward trend line it is carrying into 2011 – the same is true for Canadian rail traffic. This is economically positive, and a portion of Econintersect’s economic forecasts use freight as a component. And, for the entire year 2010, rail traffic was up compared to 2009 but down from 2008.

45% of the traffic on US rails is coal (11% in Canada). Coal also serves as a weak proxy for electricity production as most US coal is used in power plants. The trend line here is flat going into 2011. Canada’s trend line is not apparent (very noisy).

The normal main indicators for an industrialized society – metals and lumber products continue to have negative trends. One more rail indicator to keep in mind relative to consumption is intermodal traffic.

Intermodal traffic is finished industrial and consumer goods inside a container or trailer. The trend lines here are flat (or possibly slightly negative) going into 2011. This is consistent with the Consumer Metric Institute’s index, for which the trend line has rotated from positive to slightly negative, as shown in the following graph from

Rail transport is a reflection of the American economy. Like a prism, the view is different depending on how you look at it. Right now the bright colors seem a little more dominant than the dark shades.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.