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Weekly Thought: The Underlying Economy Is Expanding

|Includes:BNI, CNI, CP, CSX, GSH, GWR, iShares Transportation Average ETF (IYT), KSU, NSC, PRPX, PWX, RAIL, UNP

If I had only one item to look at to gauge the economy - it would be rail. Rail moves the raw materials and semi-finished goods for manufacturing. Rail moves finished goods to distribution centers (much by containers or trailers).

It is a view of the GDP measured economy months in advance.

Now consider that rail traffic for the last month has been showing very positive growth dynamics.

  • Four week rolling average is improving, and better than the rolling average one year ago;
  • 13 week rolling average is improving, and better than the rolling average one year ago; and,
  • 52 week rolling average is improving, and better than the rolling average one year ago.

These are dynamics which should not be ignored - and clearly shows expansion. However the rate of growth is not massive - 0.3% year-over-year growth using 52 week rolling averages to 2.7% year-over-year growth using monthly rolling averages.

Conservatively, the real economy is now growing in May over 2% using rail as a metric.

The Econintersect economic forecast for May 2012 declined marginally, but remains in a zone which says the economy is beginning to grow normally. There are some warning signs that our interpretation is not correct - but we will see how these play out in the coming months.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Initial unemployment claims fell from 360,000 (reported last week) to 340,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - was statistically unchanged from 339,250 (reported last week) to 339,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line)

Bankruptcies this Week: none

Data released this week which contained economically intuitive components (forward looking) were:

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:
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Week Ending 18 May 2013: Rail Traffic Now Showing Solid Growth Trend
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Kansas City Fed: Manufacturing Activity Expands in May 2013
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Fortune: Criminal Fraud Produces Damaging and Ineffective Generic Drugs
Senators: Apple Avoids Billions in Taxes
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Week Ending 20 May 2013: 7.0 Cent Gasoline Price Rise
Lyme Wars
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What We Read Today 20 May 2013
Iraq sees worst violence in years
CFNAI Super Index Mixed In April 2013
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Niall Ferguson: Four Reasons Why the U.S. Is Failing
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Monetary Policy Week: Cuts Continue
Japan: Exporting Deflation
Prometheus: Gold Market Long-term Correction Continues
What We Read Today 19 May 2013
Five Reasons Why We Should Eliminate School Loans
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Economic Zeitgeist
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Preliminary May 2013 Michigan Consumer Sentiment Highest Since July 2007
April 2013 Leading Economic Index Forecasts Continuing Economic Expansion
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Falsterity: France slips into new recession amid higher taxes
May 2013 Philly Fed Business Outlook Goes Negative
Residential Building Sector Growth Continues in April 2013
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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.

Stocks: IYT, BNI, CNI, CP, CSX, GWR, GSH, KSU, NSC, PRPX, PWX, RAIL, UNP