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Economic Softness Showing In An Indicator

I believe the economy will strengthen in 2014, but I continue to look for indications my view is not correct. This week a data point left me uneasy.

Rail

Week 2 of 2014 shows same week total rail traffic (from same week one year ago) showed significantly decreased rail traffic according to data released by the Association of American Railroads (NYSE:AAR). The extent of this week's decrease was so significant that it is decelerating the growth in the rolling averages.

  • Four week rolling average rate of growth is decelerating, and compared to the rolling average one year ago is also decelerating;
  • 13 week rolling average rate of growth is decelerating, and compared to the rolling average one year ago is also decelerating;
  • 52 week rolling average rate of growth is decelerating, and compared to the rolling average one year ago is also decelerating.

Note that although there is deceleration in the averages, they all indicate growth over the same period one year ago. A summary of the data from the AAR:

The Association of American Railroads (AAR) today reported decreased U.S. rail traffic for the week ending Jan. 11, 2014 with 256,849 total U.S. carloads, down 8.2 percent compared with the same week last year. Total U.S. weekly intermodal volume was 235,987 units down 6.7 percent compared with the same week last year. Total combined U.S. weekly rail traffic was 492,836 carloads and intermodal units, down 7.5 percent compared with the same week last year.

Two of the 10 carload commodity groups posted increases compared with the same week in 2013, including grain with 20,367 carloads, up 10.1 percent. Commodities showing a decrease compared with the same week last year included motor vehicles and parts with 11,051 carloads, down 22.5 percent; metallic ores and metals with 20,143 carloads, down 20.3 percent; and, nonmetallic minerals and products with 25,177 carloads, down 16.0 percent.

For the first two weeks of 2014, U.S. railroads reported cumulative volume of 503,695 carloads, down 3.4 percent from the same point last year, and 422,865 intermodal units, down 1.9 percent from last year. Total combined U.S. traffic for the first two weeks of 2014 was 926,560 carloads and intermodal units, down 2.8 percent from last year.

USA coal production is down 5.6% same week year-over-year - and coal accounts for almost half of carloads. The data would worse ignoring coal and grain.

This Week Carloads Intermodal Total
This week Year-over-Year -8.2% -6.7% -7.5%
Ignoring coal and grain -10.4%    
Year Cumulative to Date -3.4% -1.9% -2.8%

[click on graph below to enlarge]

Current Rail Chart

What does this mean? Cannot say yet, but rail movements are 2 to 3 months ahead of consumer spending. This could just be a blip on the screen - but it bears watching.

Other Economic News this Week:

The Econintersect economic forecast for January 2013 predicted a slowing economic growth after several months of increasing growth. What this forecast cannot see is the effect of Obamacare - but slowing of growth in this forecast was primarily the result of the business sector.

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 went from 330,000 (reported last week) to 326,000 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. The real gauge - the 4 week moving average - improved from 349,000 (reported last week) to 335,000. 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), 2014 (orange line)

Bankruptcies this Week: none

For a complete list of analysis and opinion this week - [click here]

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