Is The Economy Really Back On Track?

If the economy is really getting back on track, then there should be some pick up in the movement of goods around the country. We now have some evidence that this is happening.

Total rail shipments were down just 10.7% from year-ago levels in the last week. That is a nice improvement over the four-week average of a 13.8% year-over-year decline, which in turn is an improvement over the quarter to date 16.6% decline and even better than the year to date 18.1% decline.  Two major areas have now moved into positive year over year comparisons, Grains and Chemicals.

Of the two, I think the Chemical number is more important, since the movement of grains might have more to do with the harvest than with economic activity. The graph and table below are from Railfax (http://railfax.transmatch.com/), which tracks activity on the nation’s railroads and is an economic indicator that I don’t think gets sufficient attention. The graph is the year-over-year change based on 13-week moving averages (to smooth out the weekly fluctuations). It would seem to indicate that the economy hit bottom sometime in June.

For both groups, the current reading is a dramatic improvement versus the four-week average, 22.1% in the case of grains and 16.5% in the case of chemicals. Keep in mind that the four-week average includes the current week, so the improvement is actually more dramatic than it looks. Grains and chemicals were not the only things where there was more activity on the rails.

Every commodity with the exception of coal shipped more in the last week than the four-week average (coal was flat) and in every case the year-over-year decline was less for the last four weeks than it has been for the quarter-to-date, and in every case except coal the quarter-to-date is an improvement over the year-to-date numbers.

The improvement has bee especially dramatic in the case of Autos, where on a year-to-date basis, shipments are down a devastating 43.9%, but on a year-over-year basis in the last week they are only down 11.3%. This is very good news, because one would have expected that any restocking that had to be done on account of the cash for clunkers program would have already been completed by now.

Forest products are showing continuous improvement, indicating that demand for lumber is picking up, which is a good sign for the housing market. Even with the improvement though, they are still down almost 20% from a year ago.

This is not only good news for the big railroads like Burlington Northern (BNI) and Union Pacific (UNP) but has significant implications for the economy as a whole. It shows that the rebound is starting to affect the real economy, the place where things are made and moved around, not just the financial economy of Wall Street.

The pick up in Auto shipments, combined with the better-than-expected consumer sentiment index means that firms like Ford (F) and Toyota (TM) might not see a drastic fall off in sales now that the “Cash for Clunkers” program is over, or at least not as dramatic as had been feared.

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