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If Shipping Is Up, What About Rail Activity?

Posted by Larry Doyle on May 13, 2009 3:26 PM |

I just reported in my prior post that the Baltic Dry Index (measuring global shipping activity) is rising and has risen close to 45% over the course of the last month. This is clearly a sign of increased economic activity and a turn in both our domestic and global economy, correct? Clearly the rise in the BDI must be correlated with a rise in rail activity here in the United States as we get our goods and commodities to port. Let’s jump on the rails and go for a ride navigating this part of our economic landscape.

Uh-oh!! It is not widely broadcast but rail activity is not only down year over year (no surprise there) but the pace of decline is quickening. The theory behind the green shoots is promoted by analysts as a slowing in the pace of economic decline. How did they miss this data? Are they not looking or not reporting?

Let’s review. The Heard on the Street column in the WSJ reports, Risk In Market’s One Track Mind.

In reviewing this piece, I was particularly struck that the pace of decline in rail activity from the 1st quarter 2009 to this point in the 2nd quarter is QUICKENING.

As the WSJ highlights:

The slump in weekly rail traffic reflects sluggish industrial activity and consumption. Shipments of industrial products are down almost a third in the past year, while raw materials like coal, metals and crops also show steep drops. The pace of decline has picked up relative to the first quarter’s 16% fall, according to Credit Suisse analyst Chris Ceraso.

In commodities, while crude oil and copper have been on a tear, prices for lumber and natural gas remain depressed. Lumber is exposed to construction and has been in a bear market since 2004, so it might be regarded as a special case. Still, there is little sign of a rebound.

The fact that rail traffic is declining at a quickening pace is inconsistent with other analysts promoting that our economy is turning. This same trend is occurring in trucking as well.

That light in the economic tunnel? It may not be daylight. Based on this report, it may not be a train either. Perhaps it is merely a reflection of overly optimistic analysts and pundits who are trying to sell you something. Ask them what they think about rail traffic.

LD

  • kbdabear

    Glenn Reynolds of Instapundit published this email from a reader on May 8;

    UPDATE: Retired steel mill engineer William Casey emails:

    All the self-styled economic experts and business commentators, and even Ben Bernanke can look at all the charts and and computer models they want, but there is one clue to where the recession is. More steel companies are idling coke making facilities. Coke is an essential ingredient for making steel and these multi-million dollar facilities are not shut down for short term forecasts. The process is too costly and potentially damaging to the facilities, so that these decisions are not made on a whim or a guess, but on a firm view of future sales.

    Not a good sign for recovery. Here’s a related item: U.S. Steel’s Fairfield Works in Alabama to suspend production, affecting most of 1,700 workers. “U.S. Steel said Wednesday that it plans to temporarily idle primary steelmaking operations at the Fairfield Works, affecting most of the 1,700 workers there, as steel demand slumps. . . . U.S. Steel has now shut or announced plans to shut five of its seven North American steelmaking operations. The company lost $440 million in the first quarter, and the World Steel Association projects that U.S. demand for steel will fall 36 percent in 2009.”

  • KB….awesome color!! Much appreciated for sharing it as we all try to navigate our way along these rails.

    Please keep it coming. Thanks!!

    • kbdabear

      LD,

      My fault for not italicizing the entire body. The commentary below the reader email is color by Glenn Reynolds and is to be attributed to him. My apologies to Glenn.

  • fiscalliberal

    Larry – Am I correct in understanding the Baltic is world wide shipping. So the question might be – what is the shipping to the US in terms of our economy?

    I would argue that the banking system has to get going first and that won’t happen because Washington will not take the necessary steps to clear out the toxic assets.

    Another data point – relative of mine is in the copper foil business and his sales are flat low. As I have said previously, copper foil is a leading indicator along with commodities like steel. The good news is he broke even last month after right sizing (my term from my era) the beginning to the year.

    Sorry for the late response – as I said in the beginning of the year, this is a time to head for the beach. So – we are in the Charleston SC area on the beach.

  • Fiscal….Enjoy the beautiful Charleston area!! Thanks for the color as well on the copper foil. That is interesting and informative.

    Your initial point in regard to the BDI and worldwide shipping activity addresses my hoped for premise. Analysts view the positive trend in the BDI as categorically a positive for our economy. In my opinion, it is an indication of increased global shipping primarily driven by China’s fiscal stimulus.

    We are benefitting only marginally. The rail activity is a better indicator of the health of our domestic economy and it remains quite ill.

    Enjoy!!






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