What’s moving the matrix?
Rail Overall Remains Strong – Up 1.9% Over First 3 Weeks of 2011
Rail activity was still a bit stronger than expected in the first three weeks in January, a trend that is positive for US economic activity despite some of the challenges we see overseas.
For the first three weeks of the year, here are the primary commodities and how they trended across the US rail sector between 2011 and 2012:
- Grains -13.8%
- Intermodal .4%
- Metals 4.6%
- Chemicals -2.6
- Lumber 10.2%
- Autos 15.6%
- Metallic Ores 24.2%
- Coal -.3%
- Petroleum 22.4%
There are several things happening in the rail sector worth discussing. First, manufacturing in the United States is generally improving – still. The Federal Reserve bank in the Dallas District reported that manufacturing in the sector was a lot stronger than expected for December. We also saw that the Empire State Manufacturing report remained strong and the Institute for Supply Management’s report in December was well over the “50 mark” which represents the point of equilibrium between growth and contraction in national manufacturing. We also know that automotive and aerospace remained strong as we can see in the 15.6% increase year-over-year for the segment above.
Secondly, the movement of raw materials around the country also remains strong. Ores were among the strongest in the entire sector, rising 24.2% year-over-year for the first three weeks of the year. Petroleum products were only second by a hair, coming in 22.4% higher than the same volume in 2011.
Third, there is a bit of a major discrepancy between utility products and rail volumes. When we look at the petroleum industry, we see a positive trend in volumes in the petrol segment. Lifting up 22.4% over volumes in 2011, petroleum seems to be on a roll still. However, we see a dichotomy when looking back at the coal segment. Unseasonably higher temperatures across the United States is reducing the amount of energy needed in the country and thus coal stocks have increased and coal shipments have dropped.
Lastly, intermodal volumes are down more than we had expected them to be over the first three months. That could be a function of retailers and manufacturers seeing their inventories a bit higher than they wanted – or they are seeing a weaker outlook for volumes in the first quarter of the year. We know that the Chinese New Year holiday was a bit earlier this year than it was last year – which helps to push the volumes off a bit later in Q1 for those that are rebuilding inventories.
We have also seen the US export marketplace drive a lot of business in the US. With problems in Europe working on the Asian market (reducing demand and pulling total volumes in Asia lower), the ripple effect as it flows back to the United States will cause some declines in volumes that move to the West Coast for export to Asia. There are some slowdowns that will affect parts of the automotive sector and some of the higher volume raw material sectors.
All eyes at this time are still on Europe. The concern is not necessarily that Europe would pull the US downward based on debt ripples through the global banking sector – many banks have worked to build in risk into their operating plans for a Greece failure and the exposure is not significant. What concerns us more is the impact that a significant recession in Europe would do to the global economy. The EU still represents about $14 trillion in total GDP output. With that much of the global economy moving into recession (assuming all European nations are pulled down for at least a quarter), it will have an impact on the rest of the global economy to some degree. That’s what most business analysts truly have their eye on.
We saw our first airline failure in Europe today since the Great Recession claimed a number of them in 2009. Analysts are concerned that there will be more of these bankruptcies in the airline sector and across the maritime sector among the weaker competitors.