In the continuing search for reliable leading economic indicators, Drew Robertson believes he knows the best place to look. For 22 years, Robertson has compiled statistics on rail shipments, and he now publishes them on a Web site called
Weekly Railfax Rail Carloading Report.
Railroads keep it simple. They are the nation's leading long-distance carrier of bulk commodities, including autos, forest products, chemicals, grains and containers, and a leading carrier of metals. The metal and auto shipments supply the auto industry, while forest products reflect the housing industry.
"A lot of things that go into industrial production show up on the railroads," says Robertson, who heads New York-based transportation consulting firm Atlantic Systems. "It doesn't tell what's happening with J.P. Morgan or services or those kinds of things, but as far as the industrial economy, it's pretty darn reliable. After all, we don't make anything here except for cars and houses.
"Railroads have a lot of things working for them,
including an absence of serious competition," he adds. "You're not going to move coal, grain and containers over long distances by anything but rail."
A Preferred Indicator
While the market may continue to look at the performance of the overnight shipping companies as an economic indicator,
, for one, has for years been
refuting that characterization.
As the supply chain has tightened with faster, more immediate shipping times, companies such as UPS and
might be better concurrent indicators rather than leading ones. Instead, trucking companies, railroads and overseas container flows offer an earlier hint to where the economy might be heading.
In particular, the railroads, which haul products well in advance of the time they are consumed, are commonly seen as leading indicators. That makes rail traffic volumes particularly telling.
The Latest Readings
Recently, a lot of red numbers have shown up on Robertson's site. They indicate declines in the tracked business segments, except for chemicals and intermodal shipping (containers filled with consumer products from Asia). Additionally, a chart of trends in shipping cyclical, economically sensitive commodities shows an 8% decline.
"I've never seen such a rapid ratcheting downward of the industrial traffic base," Robertson says. "It was bad in the early '90s, but back then it was cyclical. This looks like a long-term change, with fewer metals, less plastics, less steel. You can take away 25% of all the U.S. auto plants -- they aren't coming back."
"The housing economy is also dicey," he adds. "I think you are looking at a downturn in housing starts for several quarters."
At the same time, Mark Vitner, senior economist for Wachovia, says growth in chemical and intermodal shipping "backs up what we've been saying, that most of the weakness in the economy is in housing and motor vehicles.
"As long as that weakness doesn't spread, the
is not likely to do much about it," Vitner says, noting that chemical shipments are his preferred leading indicator. Chemicals "are in everything, from shampoo to BlackBerries," he says, and chemical shipping is a sector where rails have not lost significant market share to trucking.
Vitner compliments the Railfax Report, which he viewed last week for the first time: "I'm blown away by how much data there is here." Similar data go into his own charts, Vitner says.
While basic statistics are free on the site, detailed information is sold to about a dozen railroad analysts. "If you want to dig into it, you can find out how much crushed stone was originated by
in week 44 of 1999," Robertson says. "Crushed stone in general is an excellent leading indicator of commercial construction," he adds. "It goes into foundations."