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Is rail traffic finally reflecting an economic recovery?

The Association of American Railroads

data for March

shows rail cargo traffic for commodities surged 8% in March over the average of January and February levels, as well as coming in higher than the same month a year ago. Rail cargo still remains well below the record levels of 2006 and 2007.

As shown in the following graphic from AAR, February and March of 2010 were mirroring 2009's low levels for commodity shipments, so the March data appears to be a delayed reflection of economic recovery. The year-over-year increase in March was the first such event since July, 2008.

The data for container shipments, which are reflective of finished products rather than raw materials, started 2010 stronger than 2009 and increased further in March. March 2010 still remained below the same month in 2008. See the following graph from AAR.

The following graph summarizes the differences between March 2010 and the four precious years. The improvement from 2009 is significant.

There are 19 distinct categories of freight tracked by the AAR. From March 2008 to March 2010, all 19 categories show negative change. From March 2009 to March 2010, 16 of the 19 changes were positive and a seventeenth was unchanged. The strongest and weakest changes for the two different comparisons to March 2010 are listed in the following table.

Rail cargo traffic in Canada is stronger than the U.S., well above 2009 levels and just below the levels of 2006, 2007 and 2008. As in the U.S., container and trailer cargo is stronger in Canada relative to prior years than is commodity cargo.

Rail cargo volumes are valuable indicators to measure the strength of the recovery. If cargo volumes falter in the coming months, that will not be a good omen for the economy; we are still close to the low levels of 2009. There is little cushion in the rail traffic numbers between where we are and serious recession levels.

Rail stocks rallied Wednesday to the release of the AAR report, with gains generally of 1% or more.

Rail stocks have advanced strongly since lows were reached around the first of February.

CSX Corp

(CSX) - Get CSX Corporation Report

led the way Wednesday, with a gain of more than 4% to $55.46. CSX is up 31% from lows in early February.

Norfolk Southern

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(NSC) - Get Norfolk Southern Corporation Report

closed at $55.46, up 30% from early February.

Union Pacific

(UNP) - Get Union Pacific Corporation Report


Canadian National

(CNI) - Get Canadian National Railway Company Report


Canadian Pacific

(CP) - Get Canadian Pacific Kansas City Limited Report

are all up 27% from lows earlier in 2010. All three also advanced more than 1% Wednesday.

The advances continued on Thursday for all but CSX, which gave back a little of Wednesday's $2.18 gain, to close down $0.21 at $55.25. The other four had gains of a fraction of a percent to 1.5% for CNI.

At the time of publication, Lounsbury was not long any stocks mentioned.

John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.

Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,