Recovery Derailed?

Highlights include Norfolk Southern Corp. (NSC - Analyst Report), Union Pacific Corp. (UNP - Analyst Report), Burlington Northern Santa Fe Corp. (BNI - Analyst Report), CONSOL Energy Inc. (CNX - Analyst Report) and Peabody Energy Corp. (BTU - Analyst Report).

One way to keep track of economic activity is to look at just how much stuff is moving around. In this case, the data from Railfax shown below is not very reassuring. Total rail traffic last week was down 24.4% from a week ago, and the decline is very broad-based across all of the major types of goods carried on the rails.

The best way to look at the data is to compare the top line of each grouping (the "Vs. 2008" line). Note that the total traffic quarter to date is down 22.5% from a year ago, which is substantially worse than the 18.1% decline year to date. Since the quarter to date is obviously part of the year to date, this implies that the second quarter has been much weaker than the first quarter was.

Note that all eight types of traffic are down, with the exception of Autos. Somehow, it is hard for me to get excited about traffic being down "just" 47.9% from a year ago, rather than down 50.4%.

The four-week rolling average is a little bit better than the quarter to date (down only 22.1%), so perhaps the worst was seen in April, but the latest week’s data is not encouraging since it is down more than any other period shown. The data shown is the number of rail car loadings, so it measures volume, not value.  A ton of coal is a ton of coal, regardless if it is selling for $70 a ton or $170 a ton (OK, there are differences in coal quality, but that is not what this measures).

I would focus more on the comparison of the quarter-to-date versus the year-to-date numbers, as I’m not really all that sure how much a one-week blip means one way or the other. Clearly the declining traffic is not good news for the big railroads like Norfolk Southern (NSC - Analyst Report), Union Pacific (UNP - Analyst Report) and Burlington Northern (BNI - Analyst Report).

Looking at the year-to-date numbers, it looks like Coal is the one area that has held up the best. This would be consistent with industrial production data showing that Utility output is holding up far better than the output from factories.

Metals, which tend to be used by factories, are down 54.4% for the quarter vs. "just" 46.6% for the year. Again, not a good omen for future industrial output. However, it looks to be fading fast when you look at the quarter to date numbers as well as the more recent periods. This is not a welcome trend for Coal companies like Consol (CNX - Analyst Report) and Peabody (BTU - Analyst Report). The deterioration in Forest shipments would not tend to support any increase in residential construction happening soon.

In short, the improvement of the four-week data relative to the quarter to date average might give some support to the idea that we are starting to find a bottom to the recession, or at least declining at a slower rate. However, the most recent week’s data indicate that those green shoots might be wilting a bit.