Trump’s Economy Is Literally Coming Off The Rails

Earns Union Pacific

Following the transportation industry is one way to judge how the economy is doing. Trucks and railroads pretty much move all the goods and raw materials that are sold or used in the United States. That is one reason investors keep an eye on the Dow Jones Transportation Index to get a feeling for how the economy is performing. Neither railroad traffic nor the Index are doing well recently.

The underlying economy is weaker than perceived when you look at March quarter’s GDP numbers and the recent employment report. And if the economy continues on this path it could enter a recession when few are forecasting one with one reliable indicator foreshadowing a downturn in the next 6 to 18 months.

Railroad traffic is lower than last year and getting worse

The Association of American Railroads or AAR tracks U.S. rail traffic and releases weekly, monthly and yearly data. Monitoring this activity provides another indication on how the economy is performing.

In its most recent release ending on June 1 it shows that total rail traffic is down over 2% year over year and has weakened as the year has progressed. For 2019 year to date year over year changes have been:

January:     Up 1.1%

February:   Down 0.2%

March:         Down 1.8%

April:            Down 1.9%

May:             Down 2.4%

Also, the Petroleum and Petroleum Products category is the only one that is showing positive year over year growth. When its impact is removed the 2.4% decline deteriorates to a negative 2.9%.

And it has gotten much worse in the past two weeks

AAR’s data is showing that rail traffic has significantly worsened over the past two weeks. AAR Senior Vice President of Policy and Economics, John T. Gray had the following comments in the organization’s latest press release.

“The current weakness in the rail traffic numbers is due to a combination of factors. These include flooding in the Midwest that’s been hindering the operations of railroads and many of their customers. More important is heightened economic uncertainty that’s being made worse by increased trade-related tensions; higher tariffs leading to reductions or disruptions of international trade, and lower industrial output. In addition, some rail markets are undergoing rapid change. For example, locally sourced frac sand in Texas is displacing sand that used to be shipped in by rail. Just by themselves, these reduced sand movements are having a material negative impact on total rail carloads.”

For the weeks of May 25 and June 1 total rail traffic was down 6.7% and 6.1%, respectively. Much worse than the 1.9% year to date through April, before the data went off the rails.

Additionally, when the Petroleum and Petroleum Products category, an outlier from the other categories, is removed last week’s rail traffic would have been down 6.7% vs. 6.1% and the year to date would be down 2.9% vs. 2.4%.

Dow Jones Transportation Index underperforming the market

In September and October last year the Dow Jones Industrial and Dow Jones Transports Indexes hit all-time highs, while the S&P 500’s value was within 1% of its April 30, 2019, all-time high.

Since last summer the Industrial’s is down 3.1%, the S&P 500 is down 1.8% but the Transports have substantially underperformed, down 12.2%. This is another indication that the economy is on the weaker side.

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