sample - association of american railroads · 2018-10-21 · rail time indicators – september 9,...

A Review of Rail Traffic Trends

& Key Economic Indicators Shaping

Demand for Rail Transportation

October 7, 2016

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Copyright 2016 by the Association of American Railroads.

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Rail Time Indicators – September 9, 2016 Page 1 of 35

SUMMARY OF MOST RECENT DATA

(Note: All railroad carload figures are originations; all percentages are year-over year.)

You’d think at some point easier comps would bring an end to year-over-year declines, but that hasn’t happened yet: total originated carloads on U.S. railroads were down 5.4% (61,455 carloads) in September 2016 from September 2015, their 20th straight decline. Nine of 20 traffic categories had higher carloads in September, led by grain (up 9,860 carloads, or 11.2%) and waste and nonferrous scrap (up 3,725 carloads, or 28.8%). And for the 20th straight month, coal had the biggest decline, with carloads down 53,896 (13.1%) from last year. Petroleum and petroleum products and primary metal products also had big declines in September. In the third quarter, total carloads were down 6.9%, or 256,326 carloads, led by coal (down 15.6%, or 211,013 carloads) and petroleum and petroleum products (down 23.1%, or 41,386 carloads). Grain was up 46,358 carloads (17.4%) in the third quarter. For the first nine months of 2016, total carloads were down 10.5%, or 1,142,905 carloads, with coal down 25.4% (1,005,635 carloads) and petroleum and petroleum products down 22.2% (123,192 carloads). Year-to-date grain carloads were up 5.6% (45,594). Intermodal originations have seen better days too: they were down 4.2% (45,192 units) in September, down 5.2% (186,563 units) in the third quarter, and down 3.2% (333,619 units) for the year to date.

April '16 May '16 June '16 July '16 Aug. '16 Sept. '16

Total U.S. carloads*

Average per week 236,092 240,643 249,005 256,342 269,598 267,161

% chg same month prior year -16.1% -10.3% -7.0% -8.8% -6.6% -5.4%

U.S. carloads excluding coal*

Average per week 175,033 175,709 174,253 173,523 179,626 177,947


U.S. coal carloads*

Average per week 61,060 64,934 74,752 82,819 89,972 89,214


U.S. intermodal

Average per week 257,115 262,408 259,048 250,600 265,455 260,234


U.S. carloads + intermodal

Average per week 493,207 503,051 508,053 506,942 535,053 527,395


Total Canadian carloads*

Average per week 70,314 65,849 68,141 69,117 71,528 78,612

% chg same month prior year -13.6% -15.4% -10.4% -9.9% -3.8% 5.1%

Canadian intermodal

Average per week 59,401 59,016 57,862 60,366 62,562 60,694


YTD Through September 2011 2012 2013 2014 2015 2016

Total U.S. carloads* 11,330,543 11,043,334 10,940,995 11,376,513 10,880,121 9,737,216

U.S. carloads excluding coal* 6,306,856 6,499,661 6,580,673 7,016,263 6,920,946 6,783,676

U.S. coal carloads* 5,023,687 4,543,673 4,360,322 4,360,250 3,959,175 2,953,540

U.S. intermodal 8,881,265 9,211,354 9,547,490 10,167,398 10,417,231 10,083,612

U.S. carloads + intermodal 20,211,808 20,254,688 20,488,485 21,543,911 21,297,352 19,820,828

Total Canadian carloads* 2,924,591 3,006,608 3,061,296 3,128,581 3,001,838 2,747,958

Canadian intermodal 1,875,742 2,005,713 2,084,449 2,248,268 2,378,129 2,314,979

Canadian carloads + intermodal 4,800,333 5,012,321 5,145,745 5,376,849 5,379,967 5,062,937

*excludes intermodal

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Rail Time Indicators – October 7, 2016 Page 2 of 37

Economic indicators this month, like in many recent months, are generally good but not great. A preliminary 156,000 net new jobs were created in September, which is a bit below average for the year but still solid. The unemployment rate ticked up to 5.0% in September from 4.9% in August because of an increase in the labor force. In part because of good labor market numbers, consumer confidence rose in September — by the Conference Board’s measure to a nine-year high. Housing starts were an annualized 1.14 million in August, down a bit from July but about average for the year. The ISM’s Purchasing Managers Index, which had dipped into the “manufacturing is contracting” range in August, was back in the “expanding” range in September, but not by much. Industrial output remains a big question mark for the economy. The biggest disappointment this month was consumer spending. It was flat in August. Consumer spending is driving the expansion right now. If it falters, it would mean we have a big problem.

April '16 May '16 June '16 July '16 Aug. '16 Sep. '16

Purch. Mgrs. Index (<50 = bad) (p. 23) 50.8 51.3 53.2 52.6 49.4 51.5

Non-Manuf. Index (<50 = bad) (p. 23) 55.7 52.9 56.5 55.5 51.4 57.1

Industrial output (2012=100) (p. 24)

Total 103.9 103.7 104.3 104.9 104.4 n/a

Manufacturing 103.0 102.8 103.0 103.4 103.0 n/a

Utilities 102.3 101.8 104.8 107.0 105.5 n/a

Mining, natural gas, oil 103.2 104.0 104.3 104.5 105.6 n/a

Capacity utilization (%) (p. 26)

Overall 75.2% 75.1% 75.5% 75.9% 75.5% n/a

Manufacturing 75.1% 74.8% 75.0% 75.2% 74.8% n/a

Employment situation (p. 27)

Total net new jobs created 144,000 24,000 271,000 252,000 167,000 156,000

Unemployment rate 5.0% 4.7% 4.9% 4.9% 4.9% 5.0%

Class I railroad employment (p. 29)

Total employed 153,143 152,726 152,426 152,718 152,753 n/a

Change from previous month -580 -417 -300 292 35 n/a

Change year-over-year -20,979 -20,217 -19,901 -18,325 -16,244 n/a

Train and engine employment 58,519 58,114 58,180 58,934 59,629 n/a

Consumer confidence (p. 30)

Conference Board (1985=100) 94.2 92.4 97.4 96.7 101.8 104.1

Univ. of Michigan 89.0 94.7 93.5 90.0 89.8 91.2

Retail sales (p. 31)

% change from previous month 1.2% 0.2% 0.7% 0.1% -0.3% n/a

% change year-over-year 3.0% 2.2% 2.8% 2.3% 2.1% n/a

Consumer spending (p. 31)

% change from previous month 1.1% 0.3% 0.5% 0.4% 0.0% n/a

% change year-over-year 3.8% 3.5% 3.8% 3.8% 3.6% n/a

New auto sales (SAAR, mil.) (p. 33) 17.3 17.1 16.8 17.8 16.9 17.7

Housing (p. 34)

Total starts (SAAR, 000s) 1,155 1,128 1,195 1,212 1,142 n/a

Single-family starts (SAAR, 000s) 764 737 763 768 722 n/a

Multi-family starts (SAAR, 000s) 378 386 414 433 403 n/a

Inflation (%) (p. 36)

Year-over-year overall CPI 1.1% 1.0% 1.0% 0.8% 1.1% n/a

Year-over-year "core" CPI 2.1% 2.2% 2.3% 2.2% 2.3% n/a

Rail cars in storage (p. 36) 378,227 391,560 388,294 379,186 365,476 351,576

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1. U.S. AND CANADIAN FREIGHT RAILROAD TRAFFIC

In terms of rail traffic, September 2016 is the four weeks beginning Sunday, September 4, 2016, and ending Saturday, October 1, 2016. For comparison purposes, September 2015 is the period 52 weeks earlier — that is, the four weeks beginning Sunday, September 6, 2015, and ending Saturday, October 3, 2015. Labor Day is included in both September 2015 and September 2016.

Rail traffic data below are reported as carloads or intermodal units. Carload traffic is broken down into 20 commodity categories (coal, grain, metallic ores, etc.). A unit of rail intermodal traffic is either a shipping container (89% of intermodal traffic in 2015) or a truck trailer (11%) carried on a railroad flat car. A container is counted as one unit regardless of its size. Intermodal is not included in carloads. Commodity detail for what’s inside containers and trailers is not available.

U.S. Rail Carload Originations

U.S. railroads originated 1,068,644 carloads in September 2016 — down 5.4% (61,455 carloads) from September 2015, an average of 267,161 carloads per week, and their 20th consecutive year-over-year monthly decline. The 5.4% decline in September was the lowest in a year (see the bottom left chart below); at some point, you’d think it has to turn positive if only because the comps will be much easier. Based on weekly averages, total carloads fell in September from August (see the top left chart below), something they do most years.

In the third quarter of 2016, total carloads were down 6.9% from the third quarter of 2015 but up 9.2% over the second quarter of 2016 (see the bottom right chart below). Average weekly carloads in Q3 2016 were 264,769, the lowest for a third quarter on record (back to 1988). Weekly averages for Q1 2016 and Q2 2016 were the lowest on record for their respective quarters as well.

Not surprisingly, year-to-date total carloads in 2016 through September were the lowest since sometime before 1988 too. They totaled 9,737,216 carloads, down 10.5% (1,142,905 carloads) from the first nine months of 2015 and down 14.4% (1,639,297 carloads) from the first nine months of 2014.

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

% Change in Total U.S. Rail Carloads From Same Month Previous Year: Jan. 2010 - Sept. 2016

Data are based on originations, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016

September 2016 was down 5.4% from September 2015.

220,000

230,000

240,000

250,000

260,000

270,000

280,000

290,000

300,000

310,000

Average Weekly U.S. Total Rail Carloadsby Quarter: Q1 2010 - Q3 2016

2010 2011 2012 2013 2014 2015 2016Data are average weekly originations for each quarter, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

Q3 2015 -6.9%

Q2 2016 9.2%

Q3 2016

compared to:

220,000

230,000

240,000

250,000

260,000

270,000

280,000

290,000

300,000

310,000

Average Weekly U.S. Total Rail Carloads: Jan. 2010 - Sept. 2016

Data are average weekly originations for each month, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016

220,000

240,000

260,000

280,000

300,000

320,000

340,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Average Weekly U.S. Rail Carloads: All Commodities

2016

2006 (peak year)

2014


2015

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Nine of the 20 traffic categories the AAR tracks each month had higher carloads in September 2016 than in September 2015. The charts above and the table on page 11 have details.

September was another good month for grain, with carloads up 11.2% (9,860 carloads) over last year. That’s the fourth straight double-digit increase. Grain averaged 24,470 carloads per week in September 2016, the most for a month since October 2015. Grain carloads are usually much higher in October than in September, so expect an increase next month. For the year to date through September, U.S. grain carloads were up 5.6% (45,594 carloads) over last year. Page 15 has charts on grain.

According to USDA data, in recent years around 14% of the U.S. corn crop, 45% of wheat, and 47% of soybeans have been exported. It varies by year, but according to the USDA around 40% of grain exports move by rail. The USDA says that around two-thirds of rail ocean-bound grain exports (cross-border Mexico are not included) travel through the Pacific Northwest. The chart on the top left of the next page shows weekly U.S. rail carloads to Pacific Northwest ports. There’s always a big increase this time of year. Hopefully, the downturn over the most recent few weeks of 2016 will reverse itself. Most rail exports that don’t go through the Pacific Northwest ports go through Texas ports. The chart on the top right of the next page shows that rail shipments to Texas ports are up sharply in recent months.

The table on the next page shows the top destinations for year-to-date U.S. grain exports (defined here as soybeans, wheat, and corn) for the current market year (begins in October) compared with the previous market year. Note how China dominates soybean exports. Total exports for the market year to date are up about 4% this year over last year, but exports in July and August were up 36% and 71%, respectively, over last year. Our understanding is that solid growth continued in September, which would be consistent with the Pacific Northwest and Texas ports charts.

Coal: -1,005,635 (-25.4%)

Petrol. & petr. products: -123,192 (-22.2%)

Crushed stone, gravel, sand: -36,185 (-4.1%)

Metallic ores: -33,046 (-13.6%)

Primary metal products: -27,230 (-7.5%)

Grain mill products: -18,492 (-4.9%)

Pulp & paper products: -16,572 (-7.0%)

Primary forest products: -8,928 (-15.3%)

Lumber & wood products: -8,303 (-6.1%)

Stone, clay & glass prod.: -7,788 (-2.6%)

Iron & steel scrap: -6,564 (-4.5%)

Nonmetallic minerals: -3,205 (-1.8%)

Farm products excl. grain: -1,954 (-5.8%)

Food products: 243 (0.1%)

Coke: 14,685 (9.8%)

Motor veh. & parts: 18,226 (2.7%)

Chemicals: 20,326 (1.7%)

Waste & nonferrous scrap: 22,322 (17.6%)

All other carloads: 32,793 (16.1%)

Grain: 45,594 (5.6%)

Source: AAR Weekly Railroad Traffic database

Change in Originated U.S. Rail Carloads:

Jan. - Sept. 2016 vs. Jan. - Sept. 2015

Note: intermodal is not included in this chart. Intermodal was down 333,619 (3.2%) YTD 2016 vs. YTD 2015.

Total YTD 2016: 9,737,216

Total YTD 2015: 10,880,121

( 1,142,905 or 10.5%)

Coal: -53,896 (-13.1%) Petrol. & petr. products: -11,810 (-21.6%)


All other carloads: -3,436 (-12.9%)





Lumber & wood products: -609 (-4.5%)

Iron & steel scrap: -420 (-3.1%)

Grain mill products: -41 (-0.1%)

Farm products excl. grain: 13 (0.3%)


Chemicals: 599 (0.5%)

Metallic ores: 674 (3.0%)

Motor veh. & parts: 1,094 (1.5%)

Coke: 1,191 (7.5%)

Nonmetallic minerals: 1,414 (7.5%)

Waste & nonferrous scrap: 3,725 (28.8%)

Grain: 9,860 (11.2%)

Source: AAR Weekly Railroad Traffic database

Change in Originated

U.S. Rail Carloads:

September 2016 vs. September 2015

Note: intermodal is not included in this chart. Intermodal was down 45,192 units (4.2%) in Sept. 2016 from Sept. 2015.

Total Sept. 2016: 1,068,644

Total Aug. 2015: 1,130,099( 61,455, or 5.4%)

Coal: -211,013 (-15.6%)

Petrol. & petr. prod.: -41,386 (-23.1%)






Grain mill products: -4,452 (-3.7%)

Motor veh. & parts: -4,105 (-1.8%)

Iron & steel scrap: -2,922 (-6.1%)

Lumber & wood prod.: -2,293 (-5.2%)

Metallic ores: -2,187 (-2.7%)


Farm prod. excl. grain: -142 (-1.2%)


Chemicals: 1,663 (0.4%)

Nonmet. minerals: 2,133 (3.5%)

Coke: 4,304 (8.2%)

Waste & nonferr. scrap: 11,307 (26.6%)

Grain: 46,358 (17.4%)

Source: AAR Weekly RailroadTraffic database

Change in Originated U.S. Rail Carloads:

Q3 2016 vs. Q3 2015

Note: intermodal is not included in this chart. Intermodal

was down 186,563 (5.2%) in Q3 2016

vs. Q3 2015.

Total Q3 2016: 3,442,000

Total Q3 2015: 3,698,326

( 256,326 or 6.9%)

Month 2014 2015 2016

Jan 7 18 4Feb 9 11 9Mar 11 8 7Apr 14 4 5May 17 5 10Jun 17 6 6Jul 15 6 4Aug 15 6 8Sep 15 6 9Oct 15 5Nov 11 6Dec 15 4

*Out of 20. Source: AAR

# of AAR Traffic Categories*

With Year-Over-Year Gains

For U.S. Railroads

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total U.S. Rail Carloads: YTD Through September

Data are originations, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

(millions)

Through September, YTD 2016 was down 10.5% (1,142,905 carloads) from YTD 2015.

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Carloads of waste and nonferrous scrap were up 28.8% (3,725 carloads) in September and were up 17.6% (22,322 carloads) for the year to date. In a typical year, about 75% of this category is municipal waste, around 14% is waste paper, and about 7% is ash. Our understanding is that most of the increase in this category this year is fly ash, a byproduct from burning coal in electric power plants.

Other commodities with carload gains on U.S. railroads in September 2016 over September 2015 included nonmetallic minerals (up 1,414 carloads, or 7.5%); coke (up 1,191 carloads, or 7.5%), and motor vehicles and parts (up 1,094 carloads, or 1.5% — see page 19).

Carloads of coal in September 2016 were down 13.1% (53,896 carloads) from September 2015, their 20th straight decline. It’s not much consolation, but 13.1% is the smallest year-over-year percentage decline in a year. Year-to-date coal carloads through September 2016 were 2.95 million, down 25.4%

40%

45%

50%

55%

60%

65%

70%

75%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16*

*2016 is January-July Source: Energy Information Administration

Share of U.S. Electricity Generation From Sources Other Than Coal: 2007-2016*

24%

28%

32%

36%

40%

44%

48%

Coal as a % of Non-Intermodal U.S. Rail Traffic: Jan. 2010 - Sept. 2016

2010 2011 2012 2013 2014 2015 2016Data are based on originations, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Weekly U.S. Rail Carloads of Grain to Pacific Northwest Ports: Jan. 2014 - Sept. 2016

2015

Data are four-week moving averages. Month labels are approximate. Source: USDA

2016

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

2014

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

Weekly U.S. Rail Carloads of Grain to Texas Ports: Jan. 2014 - Sept. 2016

2015

Data are four-week moving averages. Month labels are approximate. Source: USDA

2016

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

2014

2015 2016 % chg 2015 2016 % chg 2015 2016 % chg

China 28.40 29.31 3.2% Japan 2.56 2.26 -11.6% Mexico 10.24 12.34 20.5%

European Union 4.19 5.40 28.9% Mexico 2.42 2.16 -10.7% Japan 11.02 9.58 -13.1%

Mexico 3.37 3.24 -3.8% Philippines 1.96 2.09 6.9% Colombia 4.02 4.09 1.8%

Indonesia 1.84 2.12 14.9% Nigeria 1.65 1.04 -37.0% South Korea 3.58 2.90 -19.0%

Japan 2.15 2.12 -1.3% South Korea 1.09 1.04 -5.4% Peru 2.35 2.25 -4.2%

Taiwan 1.38 1.38 -0.1% Taiwan 0.87 1.01 16.7% Taiwan 1.79 2.01 12.1%

Other 6.69 6.77 1.2% Other 8.38 10.04 19.7% Other 10.39 11.60 11.7%

World Total 48.02 50.34 4.8% World Total 18.93 19.64 3.7% World Total 43.39 44.77 3.2%

Source: USDA Foreign Agricultural Service

Soybeans Wheat Corn

Top Export Markets For U.S. Grain: October-August

(million metric tons)

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(1.01 million carloads) from last year and down 47.0% (2.62 million carloads) from the 5.58 million carloads in 2008 through September. 2008 was the peak year for coal. In September, coal accounted for 33.4% of non-intermodal U.S. rail volume, up from a low of 25.9% in April 2016 but far below its peak of 52.0% in December 2008. For more on coal, see page 14.

Coal continues to suffer from intense competition from natural gas and renewables for generating electricity, and from increasingly harsh political and regulatory restrictions related to the environmental impact of burning coal. The chart on the bottom of the previous page shows that ten years ago, non-coal sources accounted for a little more than half of U.S. electricity generation. In 2016 through July, non-coal sources accounted for 71% of generation.

Carloads of petroleum and petroleum products were down 21.6% (11,810 carloads) in September this year from last year and were down 22.2% (123,192 carloads) for the first nine months of this year from last year. That’s mostly due to crude oil — see last month’s RTI for a chart showing the big decline in crude by rail volumes in the first half of this year from last year. (The chart at right, with data from the Energy Information Administration, also shows a big decline in U.S. rail carloads of crude oil.) U.S. carloads of petroleum and petroleum products peaked in October 2014; they’ve fallen for 16 straight months and 18 of the past 19. Almost all have been double-digit declines. See page 18 for charts on U.S. rail carloads of petroleum and petroleum products.

The catch-all “all other carloads” fell 3,436 carloads (12.9%) in September. For most of this year, this category was a source of large carload gains, but not for a good reason: we think the gains consisted largely of rail cars moving into storage because of lack of demand. There are still huge numbers of rail cars in storage, but for the past couple of months there’s been a net movement of cars out of storage (see page 36). So, it’s possible that the decrease in this category in September is actually a good thing because it could represent cars going back into service. Data limitations prevent us from knowing this for sure. For the year to date through September, this category was up 16.1% (32,793 carloads).

The steel industry continues to go through hard times, and they’re reflected in carloads of primary metal products, which were down 3,459, or 9.5%, in September and down 27,230, or 7.5%, for the year to date (see the charts on the bottom of page 17).

We’re not going to pretend we’re experts on the steel industry, but we know it has a lot of problems right now, including high levels of imports, many of which, U.S. steel producers believe, are “dumped” on the U.S. market; weakness in the energy sector which limits demand for products like steel pipe; low capacity utilization (67.8% for steelmakers in August 2016, according to the Federal Reserve — see Figure 5-3 on page 26) which mean steelmakers’ high fixed costs get distributed among fewer units of production; and lots of excess global capacity that’s keeping prices low. There’s a close correlation between steel output and rail carloads of steel, so problems in the steel industry are problems for railroads too.

The steel industry’s woes extend to iron and steel scrap, U.S. carloads of which were down 420 units, or 3.1%, in September, and 6,564 carloads, or 4.5% in the first nine months of 2016. Weekly average carloads in September 2016 were 3,316, the lowest in six months (see the top half of page 18).

Scrap steel is a good example that shows the relationship between commodity prices and rail volumes. For most commodities, prices rise and fall based on demand: higher demand equals higher prices, and lower demand generally means lower prices. And when demand for a commodity is high, railroads can be expected to be asked to carry more of it, and vice-versa. In other words, high commodity prices should mean high rail demand, and low commodity prices should mean low rail demand, all else equal.

That’s what we get with scrap steel. The line in the chart on the top of the next page shows the price for one of the benchmark prices for scrap steel. The bars in the chart are U.S. rail carloads of iron and steel scrap. The close correlation is no accident.

0

4

8

12

16

20

24

28

32

36

40

Total

U.S. to U.S.

U.S. to Canada

Canada to U.S.

2010 2011 2012 2013 2014 2015 2016

U.S. Crude Oil by Rail: Jan. 2010 - July 2016(million barrels)

Data are from a different source than the rail carload figures elsewhere in RTI. Source: Energy Information Administration

SAMPLE


The chart below right shows rail carloads of primary metal products (mostly steel) compared to the price of hot rolled steel, a benchmark price for steel. In this case, the correlation isn’t as strong as it is for scrap, though it is positive. We’re guessing that somewhere out there there’s a more inclusive steel benchmark price than the one we used that would should a stronger correlation.

U.S. carloads of crushed stone, gravel, and sand were down 1,145 carloads, or 1.2%, in September 2016 from September 2015 (see page 16). Weekly average carloads in September 2016 were 23,824, down fractionally from August 2016 but otherwise the highest weekly average in 10 months. Year-to-date carloads through September were down 36,185 carloads, or 4.1%. See last month’s RTI for charts showing the big decline in rail movements of industrial sand, which are included in the crushed stone, gravel, and sand category. See also page 36 in this issue for a chart showing the correlation between construction spending and the combination of rail carloads of crushed stone, sand, and gravel plus lumber and wood products.

U.S. rail carloads excluding coal in September 2016 were down 7,559, or 1.1%, from last year; for the year to date, they were down 137,270 carloads, or 2.0% (see the bottom half of page 15). Carloads excluding coal and grain were down 17,419, or 2.8%, in September and were down 182,864, or 3.0%, in the first three quarters of 2016 (see the top half of page 16).

U.S. Rail Intermodal Traffic

Intermodal weakness continued in September. U.S. railroads originated 1,040,934 containers and trailers in September 2016, down 45,192 (4.2%) from September 2015. That’s the seventh straight year-over-year monthly decline. Average weekly intermodal volume in September 2016 (260,234 units) was the lowest weekly average for September since 2013.

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Average Weekly U.S. Rail Intermodal Units: Jan. 2010 - Sept. 2016

Data are average weekly originated containers and trailers for each month, are not seasonally adjusted, and do not include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016

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Average Weekly U.S. Rail Intermodal Units

2016

Data are average weekly originated containers and trailers for each month, are not seasonally adjusted, and do not include the U.S. operations of CN and CP. Source: AAR

2014

2015 (peak year)

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Carloads primary metal products (left scale)

Steel price (right scale)*

2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Primary Metal Productsvs. Price of Steel: Jan. 2010 - Sept. 2016*

*Price is hot rolled steel, $ per metric ton. Source: Bloomberg, AAR

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Carloads iron and steel scrap (left scale)

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2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Iron and Steel Scrap vs. Price of Scrap Steel: Jan. 2010 - Sept. 2016*

*Price is U.S. East of Mississippi No. 1 heavy melting scrap, $ per metric ton.Source: Bloomberg, AAR

SAMPLE


In the third quarter of 2016, U.S. rail intermodal volume was 3,370,609 units, down 5.2% (186,563 units) from Q3 2015. Container volume was down 3.0% (95,249 containers) for the quarter; trailer volume was down 24.6% (91,314 trailers). Average weekly volume in the third quarter was 259,278 units, virtually the same as in the second quarter of 2016.

Total intermodal volume was 10,083,612 units in the first nine months of 2016, down 3.2% (333,619 units) from last year and the third highest year-to-date total in history (behind 2014 and 2015). The chart above left shows that year-to-date container volume was down just 0.7%, or 66,299 containers; the chart above right shows that year-to-date trailer volume was down 23.6%, or 267,320 trailers. Much (but not all) of the decline in trailer volume this year is associated with a reorganization of Norfolk Southern’s Triple Crown service (see here for more on Triple Crown).

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Total U.S. Rail Intermodal Units: YTD Through September

Data are originations and do not include the U.S. operations of CN and CP. Source: AAR

(millions)

Through September, YTD 2016 was down 3.2% (333,619 carloads) from YTD 2015.

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% Change in U.S. Rail Intermodal Traffic From Same Month Previous Year: Jan. 2010 - Sept. 2016

Data are based on originations, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AARData are based on originations, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR


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U.S. Rail Intermodal Trailers: YTD Through September


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U.S. Rail Intermodal Containers: YTD Through September


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Average Weekly U.S. Rail Intermodal Unitsby Quarter: Q1 2010 - Q3 2016

2010 2011 2012 2013 2014 2015 2016Data are average weekly originations for each quarter, are not seasonally adjusted, and do not include the U.S. operations of CN and CP. Source: AAR

Q3 2015 -5.2%

Q2 2016 -0.1%

Q3 2016

compared to:

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Change in Avg. Weekly Container and Trailer Volume From Same Month Previous Year on U.S. Railroads:

Jan. 2010 - Sept. 2016

Data are based on weekly average originations for each month, are not seasonally adjusted, and do not include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016SAMPLE

http://www.nscorp.com/content/nscorp/en/news/norfolk-southernrestructurestriplecrownservicessubsidiary.html


U.S. Rail Carloads + Intermodal Traffic

The charts below cover combined carload and intermodal volumes on U.S. railroads. (Yes, we know, a carload is not the same as a container or trailer in terms of volume, revenue to the railroad, etc., but the combination is still a useful gauge of total freight volume.) U.S. railroads originated 2,109,578 carloads, containers, and trailers in September 2016, down 106,647 (4.8%) from September 2015.

What are the latest numbers for Canadian railroads?

Canadian railroads (including their U.S. operations) originated 314,448 carloads in September 2016, up 15,400 (5.1%) over September 2015. That breaks a streak of 17 consecutive months in which total Canadian carloads were down compared with the same month the previous year (see the chart on the top right of the next page). Weekly average carloads of 78,612 in September were the highest for any month since April 2015.

Metallic ores were the main reason for the overall carload gain. Carloads of metallic ores in September 2016 were up 68.5% (19,026 carloads) over last year. That’s the second straight double-digit percentage gain for metallic ores after 15 straight double-digit declines. See the bottom of page 19 for charts on combined U.S. and Canadian carloads of metallic ores.

Other categories with carload gains on Canadian railroads in September 2016 included grain (up 4,078 carloads, or 12.3%), coke (up 2,692 carloads, or 113.7%), and motor vehicles and parts (up 1,510 carloads, or 7.0%). See page 19 for charts on combined U.S. and Canadian carloads of motor vehicles and parts.

Categories with carload declines on Canadian railroads in September included petroleum and petroleum products (down 7,046 carloads, or 22.9%), primary metal products (down 2,563 carloads, or 30.0%), and crushed stone, gravel, and sand (down 1,421 carloads, or 9.7%).

All told, nine commodities had carload gains on Canadian railroads in September. The chart on the middle left of the next page and the table on page 12 have more detail.

For the first nine months of 2016, total Canadian carloads were down 8.5% (253,880 carloads) from last year, as gains for lumber and wood products, motor vehicles and parts, and food products were more than offset by losses in petroleum and petroleum products; crushed stone, gravel, and sand; and coal, among others. The chart on the middle right of the next page and the table on page 12 have more details.

Canadian railroads also originated 242,775 intermodal containers and trailers in September 2016, down 0.2% (375 units) from September 2015. That’s the seventh straight year-over year decline, but the smallest percentage decline in those seven months. Intermodal volume in 2016 through September was down 2.7% (63,150 units) from last year. Canadian intermodal volume this year will almost certainly be the second-highest ever, behind last year.

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Data are based on originations, are not seasonally adjusted, and do not include the U.S. operations of CN and CP. Source: AAR

% Change in U.S. Total Rail Carloads + Intermodal Units From Same Month Prev. Year: Jan. 2010 - Sept. 2016

2010 2011 2012 2013 2014 2015 2016


Month 2014 2015 2016

Jan 8 15 7Feb 5 11 8Mar 7 13 7Apr 8 10 5May 16 2 6Jun 12 8 6Jul 10 7 5Aug 8 9 8Sep 4 10 9Oct 10 6Nov 8 6Dec 12 6

*Out of 20. Source: AAR

# of AAR Traffic Categories*

With Year-Over-Year Gains

For Canadian Railroads

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U.S. Total Rail Carloads + Intermodal Units: YTD Through September


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Total Canadian Rail Carloads: YTD Through September

Data are originations, do not include intermodal, and include the U.S. operations of CN and CP. Source: AAR

(millions)


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% Change in Canadian Total Rail Carloads From Same Month Previous Year: Jan. 2010 - Sept. 2016

Data are based on originations, are not seasonally adjusted, do not include intermodal, and include the U.S. operations of CN and CP. Source: AAR

September 2016 was up 5.1% over September 2015.

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Average Weekly Canadian Total Rail Carloads: Jan. 2010 - Sept. 2016

Data are average weekly originations for each month, are not seasonally adjusted, do not include intermodal, and include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016

Metallic ores:

-78,177 (-19.5%)

Petr. prod.: -53,423 (-18.2%)

Stone, gravel, sand: -36,285 (-25.2%)

Coal: -36,156 (-11.6%)

Grain: -26,014 (-7.9%)

Chemicals: -20,247 (-4.5%)

Primary metal prod.: -15,988 (-18.8%)



Nonmetallic minerals: -4,493 (-8.8%)

Coke: -2,275 (-9.9%)

Waste & nonferrous scrap: -1,623 (-13.7%)


Primary forest products: 544 (0.9%)

Grain mill products: 919 (1.6%)

Stone, clay & glass prod.: 921 (1.9%)

Farm products excl. grain: 3,804 (2.9%)

Food products: 7,233 (8.9%)

Motor veh. & parts: 11,541 (5.6%)

Lumber & wood prod.: 11,596 (9.4%)

Source: AAR Weekly Railroad Trafficdatabase

Note: intermodal is not included in this chart. Intermodal was down 63,150 (2.7%) YTD 2016 vs. YTD 2015.

Change in Originated Canadian Rail Carloads:

Jan. - Sept. 2016 vs. Jan. - Sept. 2015

Total YTD 2016: 2,747,958

Total YTD 2015: 3,001,838

( 253,880 or 8.5%)

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Average Weekly Canadian Rail Intermodal Traffic: Jan. 2010 - Sept. 2016

Data are average weekly originations for each month, are not seasonally adjusted, and include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 201 4 2015 2016-12%

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% Change in Canadian Rail Intermodal Traffic From Same Month Previous Year: Jan. 2010 - Sept. 2016

Data are based on originations, are not seasonally adjusted, and include the U.S. operations of CN and CP. Source: AAR


2010 2011 2012 2013 2014 2015 2016

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Canadian Rail Intermodal Units:YTD Through September

Data are originations and include the U.S. operations of CN and CP. Source: AAR

(millions)


Petrol. & petr. products: -7,046 (-22.9%)



Coal: -1,297 (-4.4%)

Chemicals: -784 (-1.8%)

Nonmetallic minerals: -615 (-11.6%)

Waste & nonferrous scrap: -407 (-27.7%)


Primary forest products: -221 (-3.5%)

Pulp & paper products: -180 (-1.6%)

Stone, clay & glass products: -71 (-1.3%)

All other carloads: 156 (3.1%)

Grain mill products: 622 (11.0%)

Farm products excl. grain: 650 (3.1%)

Lumber & wood products: 705 (5.4%)


Motor veh. & parts: 1,510 (7.0%)

Coke: 2,692 (113.7%)

Grain: 4,078 (12.3%) Metallic ores: 19,026 (68.5%)

Source: AAR Weekly Railroad Trafficdatabase

Change in Originated

Canadian Rail Carloads:

Sept. 2016 vs. Sept. 2015

Total Sept. 2016: 314,448

Total Sept. 2015: 299,048

( 15,400, or 5.1%)

Note: intermodal is not included in this chart. Intermodal was down 375 units (0.2%) in Sept. 2016 from Sept. 2015.

SAMPLE


U.S. RAIL TRAFFIC: SEPTEMBER 2016*(4 weeks ending October 1, 2016, and Year-To-Date)

SEPTEMBER 2016 YEAR-TO-DATE

Commodity 2016 2015 Change Pct Chg 2016 2015 Change Pct Chg

Carloads

Agricultural & food products 162,515 152,296 10,219 6.7% 1,485,636 1,460,245 25,391 1.7%

Grain 97,879 88,019 9,860 11.2% 857,213 811,619 45,594 5.6%

Farm products excl. grain 3,852 3,839 13 0.3% 32,027 33,981 -1,954 -5.8%

Grain mill products (1) 35,420 35,461 -41 -0.1% 356,228 374,720 -18,492 -4.9%

Food products 25,364 24,977 387 1.5% 240,168 239,925 243 0.1%

Chemicals and petroleum 163,047 174,258 -11,211 -6.4% 1,637,669 1,740,535 -102,866 -5.9%

Chemicals 120,263 119,664 599 0.5% 1,205,068 1,184,742 20,326 1.7%

Petroleum & petr. products (2) 42,784 54,594 -11,810 -21.6% 432,601 555,793 -123,192 -22.2%

Coal 356,856 410,752 -53,896 -13.1% 2,953,540 3,959,175 -1,005,635 -25.4%

Forest products 39,977 44,290 -4,313 -9.7% 398,324 432,127 -33,803 -7.8%

Primary forest products (3) 4,582 6,049 -1,467 -24.3% 49,502 58,430 -8,928 -15.3%

Lumber & wood products 12,805 13,414 -609 -4.5% 128,815 137,118 -8,303 -6.1%

Pulp & paper products 22,590 24,827 -2,237 -9.0% 220,007 236,579 -16,572 -7.0%

Metallic ores and metals 86,456 88,470 -2,014 -2.3% 848,804 900,959 -52,155 -5.8%

Metallic ores (4) 23,285 22,611 674 3.0% 209,089 242,135 -33,046 -13.6%

Coke 17,043 15,852 1,191 7.5% 163,888 149,203 14,685 9.8%

Primary metal products (5) 32,863 36,322 -3,459 -9.5% 337,738 364,968 -27,230 -7.5%

Iron & steel scrap 13,265 13,685 -420 -3.1% 138,089 144,653 -6,564 -4.5%

Motor vehicles & parts 73,478 72,384 1,094 1.5% 700,061 681,835 18,226 2.7%

Nonmetallic minerals 146,519 148,142 -1,623 -1.1% 1,327,263 1,374,441 -47,178 -3.4%

Crushed stone, sand & gravel 95,294 96,439 -1,145 -1.2% 855,188 891,373 -36,185 -4.1%

Nonmetallic minerals (6) 20,260 18,846 1,414 7.5% 176,468 179,673 -3,205 -1.8%

Stone, clay & glass prod. (7) 30,965 32,857 -1,892 -5.8% 295,607 303,395 -7,788 -2.6%

Other 39,796 39,507 289 0.7% 385,919 330,804 55,115 16.7%

Waste & nonferrous scrap (8) 16,641 12,916 3,725 28.8% 149,102 126,780 22,322 17.6%

All other carloads 23,155 26,591 -3,436 -12.9% 236,817 204,024 32,793 16.1%

TOTAL CARLOADS 1,068,644 1,130,099 -61,455 -5.4% 9,737,216 10,880,121 -1,142,905 -10.5%

Total carloads excl. coal 711,788 719,347 -7,559 -1.1% 6,783,676 6,920,946 -137,270 -2.0%

Total carloads excl. coal & grain 613,909 631,328 -17,419 -2.8% 5,926,463 6,109,327 -182,864 -3.0%

Industrial products** 398,738 405,104 -6,366 -1.6% 3,822,758 3,905,027 -82,269 -2.1%

Intermodal

Containers 951,720 972,769 -21,049 -2.2% 9,218,978 9,285,277 -66,299 -0.7%

Trailers 89,214 113,357 -24,143 -21.3% 864,634 1,131,954 -267,320 -23.6%

TOTAL INTERMODAL 1,040,934 1,086,126 -45,192 -4.2% 10,083,612 10,417,231 -333,619 -3.2%

TOTAL CARS + INTERMODAL 2,109,578 2,216,225 -106,647 -4.8% 19,820,828 21,297,352 -1,476,524 -6.9%

*Data are originations not seasonally adjusted and do not include the U.S. operations of CN and CP. Source: AAR

**Data include chemicals; paper; metal products; autos & parts; crushed stone, sand & gravel; metallic ores, and stone & glass products.

(1) - f lour, animal feed, corn syrup, corn starch, soybean meal, DDGs, etc. (5) - primarily iron & steel; some aluminum, copper, etc.

(2) - crude petroleum and all products of petroleum refining (6) - phosphate rock, rock salt, crude sulphur, clay, etc.

(liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc.) (7) - cement, ground earths or minerals, gypsum, etc.(3) - w ood raw materials such as pulpw ood and wood chips (8) - scrap paper, construction debris, ashes, etc.(4) - overwhelmingly iron ore, but some aluminum ore, copper ore, etc.

SAMPLE


CANADIAN RAIL TRAFFIC: SEPTEMBER 2016*(4 weeks ending October 1, 2016, and Year-To-Date)



Carloads

Agricultural & food products 75,145 68,852 6,293 9.1% 584,494 598,552 -14,058 -2.3%

Grain 37,105 33,027 4,078 12.3% 302,586 328,600 -26,014 -7.9%

Farm products excl. grain 21,840 21,190 650 3.1% 133,832 130,028 3,804 2.9%

Grain mill products (1) 6,274 5,652 622 11.0% 59,726 58,807 919 1.6%

Food products 9,926 8,983 943 10.5% 88,350 81,117 7,233 8.9%

Chemicals and petroleum 67,390 75,220 -7,830 -10.4% 671,500 745,170 -73,670 -9.9%

Chemicals 43,699 44,483 -784 -1.8% 431,544 451,791 -20,247 -4.5%


Coal 27,907 29,204 -1,297 -4.4% 274,246 310,402 -36,156 -11.6%

Forest products 30,684 30,380 304 1.0% 305,400 299,768 5,632 1.9%

Primary forest products (3) 6,078 6,299 -221 -3.5% 61,849 61,305 544 0.9%

Lumber & wood products 13,659 12,954 705 5.4% 134,523 122,927 11,596 9.4%

Pulp & paper products 10,947 11,127 -180 -1.6% 109,028 115,536 -6,508 -5.6%

Metallic ores and metals 60,602 41,824 18,778 44.9% 443,171 540,610 -97,439 -18.0%

Metallic ores (4) 46,795 27,769 19,026 68.5% 323,351 401,528 -78,177 -19.5%

Coke 5,060 2,368 2,692 113.7% 20,647 22,922 -2,275 -9.9%


Iron & steel scrap 2,760 3,137 -377 -12.0% 30,064 31,063 -999 -3.2%


Nonmetallic minerals 23,191 25,298 -2,107 -8.3% 202,729 242,586 -39,857 -16.4%

Crushed stone, sand & gravel 13,262 14,683 -1,421 -9.7% 107,962 144,247 -36,285 -25.2%

Nonmetallic minerals (6) 4,708 5,323 -615 -11.6% 46,284 50,777 -4,493 -8.8%

Stone, clay & glass prod. (7) 5,221 5,292 -71 -1.3% 48,483 47,562 921 1.9%

Other 6,296 6,547 -251 -3.8% 48,370 58,243 -9,873 -17.0%

Waste & nonferrous scrap (8) 1,061 1,468 -407 -27.7% 10,244 11,867 -1,623 -13.7%

All other carloads 5,235 5,079 156 3.1% 38,126 46,376 -8,250 -17.8%

TOTAL CARLOADS 314,448 299,048 15,400 5.1% 2,747,958 3,001,838 -253,880 -8.5%

Total Carloads excl Coal 286,541 269,844 16,697 6.2% 2,473,712 2,691,436 -217,724 -8.1%

Total Cars excl Coal & Grain 249,436 236,817 12,619 5.3% 2,171,126 2,362,836 -191,710 -8.1%

Intermodal

Containers 238,611 237,391 1,220 0.5% 2,279,245 2,319,328 -40,083 -1.7%

Trailers 4,164 5,759 -1,595 -27.7% 35,734 58,801 -23,067 -39.2%

TOTAL INTERMODAL 242,775 243,150 -375 -0.2% 2,314,979 2,378,129 -63,150 -2.7%

TOTAL CARS + INTERMODAL 557,223 542,198 15,025 2.8% 5,062,937 5,379,967 -317,030 -5.9%

*CN and CP, including their U.S. operations. Data are originations not seasonally adjusted. Source: AAR




SAMPLE


COMBINED U.S. AND CANADIAN RAIL TRAFFIC: SEPTEMBER 2016*(4 weeks ending October 1, 2016, and Year-To-Date)



Carloads

Agricultural & food products 237,660 221,148 16,512 7.5% 2,070,130 2,058,797 11,333 0.6%

Grain 134,984 121,046 13,938 11.5% 1,159,799 1,140,219 19,580 1.7%

Farm products excl. grain 25,692 25,029 663 2.6% 165,859 164,009 1,850 1.1%

Grain mill products (1) 41,694 41,113 581 1.4% 415,954 433,527 -17,573 -4.1%

Food products 35,290 33,960 1,330 3.9% 328,518 321,042 7,476 2.3%

Chemicals and petroleum 230,437 249,478 -19,041 -7.6% 2,309,169 2,485,705 -176,536 -7.1%

Chemicals 163,962 164,147 -185 -0.1% 1,636,612 1,636,533 79 0.0%


Coal 384,763 439,956 -55,193 -12.5% 3,227,786 4,269,577 -1,041,791 -24.4%

Forest products 70,661 74,670 -4,009 -5.4% 703,724 731,895 -28,171 -3.8%

Primary forest products (3) 10,660 12,348 -1,688 -13.7% 111,351 119,735 -8,384 -7.0%

Lumber & wood products 26,464 26,368 96 0.4% 263,338 260,045 3,293 1.3%

Pulp & paper products 33,537 35,954 -2,417 -6.7% 329,035 352,115 -23,080 -6.6%

Metallic ores and metals 147,058 130,294 16,764 12.9% 1,291,975 1,441,569 -149,594 -10.4%

Metallic ores (4) 70,080 50,380 19,700 39.1% 532,440 643,663 -111,223 -17.3%

Coke 22,103 18,220 3,883 21.3% 184,535 172,125 12,410 7.2%


Iron & steel scrap 16,025 16,822 -797 -4.7% 168,153 175,716 -7,563 -4.3%


Nonmetallic minerals 169,710 173,440 -3,730 -2.2% 1,529,992 1,617,027 -87,035 -5.4%

Crushed stone, sand & gravel 108,556 111,122 -2,566 -2.3% 963,150 1,035,620 -72,470 -7.0%

Nonmetallic minerals (6) 24,968 24,169 799 3.3% 222,752 230,450 -7,698 -3.3%

Stone, clay & glass prod. (7) 36,186 38,149 -1,963 -5.1% 344,090 350,957 -6,867 -2.0%

Other 46,092 46,054 38 0.1% 434,289 389,047 45,242 11.6%

Waste & nonferrous scrap (8) 17,702 14,384 3,318 23.1% 159,346 138,647 20,699 14.9%

All other carloads 28,390 31,670 -3,280 -10.4% 274,943 250,400 24,543 9.8%

TOTAL CARLOADS 1,383,092 1,429,147 -46,055 -3.2% 12,485,174 13,881,959 -1,396,785 -10.1%

Total Carloads excl Coal 998,329 989,191 9,138 0.9% 9,257,388 9,612,382 -354,994 -3.7%

Total Cars excl Coal & Grain 863,345 868,145 -4,800 -0.6% 8,097,589 8,472,163 -374,574 -4.4%

Intermodal

Containers 1,190,331 1,210,160 -19,829 -1.6% 11,498,223 11,604,605 -106,382 -0.9%

Trailers 93,378 119,116 -25,738 -21.6% 900,368 1,190,755 -290,387 -24.4%

TOTAL INTERMODAL 1,283,709 1,329,276 -45,567 -3.4% 12,398,591 12,795,360 -396,769 -3.1%

TOTAL CARS + INTERMODAL 2,666,801 2,758,423 -91,622 -3.3% 24,883,765 26,677,319 -1,793,554 -6.7%

*Data are originations not seasonally adjusted. Source: AAR




SAMPLE


50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

Average Weekly U.S. Rail Carloads of Coal: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Coal: YTD Through September


(millions)


25,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

33,000

Average Weekly U.S. Rail Carloads of Chemicals: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

0.95

1.00

1.05

1.10

1.15

1.20

1.25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Chemicals:YTD Through September


(millions)

Through September, YTD 2016 was up 1.7% (20,326 carloads) over YTD 2015.

COAL

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000


Average Weekly U.S. Rail Carloads of Coal

2016

2014


2015

2008 (peak year)

28,500

29,000

29,500

30,000

30,500

31,000

31,500

32,000

32,500


Average Weekly U.S. Rail Carloads of Chemicals

2016

2014


2015 (peak year)

CHEMICALS

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

% Change in U.S. Rail Carloads of Coal From Same Month Previous Year: Jan. 2010 - Sept. 2016


September 2016 was down 13.1% from September

2010 2011 2012 2013 2014 2015 2016

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

% Change in U.S. Rail Carloads of Chemicals From Same Month Previous Year: Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

SAMPLE


12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

Average Weekly U.S. Rail Carloads of Grain: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Grain: YTD Through September



120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

200,000

Average Weekly U.S. Rail CarloadsExcluding Coal: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads Excl. Coal: YTD Through September


(millions)


16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

25,000

26,000


Average Weekly U.S. Rail Carloads of Grain

2016

2014


2015

GRAIN

155,000

160,000

165,000

170,000

175,000

180,000

185,000

190,000

195,000

200,000

205,000

210,000


Average Weekly U.S. Rail Carloads:All Commodities Excluding Coal

2016

2014

2006 (peak year)


2015

CARLOADS EXCLUDING COAL

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

28%

% Change in U.S. Rail Carloads Excluding Coal From Same Month Previous Year: Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

% Change in U.S. Rail Carloads of Grain From Same Month Previous Year: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

SAMPLE


100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

Average Weekly U.S. Rail Carloads Excluding Coal and Grain: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

3.8

4.2

4.6

5.0

5.4

5.8

6.2

6.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads Excl. Coal and Grain: YTD Through September


(millions)


6,000

10,000

14,000

18,000

22,000

26,000

30,000

Average Weekly U.S. Rail Carloads of Crushed Stone, Sand, and Gravel: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Crushed Stone, Sand, and Gravel: YTD Through September


Through September, YTD 2016 was down 4.1% (36,185

carloads) from YTD 2015.

135,000

140,000

145,000

150,000

155,000

160,000

165,000

170,000

175,000

180,000

185,000


Average Weekly U.S. Rail Carloads:All Commodities Excluding Coal and Grain

2016

2014

2006 (peak year)


2015

CARLOADS EXCLUDING COAL AND GRAIN

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

28%

% Change in U.S. Rail Carloads Excl. Coal & Grain From Same Month Prev. Year: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016


14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000


Average Weekly U.S. Rail Carloads of Crushed Stone, Sand, and Gravel

2016

2014 (peak year)


2015

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

% Change in U.S. Rail Carloads of Crushed Stone, Sand, and Gravel From Same Month Previous Year:

Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016


CRUSHED STONE, SAND, AND GRAVEL SAMPLE


65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

105,000

110,000

Average Weekly U.S. Rail Carloads of Industrial Products: Jan. 2010 - Sept. 2016*

*Data include chemicals, paper, metal products, autos and parts, crushed stone and sand, metallic ores, and stone and glass products. Data are weekly average originations for each month, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016

1.6

2.0

2.4

2.8

3.2

3.6

4.0

4.4

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Industrial Products: YTD Through September

(millions)

*Data include chemicals, paper, metal products, autos and parts, crushed stone and sand, metallic ores, and stone and glass products. Data are originations, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR



7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

Average Weekly U.S. Rail Carloads of Steel and Other Primary Metal Products: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Steel and Other Primary Metal Products: YTD Through September




INDUSTRIAL PRODUCTS

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,000


Avg. Weekly U.S. Rail Carloads: Industrial Products*

2016

*Data include chemicals, paper, metal products, autos and parts, crushed stone and sand, metallic ores, and stone and glass products. Data are weekly average originations for each month, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2014

2000 (peak year)

2015

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

% Change in U.S. Rail Carloads of Industrial Products From Same Month Prev. Year: Jan. 2010 - Sept. 2016*

*Data include chemicals, paper, metal products, autos and parts, crushed stone and sand, metallic ores, and stone and glass products. Data are based on weekly average originations for each month, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2010 2011 2012 2013 2014 2015 2016


7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000


Average Weekly U.S. Rail Carloads of Steel and Other Primary Metal Products

2016

2014

2006 (peak year)


2015

PRIMARY METAL PRODUCTS

-40%

-20%

0%

20%

40%

60%

80%

100%

% Change in U.S. Rail Carloads of Steel and Other Primary Metal Products From Same Month Prev. Year:

Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

SAMPLE


1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Average Weekly U.S. Rail Carloads of Iron and Steel Scrap: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

100,000

125,000

150,000

175,000

200,000

225,000

250,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Iron and Steel Scrap: YTD Through September


Through September, YTD 2016 was down 4.5% (6,564 carloads)

from YTD 2015.

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Average Weekly U.S. Rail Carloads of Petroleum and Petroleum Products: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Rail Carloads of Petroleum and Petroleum Products: YTD Through September



IRON AND STEEL SCRAP

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500


Average Weekly U.S. Rail Carloads of Iron and Steel Scrap

2008 (peak year)*

2016

2014

*Our data begin in 2008. Data are average weekly originations for each month, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR

2015

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

% Change in U.S. Rail Carloads of Iron and Steel Scrap From Same Month Previous Year:

Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

PETROLEUM AND PETROLEUM PRODUCTS

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000


Average Weekly U.S. Rail Carloads of Petroleum and Petroleum Products

2016

2014 (peak year)


2015

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

% Change in U.S. Rail Carloads of Petroleum and Petroleum Products From Same Month Previous Year:

Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

SAMPLE


8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

Combined U.S. + Canadian Rail Carloads of Motor Vehicles: Jan. 2010 - Sept. 2016*

*Includes parts, does not include intermodal. Data are average weekly originations for each month, are not seasonally adjusted, and do not include intermodal. Source: AAR

2010 2011 2012 2013 2014 2015 2016

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Combined U.S. + Canadian Rail Carloads of Motor Vehicles: YTD Through September

Data are originations and do not include intermodal. Source: AAR


200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Combined U.S. + Canadian Rail Carloads of Metallic Ores: YTD Through September



4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

Combined U.S. + Canadian Rail Carloads of Metallic Ores: Jan. 2010 - Sept. 2016

Data are average weekly originations for each month, are not seasonally adjusted, and do not include intermodal. Source: AAR

2010 2011 2012 2013 2014 2015 2016

MOTOR VEHICLES AND PARTS

12,000

16,000

20,000

24,000

28,000

32,000

36,000

40,000


Combined U.S. + CanadianAverage Weekly Rail Carloads of Motor Vehicles*

2016

2014

2000 (peak year)

*Includes parts, does not include intermodal. Data are average weekly originations for each month, are not seasonally adjusted, and do not include intermodal. Source: AAR

2015

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

% Change in Combined U.S. + Canadian Rail Carloads of Motor Vehicles From Same Month Previous Year:

Jan. 2010 - Sept. 2016*

*Includes parts, does not include intermodal. Data are based on originations, are not seasonally adjusted, and do not include intermodal. Source: AAR


2010 2011 2012 2013 2014 2015 2016

METALLIC ORES

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000


Combined U.S. + CanadianAvg. Weekly Rail Carloads of Metallic Ores

2016

2014


2015

-80%

-40%

0%

40%

80%

120%

160%

200%

240%

% Change in Combined U.S. + Canadian Rail Carloads of Metallic Ores From Same Month Previous Year:

Jan. 2010 - Sept. 2016

Data are based on originations, are not seasonally adjusted, and do not include intermodal. Source: AAR


2010 2011 2012 2013 2014 2015 2016

SAMPLE


3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

Combined U.S. + Canadian Rail Carloads of Lumber and Wood Products: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

300,000

325,000

350,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Combined U.S. + Canadian Rail Carloads ofLumber and Wood Products: YTD Through September



7,800

8,200

8,600

9,000

9,400

9,800

10,200

Combined U.S. + Canadian Rail Carloads of Pulp and Paper Products: Jan. 2010 - Sept. 2016


2010 2011 2012 2013 2014 2015 2016

250,000

275,000

300,000

325,000

350,000

375,000

400,000

425,000

450,000

475,000

500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Combined U.S. + Canadian Rail Carloads ofPulp and Paper Products: YTD Through September



LUMBER AND WOOD PRODUCTS

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000


Combined U.S. + Canadian Average Weekly Rail Carloads of Lumber and Wood Products

2016

2014

2005 (peak year)


2015

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

% Change in Combined U.S. + Canadian Rail Carloads of Lumber and Wood Products From Same Month

Previous Year: Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

PULP AND PAPER PRODUCTS

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000


Combined U.S. + Canadian Average Weekly Rail Carloads of Pulp and Paper Products

2016

2014

2006


2015

-12%

-8%

-4%

0%

4%

8%

12%

16%

% Change in Combined U.S. + Canadian Rail Carloads of Pulp and Paper Products From Same Month

Previous Year: Jan. 2010 - Sept. 2016



2010 2011 2012 2013 2014 2015 2016

SAMPLE


2. GROSS DOMESTIC PRODUCT (GDP)

On September 29, the Bureau of Economic Analysis released its third estimate of Q2 2016 U.S. GDP growth: 1.4%. That’s up from the first two estimates of 1.2% and 1.1%, respectively. The upward revision was mainly because the BEA decided that business investment actually grew slightly in Q2, rather than fall slightly, and because inventories apparently didn’t fall as much as first thought.

Still, 1.4% is lousy, no question about that, and it continues a string of mostly lousy quarters extending back seven quarters. In fact, as we’ve said many times in RTI, the entire recovery since June 2009 has been lousy. Figure 2-2 shows that the recession and weak recovery since then has knocked somewhere on the order of $1.5 trillion off U.S. GDP.

The second quarter is yesterday’s news at this point. What about the future? We have no idea (something economists would say more often if they were honest!), but maybe the Conference Board’s Index of Leading Economic Indicators (LEI) offers a clue. A leading indicator is one that portends changes in something else. The LEI is meant to identify business cycle turning points before they happen.1

We last showed Figure 2-3 back in March. It shows the LEI back to 1990. It turned down prior to each of the three recessions since then but doesn’t seem to be pointing down right now. The Conference Board released its latest LEI on September 22. The Conference Board’s Director of Business Cycles and Growth Research said this about it: “While the U.S. LEI declined in August, its trend still points to moderate economic growth in the months ahead. Although strengths and weaknesses among the leading indicators are roughly balanced, positive contributions from the financial indicators were more than offset by weakening of nonfinancial indicators, such as leading indicators of labor markets, suggesting some risks to growth persist.” In other words, the Conference Board doesn’t know either, but that’s normal today.

1 The 10 components of the Conference Board’s LEI are average manufacturing weekly hours; average weekly initial claims for unemployment insurance; manufacturers’ new orders for consumer goods and materials; the PMI index of new orders; manufacturers’ new orders for nondefense capital goods excluding aircraft; building permits for new private housing; the S&P 500 index; the Leading Credit Index, which is a measure of financial markets; the interest rate spread between 10-year Treasury bonds and the federal funds rate; and average consumer expectations for business conditions.

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Total U.S. GDP(% change from prev. quarter, annualized and inflation adjusted)

Source: BEA (NIPA Table 1.1.1)

2009 2010 2011 2012 2013 2014 2015 2016

Q3 '15 2.0%

Q4 '15 0.9%

Q1 '16 0.8%

Q2 '16 1.4%

GDP rose 1.4% in Q2 2016, according to the BEA's third estimate released September 29.

Figure 2-1

$8

$9

$10

$11

$12

$13

$14

$15

$16

$17

$18

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

U.S. Gross Domestic Product(trillions of 2012 $)

Source: Bureau of Economic Analysis (NIPA Table 1.1.6)

trend line

Figure 2-2

70

75

80

85

90

95

100

105

110

115

120

125

130

135

Source: Conference Board

= recession

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Conference Board Index of Leading Economic Indicators: Jan. 1990 - Aug. 2016

(2010 = 100)

Mar 2016 123.0

Apr 2016 123.6

May 2016 123.4

Jun 2016 123.7

Jul 2016 124.3

Aug 2016 124.1

Figure 2-3

SAMPLE


Back in March, for comparison, we included a chart showing year-over-year changes in U.S. rail carloads excluding coal and grain since 1990. Figure 2-4 is an updated version of that chart. Rail carloads excluding coal and grain have also declined prior to the official start of the most recent three recessions. They’re down now too, as discussed in the rail traffic section.

Back in March we also included earlier versions of Figure 2-5. Before each of the past seven U.S. recessions, long-term interest rates fell below short-term rates, producing a “yield-curve inversion.” Historically, the slope of the yield curve has been a reliable enough predictor of economic conditions that economists at the New York Federal Reserve and elsewhere use it to calculate the probability of a recession.

The charts that comprise Figure 2-5 come from the New York Fed (see here). Normally, the yield curve slopes up because long-term interest rates are higher than short-term rates to compensate investors for higher risk. When the yield curve steepens, it usually reflects expectations of higher short-term rates in the future, signaling economic growth. But a flattening curve indicates expectations that rates will fall, something that typically happens because the market anticipates the Fed will ease monetary policy to stimulate a slowing economy. An inverted yield curve implies the market thinks short-term rates will fall sharply and stay low, signaling an economic contraction.

The New York Fed’s top chart above right shows that the average spread today is more than 1%. By the New York Fed’s calculation (see the bottom chart in Figure 2-5), there’s a 9% chance of a recession in the next year. On the other hand, as we said in March, some economists argue that, with short-term rates already so low, long-term rates would have to go close to zero for the yield curve to invert, and since that’s highly unlikely, they argue the inversion indicator might have been useful in the past but isn’t anymore. But are negative rates truly unlikely? Several central banks have already done that in an attempt to counter low inflation, deflation, or rising currency values. Whether that will happen here is a matter of lots of debate. See here and here for a couple of randomly chosen articles on negative interest rates.

Starting a few months ago, each month we’ve been reporting near-term U.S. GDP forecasts from two of the Federal Reserve banks. The October 7 edition of the Federal Reserve Bank of New York’s Nowcasting Report — a weekly report that tries to track U.S. GDP growth in real time using a sophisticated model (see here) — says GDP grew 2.2% in Q3 2016 and will grow 1.3% in Q4 2016. No gold star for the economy there. The Federal Reserve Bank of Atlanta has a similar report, which it calls GDPNow (see here). The October 7 edition of it says GDP grew 2.1% in Q3 2016. The projections change often as new data are incorporated into the models.

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Carloads are based on weekly averages for each month. Source: AAR

= recession

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

% Change in Average Year-Over-YearCarloads Excluding Coal and Grain

Figure 2-4

Figure 2-5

SAMPLE

https://www.newyorkfed.org/research/capital_markets/ycfaq.html

http://www.businessinsider.com/why-the-us-wont-be-adopting-negative-interest-policy-anytime-soon-2016-10

https://www.bloomberg.com/quicktake/negative-interest-rates

https://www.newyorkfed.org/research/policy/nowcast

https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1


3. PURCHASING MANAGERS INDEX (PMI) and NON-MANUFACT. INDEX (NMI)

The Institute for Supply Management’s Purchasing Managers Index rebounded in September to 51.5, putting it back in the “manufacturing is expanding” level after dipping below it in August (see the bars in Figure 3-1). Even better, the new orders component of the PMI was 55.1 in September, up sharply from August’s 49.1 (see the line in Figure 3-1).

It looks like August may have been an aberration. At least, that’s the hope. Ian Shepherdson, chief economist of Pantheon Macroeconomics, told The Wall Street Journal, “We need to see another decent month before we can be completely sure, but for now these data appear to support our view that the August drop was a fluke and that the combination of rebounding energy capex, stronger non-energy capex, and decent demand from both domestic consumer and overseas is supporting U.S. manufacturing. No boom, but no bust, either.”

Of the 18 manufacturing industries the ISM tracks, just 7 reported growth in September. And it’s not like there’s a huge difference between a PMI of 49.4 (August 2016) and a PMI of 51.5 (September). So, the PMI is still a yellow caution light, it’s just not flashing quite as brightly as it was last month.

The PMI averaged 50.9 in 2016 through September. According to the ISM, that corresponds to 2.4% GDP growth. Figure 3-2 shows the fairly decent correlation between GDP and the PMI.

It seems August may have been an aberration for the ISM’s Non-Manufacturing Index (NMI) too. It rose to 57.1 in September from 51.4 in August, reaching its highest point in nearly a year (see the bars in Figure 3-3). The new orders component rose to 60.0 in September from 51.4 in August (see the line in Figure 3-3). September is the 80th straight month in which the NMI was in the > 50 “service sector is expanding” range.

An article in The Wall Street Journal on October 5 pointed out that the NMI (like the PMI) can be volatile, and that the trend for service-sector growth might be somewhere between the low August and relatively high September figures. Anthony Nieves, the head of the NMI survey, told the WSJ, “We see some nice growth here, we’ll just have to wait and see how it trends out over the next couple of months.”

The ISM said that past relationships suggest that an NMI of 57.1 (September’s level) corresponds to 3.2% GDP growth. No one thinks GDP is growing that fast right now, another reason to think the NMI might be headed for a bit of a correction in the next couple of months.

25

30

35

40

45

50

55

60

65

70

75

Source: Institute for Supply Management

Purchasing Managers Index (PMI): Jan. 2010 - Sept. 2016

New orders

> 50 = manuf. expanding< 50 = manuf. contracting

2010 2011 2012 2013 2014 2015 2016

Overall PMI

New

Overall Orders

June '16 53.2 57.0

July '16 52.6 56.9

Aug. '16 49.4 49.1

Sept. '16 51.5 55.1

Figure 3-1

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

25

30

35

40

45

50

55

60

65

PMI (quarterly average, left axis)

GDP is through Q2 2016 Sources: Institute for Supply Management, BEA

PMI vs. % Change in Real GDP: Q1 2007 - Q3 2016

correlation = 76%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16

% change GDP from prev. qtr. (right axis)

Figure 3-2

35

40

45

50

55

60

65

70

Source: Institute for Supply Management

Non-Manufacturing Index (NMI): Jan. 2010 - Sept. 2016

2010 2011 2012 2013 2014 2015 2016

New orders> 50 = non-manuf. is expanding< 50 = non-manuf. is contracting

Overall NMI

New

Overall Orders

June '16 56.5 59.9

July '16 55.5 60.3

Aug. '16 51.4 51.4

Sept. '16 57.1 60.0

Figure 3-3

SAMPLE


4. INDUSTRIAL OUTPUT

Everyone knows that industrial output tanked during the Great Recession, but the extent of that tanking may have receded from memory. To help jog it, we offer Figure 4-1. Industrial output peaked in November 2007, then bottomed out in June 2009 at a point 17% lower than its peak. Thanks to oil and gas, total output surpassed its pre-recession peak in November 2014, but it soon fell back below the peak, where it still is (see the bars in Figure 4-1). For manufacturing, the peak was December 2007, and it still hasn’t gotten back to it (see the line in Figure 4-1).

If August 2016 is any guide, we won’t be getting back to the peaks any time soon. In August, both manufacturing output and total industrial output (which includes utilities and mining in addition to manufacturing) fell 0.4% (see Figures 4-2 and 4-3).

We saw in the earlier section that the PMI fell in August but then rebounded in September. We’ll see if the same thing happens here.

Utility output is more about the weather than the economy; it fell 1.4% in August from July (see Figure 4-4). Mining, oil, and gas output rose 1.0% in August, its fourth straight increase, but is still more than 9% lower than at the same point in 2015 (see Figure 4-5).

86

88

90

92

94

96

98

100

102

104

106

108

110

112

Data are seasonally adjusted. Source: Federal Reserve

Total industrial production

2008 2009 2010 2011 2012 2013 2014 2015 2016

(2012 = 100)

U.S. Industrial Output: Jan. 2008 - Aug. 2016

Manufacturing

Figure 4-1

-1.0%

-0.6%

-0.2%

0.2%

0.6%

1.0%

1.4%

1.8%

The most recent several months, and especially the most recent month, are subject to revision. Data are seasonally adjusted. Source: Federal Reserve

Total U.S. Industrial Output: % Chng From Prev. MonthJan. 2010 - Aug. 2016

2010 2011 2012 2013 2014 2015 2016

Aug. 2016: -0.4%

Figure 4-2

-1.2%

-0.9%

-0.6%

-0.3%

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

The most recent several months, and especially the most recent month, are subject to revision. Data are seasonally adjusted. Source: Federal Reserve

U.S. Manufact. Output: % Change From Prev. MonthJan. 2010 - Aug. 2016

2010 2011 2012 2013 2014 2015 2016

Aug. 2016: -0.4%

Figure 4-3

88

90

92

94

96

98

100

102

104

106

108

110

2010 2011 2012 2013 2014 2015 2016

The most recent several months are subject to revision. Data are seasonally adjusted. Utilities account for approximately 11% of total industrial output. Source: Federal Reserve

U.S. Gas & Electric Utility Output: Jan. 2010 - Aug. 2016

(2012 = 100)

% change prior

value month year

Apr. '16 102.3 6.2% -0.1%

May '16 101.8 -0.5% -0.4%

June '16 104.8 2.9% 1.5%

July '16 107.0 2.1% 4.3%

Aug. '16 105.5 -1.4% 1.7%

Figure 4-4

75

80

85

90

95

100

105

110

115

120

125

U.S. Mining, Oil, & Gas Output: Jan. 2010 - Aug. 2016

2010 2011 2012 2013 2014 2015 2016

The most recent several months are subject to revision. Data are seasonally adjusted. Source: Federal Reserve

(2012 = 100)

% change prior

value month year

Apr. '16 103.2 -2.9% -12.4%

May '16 104.0 0.8% -10.2%

June '16 104.3 0.3% -9.1%

July '16 104.5 0.2% -9.9%

Aug. '16 105.6 1.0% -9.3%

Figure 4-5

SAMPLE


100,000

108,000

116,000

124,000

132,000

140,000

148,000

156,000

164,000

172,000

88

90

92

94

96

98

100

102

104

106

*Computers, communications equipment and semiconductors . Data are seasonally adjusted. Source: Federal Reserve, AAR

U.S. Manufacturing Output Excl. High-Technology* vs. U.S. Rail Carloads Excluding Coal & Grain

Manuf. output excl. high tech.

(2012=100, left scale)

Rail carloads (weekly average, right scale)

2010 2011 2012 2013 2014 2015 2016

correlation = 90%

Figure 4-8

180,000

195,000

210,000

225,000

240,000

255,000

270,000

285,000

82

86

90

94

98

102

106

110

Total U.S. Industrial Output vs. U.S. Rail Intermodal Traffic

2010 2011 2012 2013 2014 2015 2016

Industrial output(2012 = 100,

left scale)

Rail intermodal units(weekly average, right scale)

Data are seasonally adjusted. Source: Federal Reserve, AAR

correlation = 94%

Figure 4-9

50

60

70

80

90

100

110

120

130

140

150

RRrollingstock

Woodproducts

Householdappliances

Construct.supplies

Plasticmaterials& resins

Electricpower

generation

Computers,commun. eq.& semicond.

Coalmining

Fabric.metal

products

Crudeoil

Petrol.refineries

(2012 = 100)

Data are seasonally adjusted; data shown are the most recent available for each sector. Source: Federal Reserve

Jul. '16 -Aug. '16:+0.2%

Jul. '16 -Aug. '16:

-1.6%

Jul. '16 -Aug. '16:

-3.4%

Jul. '16 -Aug. '16:

-0.6%

May '16 -June '16:

-1.3%

Jul. '16 -Aug. '16:

-1.6%

Jul. '16 -Aug. '16:+0.3%

Jul. '16 -Aug. '16:

-2.3%

Jul. '16 -Aug. '16:

-0.4%

Jul. '16 -Aug. '16:+0.6%

Jul. '16 -Aug. '16:+0.5%

Output by Industry: Sept. 2015 - Aug. 2016

Figure 4-7

60

70

80

90

100

110

120

130

140

Totalindustrial

output

Totalmanuf.output

Manuf. excl.hi-tech

Manuf.excl.

motor veh.

Utilities Motorvehicles and

parts

Motorvehicles

Motorvehicleparts

Iron& steel

Paper Chemicals

(2012 = 100)

Data are seasonally adjusted; data shown are the most recent available for each sector. Source: Federal Reserve

Jul. '16 -Aug. '16:

-0.4%

Jul. '16 -Aug. '16:

-0.4%

Jul. '16 -Aug. '16:

-0.5%

Jul. '16 -Aug. '16:

-0.5%

Jul. '16 -Aug. '16:

-1.4%

Jul. '16 -Aug. '16:+0.5%

Jul. '16 -Aug. '16:+0.5%

Jul. '16 -Aug. '16:

-0.3%

Jul. '16 -Aug. '16:

-1.4%

Jul. '16 -Aug. '16:+0.8%

Jul. '16 -Aug. '16:

-0.4%

Output by Industry: Sept. 2015 - Aug. 2016

Figure 4-6

SAMPLE


5. CAPACITY UTILIZATION

Nothing in the most recent capacity utilization numbers will make anyone’s heart go pitter patter. Total capacity utilization was a preliminary 75.5% in August 2016, down from 75.9% in July 2016 and well below its peak in late 2014. For manufacturing, it was 74.8% in August, down from 75.2% in July, continuing a slow downward trend over the past year (see Figure 5-1).

26,000

27,000

28,000

29,000

30,000

31,000

32,000

90

92

94

96

98

100

102

104

106

108

110

U.S. Output of Select Chemicals*vs. U.S. Rail Carloads of Chemicals

2010 2011 2012 2013 2014 2015 2016

*Basic chemicals, agricultural chemicals, and plastics only. Data are seasonally adjusted. Source: Federal Reserve, AAR


Chemical output(2012=100,left scale)

correlation = 88%

Figure 4-11

64%

66%

68%

70%

72%

74%

76%

78%

80%

The most recent several months are subject to revision. Data are seasonally adjusted. Source: Federal Reserve

Capacity Utilization by Industry: Jan. 2010 - Aug. 2016

Manufacturing

2010 2011 2012 2013 2014 2015 2016

Total all industries

Total Manuf.

Apr. '16 75.2% 75.1%

May '16 75.1% 74.8%

June '16 75.5% 75.0%

July '16 75.9% 75.2%

Aug. '16 75.5% 74.8%

Figure 5-1

250,000

280,000

310,000

340,000

370,000

400,000

430,000

460,000

60%

64%

68%

72%

76%

80%

84%

88%

Overall Capacity Utilization vs. Rail Traffic*:Jan. 2010 - Sept. 2016

Capacity utilization** (left scale)

Rail traffic*(weekly average,

right scale)

*Total U.S. carloads excl. coal and grain + intermodal units. **Capacity utilization is through Aug. 2016 and is adjusted to take into account changes in the capacity base since Jan. 2012. Data are seasonally adjusted. Source: Federal Reserve, AAR

2010 2011 2012 2013 2014 2015 2016

correlation = 97%

Figure 5-2

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

4

5

6

7

8

9

10

11

12

13

*Seasonally adjusted annual rate. Data are seasonally adjusted. Source: Federal Reserve, AAR

U.S. Light Vehicle Assemblies vs. U.S.+ Canadian Rail Carloads of Autos & Auto Parts

Carloads (weekly average, right scale)

Motor vehicle assemblies

(SAAR*, left scale)

2010 2011 2012 2013 2014 2015 2016

correlation = 95%

Figure 4-10

48%

54%

60%

66%

72%

78%

84%

90%

96%

102%

Total Totalmfg.

Mfg. Excl.Hi-Tech

Chemicals Motorvehicles

Iron &steel

Paper Woodproducts

Utilities Nonmet.Minerals

Coalmining

Capacity Utilization by Industrial Sector: Sept. 2015 - Aug. 2016

Data are percentage point changes from prior month. Data are seasonally adjusted. Source: Federal Reserve

Aug. '16-0.4%

Aug. '16-1.2%

Aug. '16-1.2%

Aug. '16-1.3%

Aug. '16+0.7%

Aug. '16-0.8%

Aug. '16+0.4%

Aug. '16-0.3%

Aug. '16-0.4%

Aug. '16-0.4%

Aug. '16+1.4%

Figure 5-3

SAMPLE


6. EMPLOYMENT SITUATION

It was a steady-as-she-goes month for job creation in September, with a preliminary 156,000 net new jobs created (see Figure 6-1). That’s down slightly from 167,000 in August (revised upward by 16,000). For the year to date through September, job gains were 1.60 million — an average of 178,000 per week — compared with 1.90 million at this time in 2015 and 2.19 million at this time in 2014 (see Figure 6-2).

The unemployment rate in September ticked up to 5.0% from 4.9% in August (see Figure 6-3), thanks mainly to a 444,000 increase (to 159.9 million) in the measured size of the labor force in September. To be in the labor force you have to be employed (full or part time) or be actively looking for work. It’s not easy to determine the size of the labor force and there’s clearly some imprecision — it’s volatile from month to month, even on a three-month moving average basis (see Figure 6-5). A rising unemployment rate caused by a growing labor force is a good thing if it means people who had been sitting on the sidelines decided to get in the game because they thought they had a better chance to score than before. (Which reminds us: Go Packers!) The labor force participation rate ticked up to 62.9% in September from 62.8% in August. The number of people not in the labor force was 94.2 million in September.

-900

-750

-600

-450

-300

-150

0

150

300

450

600

000s

Net Change in U.S. Non-Farm Employment: Jan. 2009 - Sept. 2016*

*Change from previous month. Figures are seasonally adjusted. Most recent three months are preliminary. Source: Bureau of Labor Statistics

2009 2010 2011 2012 2013 2014 2015 2016

Census-related

Apr. '16 144,000

May '16 24,000

June '16 271,000

July '16 252,000

Aug. '16 167,000

Sept. '16 156,000

Figure 6-1

0.85

-1.63

-4.58

0.60

1.53 1.63 1.792.19

1.901.60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Net New Jobs Created: YTD Through September(millions)

Source: Bureau of Labor Statistics

Figure 6-2

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

U.S. Unemployment Rate: Jan. 2008 - Sept. 2016*

*Civilian labor force, seasonally adjusted. Source: Bureau of Labor Statistics

2008 2009 2010 2011 2012 2013 2014 2015 2016

Apr. '16 5.0%

May '16 4.7%

June '16 4.9%

July '16 4.9%

Aug. '16 4.9%

Sept. '16 5.0%

Figure 6-3

-1,250

-1,000

-750

-500

-250

0

250

500

750

1,000

Actual

3-month moving average

2010 2011 2012 2013 2014 2015 2016

*The number of people either employed or actively seeking work. Source: BLS

Change in Size of the Labor Force (000s)*Jan. 2010 - Sept. 2016

Figure 6-5

2%

4%

6%

8%

10%

12%

14%

16%

18%

U.S. Unemployment Rate by Age Group: Jan. 2008 - Sept. 2016*

*Civilian labor force, seasonally adjusted. Source: Bureau of Labor Statistics

2008 2009 2010 2011 2012 2013 2014 2015 2016

20-24

35-44

25-34

55 & over

45-54

Figure 6-4

SAMPLE


We show Figure 6-6 — the employment-population ratio — every few months. It ticked up in September but hasn’t moved much in 2016. It’s also far below where it was before the recession. We also show Figure 6-7 every few months. It shows the long-term unemployed (defined as unemployed more than 27 weeks) in absolute terms and as a percentage of total unemployed. They seem to have flattened out so far this year and are also higher than where they were before the recession.

The Wall Street Journal on September 26 had an article entitled, “Labor Recovery Reaches a Plateau.” It starts, “After a half-decade of steady gains, the U.S. labor market appears to be leveling off. What that plateau means for the economy’s trajectory is one of the biggest questions hanging over policy makers and investors.” The article cites, among other things, a flat unemployment rate (see Figure 6-3)), job growth that’s consistent but slower (see Figure 6-1), a labor force participation rate that’s stuck near a 40-year low, and the share of Americans aged 25-54 with jobs (78.0% in September — see Figure 6-8) that’s near a post-recession high but hasn’t changed much this year. The article notes that, “Some economists worry that a leveling-off of the labor market might mean hiring is sinking to match weak growth.” The article notes that the economy is already weighed down by weak business spending and global headwinds, and quotes California State University economist Sung Won Sohn, who says, “Sooner or later that will get to employment.” Other economists take a different view. For example, Mark Hamrick, an economic analyst at Bankrate.com, told The Washington Post, “The broader [employment] trend is slow and steady, which is fine for the purpose of wishing for a sustainable recovery.” Who’s right? Who knows?

Figure 6-9 is a popular chart for those who are most confident about the labor market and, by extension, the economy. The chart shows that the number of job openings today is at an all-time high — 5.9 million as of the last business day of July. This figure is part of BLS’s Job Openings and Labor Turnover Summary, or JOLTS. This metric is supposedly one of those Janet Yellen pays close attention to. To the extent it’s an accurate representation of the labor market, it’s clearly telling a good story right now.

56%

57%

58%

59%

60%

61%

62%

63%

64%

Employed as % of Population: Jan. 2008 - Sept. 2016

Data are not seasonally adjusted. Source: Bureau of Labor Statistics

2008 2009 2010 2011 2012 2013 2014 2015 2016

The percentage of the working age population that is employed was 59.8% in Sept. 2016

Figure 6-6

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

1

2

3

4

5

6

7

8

Number (millions, left scale)

% of total unemployed (right scale)

Unemployed > 27 Weeks: Jan. 2008 - Sept. 2016

Source: Bureau of Labor Statistics

2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 6-7

72%

73%

74%

75%

76%

77%

78%

79%

80%

81%

Employed as % of Population: Age 25-54

Data are not seasonally adjusted. Source: Bureau of Labor Statistics

2008 2009 2010 2011 2012 2013 2014 2015 2016

The percentage of persons age 25-54 with a job was 78.0% in Sept. 2016.

Figure 6-8

1.8

2.2

2.6

3.0

3.4

3.8

4.2

4.6

5.0

5.4

5.8

6.2

(millions)

Data are seasonally adjusted. Source: BLS

2008 2009 2010 2011 2012 2013 2014 2015 2016

Mar. '16 5.67

Apr. '16 5.85

May '16 5.51

June '16 5.64

July '16 5.87

(millions)

Job Openings: Jan. 2008 - July 2016

Figure 6-9

SAMPLE


7. CLASS I FREIGHT RAILROAD EMPLOYMENT

Class I railroads had 152,753 employees in August 2016, up 35 from the month before. It’s not much, but it’s the second straight gain after 14 straight declines (see Figure 7-1). Total net employment gain over those two months was 327. Five of the seven Class I railroads gained employees in August; three had gains in July and August combined, led by BNSF (up 796 employees over the two months).

Train and engine employment rose by 695 in August after rising 754 in July. The 1,449-employee gain over two months is nice, but still leaves train and engine employment down 14,096 from its April 2015 peak of 73,725 (see Figure 7-3). In August 2016, combined employment in categories other than train and engine fell, the 14th straight month that’s happened (see Figure 7-2). The decline in employment (660) in August for those other than train and engine was the largest in seven months.

Figure 7-4 shows weekly rail traffic (combined carloads and intermodal units) per employee for BNSF, CSX, KCS, NS, and UP combined. (CN and CP are excluded due to data compatibility issues.) As of August 2016, the ratio is about where it’s been at the same time the previous few years. Put another way, it appears railroads are continuing to manage their resources (in this case, employees) to match the business at hand, something firms in every sector of the economy do every day.

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

Jan.'15

Mar.'15

May'15

July'15

Sept.'15

Nov.'15

Jan.'16

Mar.'16

May'16

July'16

Sept.'16

Nov.'16

Train & engine

Everyone else

Total

Changes In Class I Railroad Employment: Jan. 2015 - Aug. 2016

Data are not seasonally adjusted. Source: STB

Figure 7-2

April '15

(peak)

Aug. '16

(current) change % chng

Train and engine 73,725 59,629 -14,096 -19%

Trans. other than T&E 6,718 6,035 -683 -10%

Execs and staff assts 9,905 9,153 -752 -8%

Professional & admin 14,240 13,658 -582 -4%

Maintenance of equip. 31,406 28,292 -3,114 -10%

Maintenance of way 38,128 35,986 -2,142 -6%

TOTAL 174,122 152,753 -21,369 -12%

U.S. Class I Railroad Employment

Figure 7-3

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

Weekly U.S. Rail Traffic Units Per Employee: Jan. 2010 - Aug. 2016*

*Figures are 3-month moving averages. Traffic based on weekly average total carloads + intermodal units. Data are for BNSF, CSX, KCS, NS, and UP combined; CN and CP and non-Class I railroads are not included. Data are not seasonally adjusted. Source: AAR, STB

2010 2011 2012 2013 2014 2015 2016

Figure 7-4

51,000

54,000

57,000

60,000

63,000

66,000

69,000

72,000

75,000

144,000

148,000

152,000

156,000

160,000

164,000

168,000

172,000

176,000

Total (left scale)

Train and engine (right scale)

Class I Railroad Employment: Jan. 2009 - Aug. 2016

Data are not seasonally adjusted. Source: Surface Transportation Board

2009 2010 2011 2012 2013 2014 2015 2016

Figure 7-1 SAMPLE


8. CONSUMER CONFIDENCE

The Conference Board’s index of consumer confidence rose to 104.1 in September 2016, up from 101.8 in August and the highest it’s been since August 2007 (see Figure 8-1). It was 92.4 in May 2016, so the increase over the past five months has been impressive. And why not? Inflation is low (see page 36), the job market is good (see page 27), and, one way or another, the election will be over in a few weeks and people can start talking about something else.

Lynn Franco, the Director of Economic Indicators at The Conference Board, said: “Consumers’ assessment of present-day conditions improved, primarily the result of a more positive view of the labor market. Looking ahead, consumers are more upbeat about the short-term employment outlook, but somewhat neutral about business conditions and income prospects. Overall, consumers continue to rate current conditions favorably and foresee moderate economic expansion in the months ahead.”

The Reuters/University of Michigan index of consumer sentiment rose too, to 91.2 in September from 89.8 in August (see Figure 8-2). It’s still well off its most recent high of 98.1 in January 2015. Richard Curtin, the economist behind the index, said this about the September number, “Consumer sentiment has remained at high levels throughout the past year, with only small month-to-month variations…To keep confidence at high levels, future gains in real incomes and jobs must be sufficient to offset the anticipated impact of higher interest rates on consumer spending.”

Each month Gallup releases its U.S. Economic Confidence Index, which is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans say the economy is doing poorly and getting worse. The index was -10 in September 2016, matching its best result in more than a year (see Figure 8-3). The index is still well below its post-recession high of +3 in January 2015.

30

40

50

60

70

80

90

100

110

Conference Board Index of Consumer Confidence: Jan. 2010 - Sept. 2016

(1985 = 100)

2010 2011 2012 2013 2014 2015 2016

Source: Conference Board

May '16 92.4

June '16 97.4

July '16 96.7

Aug. '16 101.8

Sept. '16 104.1

Figure 8-1

40

50

60

70

80

90

100

Thomson Reuters / Univ. of Michigan Index of Consumer Sentiment: Jan. 2010 - Sept. 2016

Source: Thomson Reuters / University of Michigan

2010 2011 2012 2013 2014 2015 2016

May '16 94.7

June '16 93.5

July '16 90.0

Aug. '16 89.8

Sept. '16 91.2

Figure 8-2

-60

-50

-40

-30

-20

-10

0

10

Gallup Economic Confidence Index: Jan. 2010 - Sept. 2016

2010 2011 2012 2013 2014 2015 2016

Index number is as of the end of each month. Source: Gallup

= more confident

Figure 8-3

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%20

30

40

50

60

70

80

90

100

110

Consumer Confidence vs. Unemployment Rate Jan. 2010 - Sept. 2016

Source: Conference Board, BLS

Consumer confidence(left scale)

Unemployment rate (right scale)

correlation: -94%

2010 2011 2012 2013 2014 2015 2016

Figure 8-4

SAMPLE


There’s a strong correlation between consumer confidence and many other economic indicators, including the unemployment rate (see Figure 8-4), housing starts, new auto sales (Figure 8-5), and even, at least in recent years, the stock market (Figure 8-6).

9. RETAIL SALES AND CONSUMER SPENDING

Retail sales in August 2016 were down 0.3% from July 2016, following a 0.06% gain in July over June. August was the first decline in five months (see Figure 9-1). Stephen Stanley, the chief economist at Amherst Pierpoint, told the Associated Press, “The underlying fundamentals for the consumer remain quite strong. That makes August’s clunker of a report a little hard to explain.”

The figures for personal consumer expenditures, a broader measure of consumer spending that includes services and other purchases not included in retail sales, weren’t much better in August: they were flat on a current-dollar basis (Figure 9-3) and were down 0.1% adjusted for inflation (Figure 9-4).

As the consumer goes so goes the economy. That’s the message of Figure 9-6, which shows that changes in consumer spending generally mirror changes in overall GDP. That hasn’t been the case for the past few quarters, when GDP growth has underperformed relative to consumer spending. Put another way, consumer spending has been driving recent GDP growth. It contributed 1.5 percentage points to growth in Q4 2015 (overall GDP growth was 0.9%), 1.1 percentage points in Q1 2016 (overall was 0.8%), and 2.9 percentage points in Q2 2016 (overall was 1.4%) (see Figure 9-5). Over the past eight quarters, consumer spending has risen an average of 3.1% on an annualized basis, which isn’t bad at all.

One reason why consumer spending isn’t higher is households’ higher propensity to save. Figure 9-7 shows personal saving as a percentage of disposable personal income for the past few years. From 2005

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Consumer confidence (1985=100, left scale)

S&P 500 (right scale)

Consumer Confidence vs. S&P 500:Jan. 2010 - Sept. 2016

*S&P 500 is close on last trading day of the month adjusted for dividends and splits. Source: Conference Board, Yahoo Finance

2010 2011 2012 2013 2014 2015 2016

correlation = 94%

Figure 8-6

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Consumer confidence (1985=100, left scale)

Auto sales (SAAR in millions, right scale)

Consumer Confidence vs. U.S. Auto Sales:Jan. 2010 - Sept. 2016*

*Figures are 3-month moving averages Source: Conference Board, Census Bureau

2010 2011 2012 2013 2014 2015 2016

correlation = 94%

Figure 8-5

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Based on seasonally adjusted data not adjusted for inflation. Source: Census Bureau

% Change from Previous Month in Total Retail Sales: Jan. 2011 - Aug. 2016

2011 2012 2013 2014 2015 2016

Mar. '16 -0.3% June '16 0.7%

Apr. '16 1.2% July '16 0.1%

May '16 0.2% Aug. '16 -0.3%

Figure 9-1

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Based on seasonally adjusted data not adjusted for inflation. Source: Census Bureau

% Change in Total Retail Sales from Same Month Previous Year: Jan. 2011 - Aug. 2016

2011 2012 2013 2014 2015 2016

Mar. '16 1.7% June '16 2.8%

Apr. '16 3.0% July '16 2.3%

May '16 2.2% Aug. '16 2.1%

Figure 9-2

SAMPLE


to 2007, it averaged 3.0%, but from 2014 through August 2016 it’s averaged 5.7%. The 2.7 percentage points difference is equal to around $380 billion that’s been saved instead of spent. That’s a lot of foregone consumption. On the other hand, it’s one reason why household balance sheets are much healthier today, on average, than they were leading into the recession.

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% Change in Total Personal Consumption Expenditures From Previous Month: Jan. 2011 - Aug. 2016

2011 2012 2013 2014 2015 2016

Source: Bureau of Economic Analysis

(based on non-inflation adjusted $)

Figure 9-3

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% Change in Total Personal Consumption Expenditures From Previous Month: Jan. 2011 - Aug. 2016

2011 2012 2013 2014 2015 2016


(based on inflation-adjusted $)

Figure 9-4

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GDP

Consumer spending

Consumer Spending vs. GDP(year-over-year % change)

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Source: BEA (NIPA Table 1.1.6)

= recession

Figure 9-6

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Contributions to GDP Growth From Previous Quarter: Q1 2015 - Q2 2016*(percentage points)

Personal consumption goods

Personal consumption

services

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investment

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investment

Change in private

inventories

Govt. consump.**

Exports

Imports

*Based on BEA's third estimate released Sept. 29. **Value of goods and services provided to the public (e.g., defense, education) plus equipment, software, and structures to provide these services; excludes social service programs and interest. Source: BEA

Q1 '15

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Figure 9-5

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Source: Bureau of Economic Analysis (NIPA Table 2.6)

Personal Savings as a Percentage of Disposable Personal Income: Jan. 2008 - Aug. 2016

2010 2011 2012 2013 2014 2015 2016

11.0% - affected by income moved forward in

anticipation of higher 2013 tax rates

Avg. 2005-2007: 3.0%Avg. 2014-2016: 5.7%

Figure 9-7

SAMPLE


10. NEW LIGHT VEHICLE SALES

In September 2016, 1.43 million new vehicles were sold in the U.S., down 0.7% from September 2015 and the second straight year-over-year decline (see Figure 10-1). Still, on an annualized and seasonally adjusted basis, sales in September 2016 were 17.7 million, a 4.4% increase over August 2016 and higher than the average of 17.2 million for the other eight months so far in 2016 (see Figure 10-2).

Year-to-date sales in 2016 through September were 13.04 million units, fractionally higher than in 2015, (see the bars in Figure 10-3). You’ll recall that 2015 was the all-time record year for sales. Light trucks account for a much higher percentage of sales this year than last year — see the lines in Figure 10-3.

Some caution is in order, though. Figure 10-4 shows the inventory-sales ratio for autos through August 2016. The ratio has been rising since May, which might be one reason why automakers are increasing their use of sales incentives. According to a report in The Wall Street Journal, J.D. Power calculates that automakers spent an average of nearly $400 more on incentives per vehicle in September 2016 than in September 2015. Incentives averaged $3,888 per sale in September 2016, according to J.D. Power, breaking the record set in December 2008. Automakers are reportedly also relying more heavily on fleet customers, including rental-car companies and government agencies, to spur sales.

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New U.S. Light Vehicle Sales: Jan. 2010 - Sept. 2016*

*Data include passenger cars, SUVs, minivans, and pickups. Source: BEA

2010 2011 2012 2013 2014 2015 2016

(seasonally-adjusted annualized rate in millions)

% change from prior

sales month year

May '16 17.1 mil -1.3% -6.9%

June '16 16.8 mil -2.1% 2.6%

July '16 17.8 mil 6.2% 0.7%

Aug. '16 16.9 mil -5.0% -3.4%

Sept. '16 17.7 mil 4.4% -0.7%

2011 12.7

2012 14.4

2013 15.5

2014 16.4

2015 17.4

(millions)

Figure 10-2

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Light trucks*

Cars

U.S. Light Vehicle Sales: YTD Through September(millions)

*SUVs, minivans, and pickups. Source: BEA

Figure 10-3

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Inventory-Sales Ratio for Autos: Jan. 2010 - Aug. 2016*

*Data include passenger cars, SUVs, minivans, and pickups. Source: BEA

2010 2011 2012 2013 2014 2015 2016

(seasonally-adjusted, units)

Figure 10-4

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Data are based on non-seasonally adjusted data. Source: BEA

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Year-Over-Year % Change in U.S. Light Vehicle Sales: Jan. 2011 - Sept. 2016

Figure 10-1

Figure 10-5

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U.S. Light Vehicle Sales vs. U.S. + Canadian Rail Carloads of Motor Veh. & Parts: Jan. 2010 - Sept. 2016

*Passenger cars, SUVs, minivans, and pickups in millions at seasonally adjusted annual rates. Rail carloads are seasonally adjusted weekly averages per month. Source: AAR, BEA

Bars = vehicle sales* (left scale)

Line = rail carloads (weekly average, right scale)correlation = 92%

2010 2011 2012 2013 2014 2015 2016

SAMPLE


11. HOUSING

Housing Starts

Total housing starts were an annualized and seasonally adjusted (and preliminary) 1.14 million in August 2016, down from 1.21 million in July and about equal to the average for the year (see Figure 11-1). Both single-family and multi-family starts were down in August (see Figure 11-2). For the year-to-date, housing starts in 2016 through August were up 6% over 2015 and up 18% over 2014 (see the bars in Figure 11-3). Through August, single-family starts were up 9% over last year and multi-family starts were flat.

The bars in Figure 11-4 show three-month moving average housing starts, useful to counter the inherent month-to-month “noise” in housing starts. The bars show that there has been little if any growth in housing starts since the middle of 2015. In other words, most of the year-to-date growth this year over last year is from the early part of the year.

The top line in Figure 11-3 shows year-to-date combined Canadian and U.S. originated carloads of lumber and wood products. (We combine them because Canadian railroads, including their U.S. operations, are key carriers of lumber for the U.S. market.) Figure 11-4 shows carloads vs. total housing starts by month. Both charts clearly show a very close correlation, and Figure 11-4 shows that rail lumber carloads have, on average, leveled off just like housing starts have.

Since housing starts are a useful gauge of overall economic sentiment, it means that rail lumber carloads are a useful indicator too. In last month’s RTI, we showed that, among all individual rail commodities, lumber and wood products have the strongest correlation with GDP growth. (Some traffic aggregates were better. The best was carloads excluding coal and grain, plus intermodal. See pages 21-22 of last month’s RTI for more.)

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Total housing starts (000s, left scale)


U.S. Housing Starts vs. U.S. + Canadian Rail Carloads of Lumber and Wood Products

Data are 3-month moving averages based on seasonally adjusted data. Housing starts are monthly figures annualized. Rail carloads are average weekly originations. Source: AAR, Census Bureau

2010 2011 2012 2013 2014 2015 2016

correlation = 93%

Figure 11-4

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Total U.S. Housing Starts: Jan. 2010 - Aug. 2016

Source: Census Bureau

2010 2011 2012 2013 2014 2015 2016

(seasonally-adjusted annualized rate, 000s)

Prev. Prev.

Month Year

May '16 1,128,000 -2.3% 6.1%

June '16 1,195,000 5.9% -1.5%

July '16 1,212,000 1.4% 5.7%

Aug. '16 1,142,000 -5.8% 0.9%

(annualized)

% Change FromTotal

Housing Starts

Figure 11-1

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U.S. Housing Starts: Jan. 2010 - Aug. 2016


2010 2011 2012 2013 2014 2015 2016

(seasonally-adjusted annualized rate, 000s)

Single-family

Multi-family

June '16 414,000

July '16 433,000

Aug. '16 403,000

Multi-Family

June '16 763,000

July '16 768,000

Aug. '16 722,000

Single-Family

Figure 11-2

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Total (000s, left scale)

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Multi-family (000s, left scale)

Rail carloads* (000s, right scale)


U.S. Housing Starts and Rail Carloads of Lumber and Wood Products: YTD Through August

Figure 11-3

SAMPLE


Existing and New Home Sales

Existing home sales fell in August 2016 for the second straight month, down 0.9% from July to an annualized 5.33 million (see Figure 11-5). For the year-to-date through August, sales were up 3.3% over last year. According to the National Association of Realtors NAR), which releases the numbers, low inventory kept would-be buyers at bay. The NAR says that the inventory of houses for sale at the end of August fell 3.3% from July to 2.04 million, is now 10.1% lower than a year ago (2.27 million), and has fallen year-over-year for 15 straight months. In August, unsold inventory was at a 4.6-month supply at the current sales pace, much lower than the 6 months that’s considered healthy.

The NAR’s chief economist said, “While recent data from the U.S. Census Bureau shows that household incomes rose strongly last year, home prices are still outpacing incomes in many metro areas because of the persistent shortage of new and existing homes for sale. Without more supply, the U.S. homeownership rate will remain near 50-year lows."

Meanwhile, new home sales fell sharply in August 2016 from July, but the July number was implausibly high (see Figure 11-6). If you exclude July, the August figure was the highest since January 2008. There’s obviously a very close relationship between housing starts and new home sales; both show steady but not spectacular growth over the past several years.

Construction Spending

Total U.S. construction spending — which includes everything from houses and shopping malls to highways, schools, and wastewater plants — was a seasonally adjusted and annualized $1.14 trillion in August 2016, about where it’s been for the past year (see the bars in Figure 11-8). Over the past six months, declining government construction spending has been the biggest impediment to growth.

Railroads carry a lot of construction materials, including lumber and wood products and crushed stone. Figure 11-8 compares construction spending with rail carloads of these commodities. At least over the past few years, the correlation is very strong. In other words, build it and railroads will come.2

2 “If you build it, he will come” was, of course, a famous line in the 1989 movie “Field of Dreams” starring Kevin Costner. Costner played an Iowa farmer who hears a mysterious voice saying that one night in his cornfield. In response, he builds a baseball diamond on his land. His neighbors think he’s nuts, of course, but after he builds it the ghosts of great players start emerging from the crops to play ball, led by Shoeless Joe Jackson. In real life, Costner owned a casino in Deadwood, South Dakota, and had plans to build a luxury casino-resort complex there complete with its own steam-powered railroad. It was to be called the Dunbar Casino, named after Costner’s character Lt. John J. Dunbar in the movie “Dances With Wolves.” Alas, the plans fell through. The Minneapolis Star Tribune reported this past March that Costner had sold the 103 acres of land in Deadwood that was to be the site of the project. The movie web site IMDb.com reports that there’s a scene in Dances With Wolves in which a kerosene can is seen in close-up for a few seconds as Lt. Dunbar prepares to burn some trash at his outpost. A rail buff noticed that the can was labelled “NPRY” for Northern Pacific Railway. Problem is, the NPRY laid its first track about five years after Dunbar is supposed to have arrived at the post, and in a different state. Of course, we all know that historical accuracy in the movies isn’t perfect.

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(seasonally-adjusted annualized rate, millions)

Source: National Association of Realtors

2010 2011 2012 2013 2014 2015 2016

Total

(millions, Previous Same Month Inventory

SAAR) Month Prev. Year (months)

May '16 5.51 1.5% 4.2% 4.7

June '16 5.57 1.1% 3.0% 4.5

July '16 5.38 -3.4% -1.8% 4.7

Aug. '16 5.33 -0.9% 0.8% 4.6

% Change From

Existing Home Sales: Jan. 2010 - Aug. 2016

Figure 11-5

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(thousands, Previous Same Month

SAAR) Month Prev. Year

May '16 566 -0.7% 11.6%

June '16 579 2.3% 22.7%

July '16 659 13.8% 32.3%

Aug. '16 609 -7.6% 20.6%

% Change From

U.S. New Home Sales: Jan. 2010 - Aug. 2016

(seasonally adj. annual rate, 000s)

Figure 11-6

SAMPLE


12. INFLATION

For the 12 months ending in August, the overall consumer price index (CPI) was up 1.1%, close to where it’s been for most of 2016 (see the bars in Figure 12-1). The “core” CPI, which excludes food and energy, was 2.3% for the 12 months ending in August, also about where it’s been in 2016 (see the line in Figure 12-1).

Inflation as measured by the price index for personal consumption expenditures, which is the Federal Reserve’s preferred measure of inflation, rose just 1.0% in the 12 months ending in August (see the bars in Figure 12-2). Excluding food and energy, the index rose 1.7% over the past 12 months (see the line in Figure 12-2).

13. RAIL CARS IN STORAGE

We define a rail car as “in storage” if it has had a loaded revenue move since 2009, but not in the prior 60 days. Changes in the number of cars “in storage” largely reflect the fact that, generally speaking, rail cars are stored when not needed due to lack of demand and are taken out of storage when demand improves.

However, some cars that have not been moved in more than 60 days are loaded cars that are being used as warehouses. These cars are still in use even if they aren’t moving anywhere. For that reason, we break down cars that have not moved loaded in more than 60 days — the “stored” cars — into two groups: those that have subsequently moved empty, and those that have not. In most cases, the cars that have not had a subsequent empty move (since their last loaded move) are being used for product storage; they are not being stored because of a lack of freight to move.

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U.S. Construction Spending: Jan. 2010 - Aug. 2016(seasonally-adjusted annualized rate, $ billions)

Figures are not adjusted for inflation. Source: Census Bureau

2010 2011 2012 2013 2014 2015 2016

privatenonresidential

government

private residential

Figure 11-7 Figure 11-8

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Rail carloads* (right scale)

U.S. Construction Spending vs. Rail Carloads of Construction Products*

Jan. 2010 - Aug. 2016

2010 2011 2012 2013 2014 2015 2016

*Carloads are seasonally adjusted weekly averages of Canadian plus U.S. lumber carloads, plus U.S. carloads of crushed stone, sand, and gravel. Source: Census Bureau, AAR

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Year-Over-Year Change in the Consumer Price Index: Jan. 2010 - Aug. 2016*

*Urban consumers, U.S. city average. Source: Bureau of Labor Statistics

2010 2011 2012 2013 2014 2015 2016

Figure 12-1

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Year-Over-Year Change in the Price Index for Personal Consumption Expenditures: Jan. 2010 - Aug. 2016


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Fed target = 2%

Figure 12-2

SAMPLE


The nearby charts show that, as of October 1, 2016, 385,548 freight cars — 23.8% of the 1.6 million unit North American rail freight car fleet — had not moved while loaded in the previous 60 days and thus count as “in storage.”

Of that 385,548, 351,576 were cars that have been moved empty since the last loaded move, and 33,972 were cars believed to be still loaded (and thus not really in storage in the sense of not being used in a meaningful way).

Figure 4-4 summarizes freight cars in storage as of October 1, 2016, by major car type.

******************************************************************************************************************

For more information on anything related to Rail Time Indicators or if you have suggestions on ways to improve it, please contact Dan Keen ([email protected],

202-639-2326) or Luisa Fernandez-Willey ([email protected], 202-639-2323).

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North American Freight Cars in Storage: Numbers

Data are the first of the month. Data for the bars prior to Feb. 2016 are not available. Source: AAR

2009 2010 2011 2012 2013 2014 2015 2016

How to read this chart: The black line indicates total cars in storage (no movement in at least 60 days), including loaded and empty cars. The red bars indicate cars that have not moved in 60 days and were last reported to be loaded. The blue bars indicate cars that have not moved in 60 days and have been reported to be empty.

As of October 1, 2016, 385,548 freight cars (23.8% of the total fleet) were in storage, of which 351,576 (91.2% of stored cars) were thought to be empty.

Figure 13-1

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North American Freight Cars in Storage: Percentages

Data are the first of the month. Data for the bars prior to Feb. 2016 are not available. Source: AAR

2009 2010 2011 2012 2013 2014 2015 2016

As of October 1, 2016, 23.8% of the fleet (385,548 freight cars) were in storage,including 351,576 cars (21.7% of the fleet) that were thought to be empty.

How to read this chart: The black line indicates total cars in storage (no movement in at least 60 days), including loaded and empty cars. The red bars indicate cars that have not moved in 60 days and were last reported to be loaded. The blue bars indicate cars that have not moved in 60 days and have been reported to be empty.

Figure 13-2

Figure 13-3

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Change in Number of Freight Cars in Storage

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Change in Number of Freight Cars in Storage

Figure for Aug. 2016 = change in cars in storage on Sept. 1, 2016 vs. Aug. 1, 2016; other months calculated similarly. Loaded/empty breakout not available prior to Feb. 2016. Source: AAR

Figure 13-4

Total Cars In Storage

Car Type Primary Commodities In Service And Empty

Covered Hoppers Grain, chemicals, nonmetallic minerals 530,423 103,288 19% 29%

Tanks Chemicals, petroleum, food products 397,822 113,174 28% 32%

Gondolas Coal, nonmetallic minerals, metals, scrap 222,302 53,712 24% 15%

Hoppers Coal, metalic ores, nonmetallic minerals 142,667 33,326 23% 9%

Flats Intermodal, lumber, steel, autos 198,937 25,651 13% 7%

Box Paper products, wood products, food prod. 107,658 16,896 16% 5%

All Other Miscellaneous 18,139 5,529 30% 2%

Grand Total 1,617,948 351,576 23% 100%

Source: Association of American Railroads

North American Freight Cars in Storage and Empty by Major Car Type

(as of October 1, 2016)

Percent Percent of

In Storage Stored Cars

SAMPLE

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