Meanwhile, back in the physical economy

Thomas Lifson
The Dow may have risen in anticipation of a recovery, but rail car loadings, usually a reliable indicator of economic activity, tell a different story. Jack McHugh, writing at The Big Picture, examines a 24 page Credit Suisse report on rail car loadings and summarizes:

"Bottom Line: Last week proved no different than the last 4: railroad carloads were down more than 20%. Week 17 saw a year-over-year volume shortfall of 21.6% - which is slightly worse than the 20.4% drop in Week 16.

  • The weakness is broad based - whether it be industrial, bulk or consumer related - every segment has shown precipitous declines in each passing week. Worse, we are one-third of the way through the second quarter and volumes are well below even the substantial declines seen in the first quarter (recall that 1Q09 industry carloads were down more than 16% year-over-year).
  • The railroad carload data are telling a very different story about the economy than one might surmise by looking at the S&P 500. Our concern is that the carload data are ahead of the curve; the light at the end of the tunnel that seems to be boosting stock prices may just be an oncoming freight train.
  • Volumes: All commodity types posted steep declines during Week 17. Specifically, we saw sharp drops in metallic ores and minerals (-52.6%), motor vehicles and equipment (-37.6%), non-metallic minerals (-26.4%) chemicals (-21.6%), coal (-18.0%) and intermodal (-17.0%)." (source: Credit Suisse)
As you can see, the type of rail activity that should be accompanying any improvement in economic activity is nowhere to be found.

Correspondent Bob Teter properly cautions that today's economy has a much bigger component of services than physical goods compared to past recessions and the Depression, when rail car loadings were an excellent predictor of economic activity.

Nonetheless, this data must be taken a supporting the hypothesis that the market rally of late may be a classic bear trap, and declines may be ahead.

Update -- Richard Baehr writes:

My son just completed a San Francisco to Chicago Amtrak train trip. Amazingly, the train was practically on time into Union Station. My son said that the normal delays associated with Amtrak stopping to allow freight train cars to pass, did not happen this time.

Hat tip: Bob Teter, Decline and Fall of Western Civilization
The Dow may have risen in anticipation of a recovery, but rail car loadings, usually a reliable indicator of economic activity, tell a different story. Jack McHugh, writing at The Big Picture, examines a 24 page Credit Suisse report on rail car loadings and summarizes:

"Bottom Line: Last week proved no different than the last 4: railroad carloads were down more than 20%. Week 17 saw a year-over-year volume shortfall of 21.6% - which is slightly worse than the 20.4% drop in Week 16.

  • The weakness is broad based - whether it be industrial, bulk or consumer related - every segment has shown precipitous declines in each passing week. Worse, we are one-third of the way through the second quarter and volumes are well below even the substantial declines seen in the first quarter (recall that 1Q09 industry carloads were down more than 16% year-over-year).
  • The railroad carload data are telling a very different story about the economy than one might surmise by looking at the S&P 500. Our concern is that the carload data are ahead of the curve; the light at the end of the tunnel that seems to be boosting stock prices may just be an oncoming freight train.
  • Volumes: All commodity types posted steep declines during Week 17. Specifically, we saw sharp drops in metallic ores and minerals (-52.6%), motor vehicles and equipment (-37.6%), non-metallic minerals (-26.4%) chemicals (-21.6%), coal (-18.0%) and intermodal (-17.0%)." (source: Credit Suisse)
As you can see, the type of rail activity that should be accompanying any improvement in economic activity is nowhere to be found.

Correspondent Bob Teter properly cautions that today's economy has a much bigger component of services than physical goods compared to past recessions and the Depression, when rail car loadings were an excellent predictor of economic activity.

Nonetheless, this data must be taken a supporting the hypothesis that the market rally of late may be a classic bear trap, and declines may be ahead.

Update -- Richard Baehr writes:

My son just completed a San Francisco to Chicago Amtrak train trip. Amazingly, the train was practically on time into Union Station. My son said that the normal delays associated with Amtrak stopping to allow freight train cars to pass, did not happen this time.

Hat tip: Bob Teter, Decline and Fall of Western Civilization