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Friday, April 20, 2007

When All Else Fails

When none of the other economic data makes sense, there's always the basics. Transport. Shipping. We can argue all day and not get anywhere on what the real inflation rate is (which is important, because most economic stats are reported in currency volume instead of unit volume), but when people buy stuff, it gets shipped to the point of sale.

So, trucking and railroads.

We need one or two more weeks because of holiday discrepancies for really good current YoY comparisons, but AAR reports shipments are down so far this year:
Cumulative volume for the first 15 weeks of 2007 totaled 4,783,604 carloads, down 4.5 percent from 2006; 3,381,157 trailers or containers, off 0.5 percent; and total volume of an estimated 486.6 billion ton-miles, down 3.1 percent from last year.
In general, high transport costs should be shifting a little volume to the rails (although diesel is little changed YoY). As for current, last week's volume report was down sharply YoY, but it included a holiday which would drive it down and makes the YoY figure worthless. This week's volume report was mixed, but the comparison is to a short week last year, which would tend to overstate this year's volume in comparison:
Carload freight was up but intermodal volume was down from last year on U.S. railroads during the week ended April 14, the Association of American Railroads (AAR) reported today. The comparison week from last year included Good Friday, which is a holiday on most U.S. railroads.

Intermodal volume totaled 223,126 trailers or containers, down 3.6 percent from last year, with container volume off 0.6 percent and trailer volume down 13.2 percent.

Carload freight, which doesn't include the intermodal data, totaled 338,550 cars for the week, up 0.5 percent from last year. Loadings were up 1.5 percent in the West but down 0.6 percent in the East. Total volume was estimated at 34.6 billion ton-miles, up 2.4 percent from last year.
So, one more week is needed to try to get an idea whether the downward trend this year is accelerating or seems somewhat steady. Because wood product and lumber product shipments are down from last year due to less building, you would want to see an accelerating pattern into the spring before extrapolating that to the wider economy. It is possible that the drop in building alone accounts for the drop in shipments for the first 15 weeks of 2007 when compared to the first fifteen weeks of 2006.

Through March
, volumes were reported down slightly more YoY:
For the first three months of 2007, total U.S. rail carloadings were down 4.9 percent (211,519 carloads) to 4,125,876 carloads, while intermodal traffic was up 0.2 percent (4,608 units) to 2,939,039 trailers and containers. Total volume was estimated at 419.2 billion ton-miles, down 3.6 percent from 2006.
Not good, but if the rate of decline YoY is slowing, generally that would be viewed as an economic positive.

Stock markets can and do trend inversely to economic conditions at times, and also tend to top out right before recessions. Freight is a fundamental.

Bureau of Transportation Statistics (BTS) has a broader transportation index called the TSI and you can get those releases at this page. The latest release is for February. January's TSI fell 0.6 percent from December, and February's fell 0.3 percent from January. These are, however, considered preliminary figures subject to much revision. So far, the data doesn't support a recession forecast.

Table 3 gives a YoY comparison through February. Since 1998, the combined index dropped YoY through February in 2003 (-2.9%), 2006 (-1.0%) and 2007 (-0.8%). Again, the 2007 numbers are subject to revision - but this is another basic index to guage whether domestic economic activity seems to be picking up or slowing down relatively during the year.

The TSI includes freight and passenger traffic (this is also reported separately in different tables), including air, truck, rail, waterway and pipeline. For passenger traffic it includes airway, local rail/subway and intercity rail.


If you have the time and are of the mind: I’d be interested in your thoughts on what CR says: “One of the current mysteries is why residential construction employment (the blue line) is holding up so well.”

I find the "hoarding" of employees’ hypothesis hard to accept. It seems to me that a few companies in a booming industry experiencing slow sales and can reasonably expect new contracts would “hoard”, because laid off workers will easily find jobs in other companies. However, if the whole industry is down, than laid off workers have no place to go.

Also, my experience in homebuilding is that few companies employ workers per se. Much of the work is done by subcontractors. If so, then it would be the subcontractors who are hoarding. This is less plausible because subcontractors are not likely to have the capital to keep workers on the payroll if they are not working at max effort. (When I was an apprentice mason, my boss would say: “Keep doing something. Even if it’s wrong- don’t stop working.”)

Also, I wonder about the reference in CR to: “time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points.” Time series is used for forecasting (predicting); but, wouldn’t actual current laid off workers show up in unemployment claims? Why make an inference, if you can make an observation?
Tom, one theory is that unemployed workers aren't showing up in unemployment claims because they were contract workers and not eligible for unemployment. Also, we do know that many construction workers are illegal, and illegals are less likely to apply for benefits.

However, I have been out driving around, and my guess is that my own funky numbers are more accurate than the Census stats. According to my numbers, building really hasn't slowed much.

That is my current guess. More about this later.
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