Over at Carpe Diem (if you’re not reading it, you should), Mark Perry is arguing against a double-dip recession, suggesting instead that continued sluggish growth, the sort of grey sludge economy we’ve had for a while now, is the mostly likely scenario. One of his indicators is rail intermodal traffic, which set a volume record last week:
By itself, this doesn’t seem to be too strong an indicator. We’re just about at the seasonal high for the year, and year-over-year, the increase isn’t all that impressive. Also, when I spoke with the head of UP’s media relations a few months ago, he agreed that intermodal generally moves finished goods, and is an indicator of consumption, while non-intermodal carloads are raw materials, and thus a better proxy for production. They’ve barely moved. So both sides seem to confirm what the other numbers are showing.
But up is better than down, and some of the weakness may be capacity. Railroads seem to be moving to deal with that problem, and railcar manufacturers in Virginia and Arkansas are hiring new workers to meet the demand. Most of this is coming from lighter, stronger coal cars, as well as chemical and petroleum cars.
I’m contracting at a major trucker based in Omaha, and they’ve been reluctant to increase capacity for a couple of reasons, including general uncertainty. There’s a shortage of long-haul drivers, and already a capacity constraint, and yet they and at least one other mid-sized truck company I’ve spoken to are still not expanding their fleets.
However, they seem to be the exception. Transport Topics (behind a paywall) is reporting that Class 8 truck sales – which include all tractor-trailers – are the highest since early 2007. Some of this may be in anticipation of new rules that will force companies to have more trucks on the road to deliver the same amount of goods. To that extent – if at all – the additional purchases are an inefficient allocation of capital. But they aren’t likely the entire source of growth. Companies are already short of inventory and capacity, and are simply expanding to meet perceived demand.
In theory, all these increased orders for trucks and railcars should be predicting continued economic growth. In practice, we could still get blindsided by Europe, or it could be an example of companies expanding into a contraction, like a classic business cycle.
