Aar Realtime Indicators Report

Rail Time Indicators A Review of Key Economic Trends Shaping the Demand for Rail Transportation

Policy & Economics Department Association of American Railroads Washington, DC

October 14, 2009

Rail Time Indicators is issued monthly by the Policy & Economics Department of the Association of American Railroads. To get on the e-mail distribution list for Rail Time Indicators, send a request to Beth Eagney at [email protected]. If you have questions or comments about the content of Rail Time indicators, please contact Dan Keen ([email protected]) or Shannon Stare ([email protected]).

SUMMARY FOR OCTOBER 2009 Economic Indicator

Most Recent Data

U.S. Freight Rail Traffic (p. 2)

↓ 14.2% (carloads), ↓ 14.6% (intermodal) in September 2009 from September 2008.

Canadian Freight Rail Traffic (p. 3)

↓ 13.9% (carloads), ↓ 14.9% (intermodal) in September 2009 from September 2008.

Gross Domestic Product (p. 13)

↓ 0.7% in Q2 2009 (final estimate).

Purchasing Managers Index (p. 14)

↓ to 52.6 in September 2009 from 52.9 in August 2009.

Manufacturing Inventories and Sales (p. 15)

From July 2009 to August 2009, manufacturing sales were flat, inventories ↓ 0.8%, and inventory-to-sales ratio ↓ 0.5%.

Index of Industrial Production (p. 17)

↑ 0.8% in August 2009 from July 2009.

Capacity Utilization (p. 18)

↑ to 69.6% in August 2009 from 69.0% in July 2009.

Non-Farm Employment (p. 19)

↓ 263,000 in September 2009 from August 2009.

Unemployment Rate (p. 19)

↑ to 9.8% in September 2009 from 9.7% in August 2009.

Class I Railroad Employment (p. 20)

↓ to 150.064 in August 2009 from 150,400 in July 2009.

Index of Consumer Confidence (p. 20)

↓ to 53.1 in September 2009 from 54.5 in August 2009.

Retail Sales (p. 21)

↓ 1.5% in September 2009 from August 2009.

Light Vehicle Sales (p. 22)

↓ 35% on annualized basis in September 2009 from August 2009.

Housing Starts (p. 23)

↑ 1.5% in August 2009 from July 2009.

Consumer Price Index (p. 23)

↑ 0.4% in August 2009 from July 2009.

Railroad Cost Index (p. 24)

From Q2 ‘09 to Q3 ‘09, wages ↑ 1.5%; wage supplements ↓ 0.1%; fuel ↑ 21.1%; materials & supplies, ↑ 2.7%.

Value of the U.S. Dollar (p. 24)

↓ 0.2% in September 2009 from August 2009.

Dow Jones Economic Sentiment Indicator (p. 25)

↓ to 34.1 in September 2009 from 35.5 in August 2009.

Rail Freight Cars in Storage (p. 26)

↓ to 462,410 on Oct. 1, 2009 from 478,046 on Sept. 1, 2009.

Rail Time Indicators – October 14, 2009

Page 1 of 26

U.S. AND CANADIAN FREIGHT RAILROAD TRAFFIC Who releases it and when? •

The Association of American Railroads (AAR), every Thursday morning, in the AAR’s Weekly Railroad Traffic report.

What is it and why is it important? •

The weekly AAR data detail rail carloadings for 19 different major commodity categories, as well as intermodal units (trailers and containers), for the previous week. Railroads that report their data to the AAR collectively account for the vast majority of total U.S. and Canadian freight rail traffic. Rail Time Indicators aggregates these data into monthly figures.

•

Freight railroading is a “derived demand” industry — i.e., demand for rail service occurs as a result of demand elsewhere in the economy for the products that railroads haul. Thus, freight rail traffic is a useful economic indicator, both for the overall economy and for specific sub-sectors.

What are the latest numbers for U.S. railroads? •

U.S. freight railroads originated 1,380,684 carloads in September 2009, down 14.2% (227,837 carloads) from September 2008 and the 11th straight double-digit monthly carload decline. The percentage decline in September was the lowest since December 2008.

•

Average weekly carloads on U.S. railroads in September 2009 (276,137) were 2,900 less than in August 2009. All or most of that decline can probably be attributed to severe flooding in the Southeast which shut down some rail lines for a period in September.

•

•

•

In September 2009, U.S. intermodal traffic (which is not included in the carload figures discussed above) totaled 993,235 trailers and containers, down 14.6% (169,912 units) from September 2008 (see charts at top of next page). The average weekly intermodal count on U.S. railroads in September 2009 was 198,647 trailers and containers, up 2,600 units from August 2009 and the highest since November 2008. The last three weeks of September were the three highest-volume intermodal weeks of 2009 for U.S. freight railroads. For the first nine months of 2009, U.S. rail carloadings were down 18.1% (2,301,087 carloads), while intermodal traffic was down 16.8% (1,480,358 trailers and containers). In Q3 2009, U.S. rail carloadings were down 16.0%, compared with a decline of 22.2% in Q2 2009 and 16.2% in Q1 2009.

Rail Time Indicators – October 14, 2009

Average Weekly U.S. Rail Carloads: All Commodities 360,000 2006

2007

340,000 320,000 300,000 2008

280,000 2009

260,000 240,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

% Change in Total U.S. Rail Carloads From Same Month Previous Year: Jan. 2006 - Sept. 2009 10% 5% 0% -5% -10% -15% -20% -25% 2006

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 2 of 26

% Change in Total U.S. Rail Intermodal Traffic From Same Month Prev. Year: Jan. 2006 - Sept. 2009

Average Weekly U.S. Rail Intermodal Traffic 260,000 250,000

10%

2007

2006

240,000

5%

230,000

0%

220,000

-5% 210,000

-10%

200,000 2009

2008

190,000

-15%

180,000

-20%

170,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-25% 2006

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

What are the latest numbers for Canadian railroads? •

•

•

•

Canadian carload traffic, which includes the combined Canadian and U.S. operations of CN and Canadian Pacific, fell 13.9% (54,845 carloads) in September 2009 to 339,067 carloads, while Canadian intermodal traffic fell 14.9% (38,035 units) to 217,452 trailers and containers in September (see charts on this page for carloads and at the top of page 10 for intermodal). Average weekly carloads on Canadian railroads in September 2009 (67,813 carloads) rose for the fourth straight month to the highest level since November 2008. Average weekly intermodal units on Canadian railroads in September 2009 (43,490 trailers and containers) were also the highest since November 2008 and up approximately 1,900 units from August 2009. In the third quarter of 2009, Canadian rail carloadings were down 18.7% (203,018 carloads) compared with the third quarter of 2008; intermodal traffic was down 17.4% (122,786 units). For the first nine months of 2009, Canadian rail carloadings were down 22.2% (677,181 carloads), while intermodal traffic was down 16.2% (308,217 trailers and containers).

Average Weekly Canadian Rail Carloads: All Commodities 100,000 90,000

2007

2006

80,000 70,000

2009

2008

60,000 50,000 40,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, include CN and CP (including their U.S. operations), and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

% Change in Total Canadian Rail Carloads From Same Month Previous Year: Jan. 2006 - Sept. 2009 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% 2006

2007

2008

2009

Data are based on originations, include CN and CP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Where to go for more information: •

Weekly AAR press releases on railroad traffic are available on the AAR web site here.

Rail Time Indicators – October 14, 2009

Page 3 of 26

U.S. RAIL TRAFFIC* (5 weeks ending October 3, 2009) Commodity

Sept. 09

Agricultural & food products Grain Farm products excl. grain Grain mill products (1) Food products Chemicals Chemicals Petroleum products Coal Forest products Primary forest products (2) Lumber & wood products Pulp & paper products Metallic ores and metals Metallic ores (3) Coke Primary metal products (4) Motor vehicles & parts Nonmetallic minerals & prod. Crushed stone, gravel, sand Nonmetallic minerals (5) Stone, clay & glass prod. (6) Other Waste & scrap materials (7) All other carloads TOTAL ALL CARLOADS

183,371 102,085 4,196 38,626 38,464 162,529 136,395 26,134 645,843 47,931 8,030 11,264 28,637 72,046 21,988 13,757 36,301 66,438 136,712 76,622 26,700 33,390 65,814 40,943 24,871 1,380,684

Trailers Containers

156,136 837,099

TOTAL ALL INTERMODAL

993,235

Sept. 08

Differ. % Chng

200,730 -17,359 112,041 -9,956 4,425 -229 41,721 -3,095 42,543 -4,079 162,540 -11 134,348 2,047 28,192 -2,058 745,131 -99,288 62,594 -14,663 10,964 -2,934 15,876 -4,612 35,754 -7,117 115,075 -43,029 39,682 -17,694 17,992 -4,235 57,401 -21,100 75,965 -9,527 168,414 -31,702 95,681 -19,059 29,167 -2,467 43,566 -10,176 78,072 -12,258 48,755 -7,812 29,317 -4,446 1,608,521 -227,837 244,921 918,226

-8.6% -8.9% -5.2% -7.4% -9.6% 0.0% 1.5% -7.3% -13.3% -23.4% -26.8% -29.1% -19.9% -37.4% -44.6% -23.5% -36.8% -12.5% -18.8% -19.9% -8.5% -23.4% -15.7% -16.0% -15.2% -14.2%

YTD 2009

YTD 2008

Differ. % Chng

1,385,796 1,662,269 -276,473 741,744 936,940 -195,196 30,078 38,929 -8,851 312,877 340,786 -27,909 301,097 345,614 -44,517 1,233,526 1,433,127 -199,601 1,022,896 1,189,892 -166,996 210,630 243,235 -32,605 5,053,740 5,596,054 -542,314 374,040 513,379 -139,339 59,003 85,272 -26,269 92,182 145,870 -53,688 222,855 282,237 -59,382 467,734 906,934 -439,200 124,458 271,662 -147,204 106,642 147,422 -40,780 236,634 487,850 -251,216 372,537 645,092 -272,555 1,033,252 1,322,619 -289,367 595,644 762,349 -166,705 181,126 229,856 -48,730 256,482 330,414 -73,932 461,280 603,518 -142,238 269,401 402,224 -132,823 191,879 201,294 -9,415 10,381,905 12,682,992 -2,301,087

-16.6% -20.8% -22.7% -8.2% -12.9% -13.9% -14.0% -13.4% -9.7% -27.1% -30.8% -36.8% -21.0% -48.4% -54.2% -27.7% -51.5% -42.3% -21.9% -21.9% -21.2% -22.4% -23.6% -33.0% -4.7% -18.1%

-88,785 -81,127

-36.3% -8.8%

1,230,479 6,116,820

1,903,643 6,924,014

-673,164 -807,194

-35.4% -11.7%

1,163,147 -169,912

-14.6%

7,347,299

8,827,657 -1,480,358

-16.8%

(1) - flour, animal feed, corn syrup, corn starch, soybean meal, etc. (2) - wood raw materials such as pulpwood and wood chips (3) - overwhelmingly iron ore, but some aluminum ore, copper ore, etc. (4) - primarily iron & steel products; some aluminum, copper, etc.

(5) - phosphate rock, rock salt, crude sulphur, clay, etc. (6) - cement, ground earths or minerals, gypsum products, etc. (7) - scrap metal and paper, construction debris, ashes, etc.

*Data are originations. Includes BNSF, CSX, KCS, NS, UP, Birmingham Southern, Florida East Coast, Lake Superior & Ishpeming, and Paducah & Louisville. Does not include CN's and CP's U.S. operations. Source: AAR Weekly Railroad Traffic

Average Weekly U.S. Rail Traffic: Total Carloads + Intermodal Units 625,000 600,000

% Change in U.S. Rail Carloads + Intermodal Units From Same Month Prev. Year: Jan. 2006 - Sept. 2009 10%

2006 (most traffic ever for U.S. railroads

5%

575,000 0%

550,000 525,000

2007 (second most traffic ever for U.S. railroads)

500,000 475,000

-5% -10%

2009

2008

450,000

-15%

425,000

-20%

400,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-25% 2006

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 4 of 26

CANADIAN RAIL TRAFFIC* (5 weeks ending October 3, 2009) Commodity

Sept. 09

Sept. 08

Agricultural & food products Grain Farm products excl. grain Grain mill products (1) Food products Chemicals Chemicals Petroleum products Coal Forest products Primary forest products (2) Lumber & wood products Pulp & paper products Metallic ores and metals Metallic ores (3) Coke Primary metal products (4) Motor vehicles & parts Nonmetallic minerals & prod. Crushed stone, gravel, sand Nonmetallic minerals (5) Stone, clay & glass prod. (6) Other Waste & scrap materials (7) All other carloads TOTAL ALL CARLOADS

77,101 45,014 13,781 7,226 11,080 66,139 62,617 3,522 38,392 34,869 7,873 10,304 16,692 64,583 52,895 2,701 8,987 21,474 25,896 12,806 5,779 7,311 10,613 6,524 4,089 339,067

83,695 48,410 17,691 7,347 10,247 72,720 69,425 3,295 41,694 44,174 9,669 13,138 21,367 84,578 68,984 2,652 12,942 24,388 30,084 13,324 7,916 8,844 12,579 7,861 4,718 393,912

-6,594 -3,396 -3,910 -121 833 -6,581 -6,808 227 -3,302 -9,305 -1,796 -2,834 -4,675 -19,995 -16,089 49 -3,955 -2,914 -4,188 -518 -2,137 -1,533 -1,966 -1,337 -629 -54,845

Trailers Containers

8,564 208,888

10,112 245,375

TOTAL ALL INTERMODAL

217,452

255,487

(1) - flour, animal feed, corn syrup, corn starch, soybean meal, etc. (2) - wood raw materials such as pulpwood and wood chips (3) - overwhelmingly iron ore, but some aluminum ore, copper ore, etc. (4) - primarily iron & steel products; some aluminum, copper, etc.

Differ. % Chng

YTD 2009

YTD 2008

Differ. % Chng

-7.9% -7.0% -22.1% -1.6% 8.1% -9.0% -9.8% 6.9% -7.9% -21.1% -18.6% -21.6% -21.9% -23.6% -23.3% 1.8% -30.6% -11.9% -13.9% -3.9% -27.0% -17.3% -15.6% -17.0% -13.3% -13.9%

609,939 362,210 110,049 54,616 83,064 479,876 455,204 24,672 260,318 270,049 56,541 78,544 134,964 386,134 307,781 15,541 62,812 138,903 154,551 60,421 46,849 47,281 78,026 41,620 36,406 2,377,796

601,211 364,313 90,334 63,766 82,798 609,611 583,694 25,917 317,162 348,474 69,518 105,827 173,129 652,921 526,079 16,908 109,934 213,593 210,730 87,507 61,202 62,021 101,275 65,659 35,616 3,054,977

8,728 -2,103 19,715 -9,150 266 -129,735 -128,490 -1,245 -56,844 -78,425 -12,977 -27,283 -38,165 -266,787 -218,298 -1,367 -47,122 -74,690 -56,179 -27,086 -14,353 -14,740 -23,249 -24,039 790 -677,181

1.5% -0.6% 21.8% -14.3% 0.3% -21.3% -22.0% -4.8% -17.9% -22.5% -18.7% -25.8% -22.0% -40.9% -41.5% -8.1% -42.9% -35.0% -26.7% -31.0% -23.5% -23.8% -23.0% -36.6% 2.2% -22.2%

-1,548 -36,487

-15.3% -14.9%

62,681 1,526,133

77,973 1,819,058

-15,292 -292,925

-19.6% -16.1%

-38,035

-14.9%

1,588,814

1,897,031

-308,217

-16.2%

(5) - phosphate rock, rock salt, crude sulphur, clay, etc. (6) - cement, ground earths or minerals, gypsum products, etc. (7) - scrap metal and paper, construction debris, ashes, etc.

*CN and CP, including their U.S. operations. Data are originations. Source: AAR Weekly Railroad Traffic

% Change in Canadian Carloads + Intermodal Units From Same Month Prev. Year: Jan. 2006 - Sept. 2009

Average Weekly Canadian Rail Traffic: Total Carloads + Intermodal Units 140,000

10% 2007

5%

130,000 0% -5%

120,000 2006

-10%

110,000 2008

2009

-15% -20%

100,000

-25% 90,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, include CN and CP (including their U.S. operations), and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-30% 2006

2007

2008

2009

Data are based on originations, include CN and CP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 5 of 26

COMBINED U.S. AND CANADIAN RAIL TRAFFIC (5 weeks ending October 3, 2009) Commodity

Sept. 09

Sept. 08

Differ. % Chng

YTD 2009

YTD 2008

Differ. % Chng

Agricultural & food products Grain Farm products excl. grain Grain mill products (1) Food products Chemicals Chemicals Petroleum products Coal Forest products Primary forest products (2) Lumber & wood products Pulp & paper products Metallic ores and metals Metallic ores (3) Coke Primary metal products (4) Motor vehicles & parts Nonmetallic minerals & prod. Crushed stone, gravel, sand Nonmetallic minerals (5) Stone, clay & glass prod. (6) Other Waste & scrap materials (7) All other carloads TOTAL ALL CARLOADS

260,472 147,099 17,977 45,852 49,544 228,668 199,012 29,656 684,235 82,800 15,903 21,568 45,329 136,629 74,883 16,458 45,288 87,912 162,608 89,428 32,479 40,701 76,427 47,467 28,960 1,719,751

284,425 -23,953 160,451 -13,352 22,116 -4,139 49,068 -3,216 52,790 -3,246 235,260 -6,592 203,773 -4,761 31,487 -1,831 786,825 -102,590 106,768 -23,968 20,633 -4,730 29,014 -7,446 57,121 -11,792 199,653 -63,024 108,666 -33,783 20,644 -4,186 70,343 -25,055 100,353 -12,441 198,498 -35,890 109,005 -19,577 37,083 -4,604 52,410 -11,709 90,651 -14,224 56,616 -9,149 34,035 -5,075 2,002,433 -282,682

-8.4% -8.3% -18.7% -6.6% -6.1% -2.8% -2.3% -5.8% -13.0% -22.4% -22.9% -25.7% -20.6% -31.6% -31.1% -20.3% -35.6% -12.4% -18.1% -18.0% -12.4% -22.3% -15.7% -16.2% -14.9% -14.1%

Trailers Containers

164,700 1,045,987

255,033 -90,333 1,163,601 -117,614

-35.4% -10.1%

1,293,160 7,642,953

1,981,616 -688,456 8,743,072 -1,100,119

-34.7% -12.6%

TOTAL ALL INTERMODAL

1,210,687

1,418,634 -207,947

-14.7%

8,936,113 10,724,688 -1,788,575

-16.7%

(1) - flour, animal feed, corn syrup, corn starch, soybean meal, etc. (2) - wood raw materials such as pulpwood and wood chips (3) - overwhelmingly iron ore, but some aluminum ore, copper ore, etc. (4) - primarily iron & steel products; some aluminum, copper, etc.

1,995,735 2,263,480 -267,745 1,103,954 1,301,253 -197,299 140,127 129,263 10,864 367,493 404,552 -37,059 384,161 428,412 -44,251 1,713,402 2,042,738 -329,336 1,478,100 1,773,586 -295,486 235,302 269,152 -33,850 5,314,058 5,913,216 -599,158 644,089 861,853 -217,764 115,544 154,790 -39,246 170,726 251,697 -80,971 357,819 455,366 -97,547 853,868 1,559,855 -705,987 432,239 797,741 -365,502 122,183 164,330 -42,147 299,446 597,784 -298,338 511,440 858,685 -347,245 1,187,803 1,533,349 -345,546 656,065 849,856 -193,791 227,975 291,058 -63,083 303,763 392,435 -88,672 539,306 704,793 -165,487 311,021 467,883 -156,862 228,285 236,910 -8,625 12,759,701 15,737,969 -2,978,268

-11.8% -15.2% 8.4% -9.2% -10.3% -16.1% -16.7% -12.6% -10.1% -25.3% -25.4% -32.2% -21.4% -45.3% -45.8% -25.6% -49.9% -40.4% -22.5% -22.8% -21.7% -22.6% -23.5% -33.5% -3.6% -18.9%

(5) - phosphate rock, rock salt, crude sulphur, clay, etc. (6) - cement, ground earths or minerals, gypsum products, etc. (7) - scrap metal and paper, construction debris, ashes, etc.

Data are originations. Source: AAR Weekly Railroad Traffic

Average Weekly U.S. + Canadian Rail Traffic: Total Carloads + Intermodal Units 750,000 725,000

% Change in Combined U.S. + Canadian Rail Carloads + Intermodal Units From Same Month Prev. Year: Jan. 2006 - Sept. 2009 10%

2006

2007

700,000

5%

675,000

0%

650,000

-5%

625,000

-10%

600,000 575,000

2008

2009

-15%

550,000

-20%

525,000

-25%

500,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-30% 2006

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 6 of 26

Coal, which accounts for around half of U.S. electricity generation, is the single most important commodity carried by U.S. railroads. In 2008, it accounted for 45% of rail tonnage, 25% of carloads, and 23% of gross revenue. Rail coal traffic in 2009 had been holding up well until April, when it dropped sharply. Three reasons for the decline: reduced electricity demand (for example, due to factory shut downs and mild summers in areas heavily reliant on electricity generated from coal; lower coal exports, in part due to lower demand abroad and in part due to a highervalued dollar (see page 25); and lower natural gas prices, which make electricity generated by natural gas more competitive compared to electricity generated from coal.

Average Weekly U.S. Rail Carloads of Coal 160,000

15%

2008

150,000

% Change in U.S. Rail Carloads of Coal From Same Month Previous Year: Jan. 2006 - Sept. 2009 10%

2006

5%

140,000

0% 2007

130,000

-5%

2009

-10%

120,000

-15% 110,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-20% 2006

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Average Weekly Canadian Rail Carloads of Coal 11,000 10,000 2007

9,000 8,000 7,000 2006

2009

6,000 2008

5,000 4,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, include CN and CP (including their U.S. operations), and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Combined U.S. + Canadian Average Weekly Rail Carloads of Coal 165,000

2008

2009

% Change in Canadian Carloads of Coal From Same Month Previous Year: Jan. 2006 - Sept. 2009 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% 2006

2007

2008

2009

Data are based on originations, include CN and CP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Combined U.S. + Canadian Rail Carloads of Coal From Same Month Previous Year: Jan. 2006 - Sept. 2009 10%

160,000 155,000

2007

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

2006

2008

5%

150,000 0%

145,000

2007

140,000 135,000

-5% 2009

-10%

130,000 -15%

125,000 120,000

-20%

Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

2006

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 7 of 26

Chemicals accounted for 9% of rail tonnage, 7% of rail carloads, and 13% of gross rail revenue in 2008. More than half of rail chemical tonnage consists of various industrial chemicals, such as potassium chloride, sodium carbonate (soda ash), sodium hydroxide (caustic soda), sulfuric acid, urea, anhydrous ammonia, and many others. Plastic materials and synthetic resins — including large quantities of polyethylene, polypropylene, polyvinyl chloride, and similar products — account for more than one-fourth of rail chemical tonnage. Most of the rest consist of various types of fertilizers and other agricultural chemicals. U.S. carloads of chemicals in September 2009 were higher than in September 2008, though September 2008’s chemical carloadings were sharply reduced due to Hurricane Ike.

Average Weekly U.S. Rail Carloads of Chemicals 33,000

% Change in U.S. Rail Carloads of Chemicals From Same Month Previous Year: Jan. 2006 - Sept. 2009 10%

32,000 2007

31,000

5%

30,000 0%

29,000 2006

28,000

-5%

27,000 -10%

26,000 25,000

2009

2008

-15%

24,000 -20%

23,000 22,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-25% 2006

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Avg. Weekly Canadian Rail Carloads of Chemicals 18,000 17,000 2007

16,000 15,000 14,000 2006

13,000 12,000

2008

2009

11,000 10,000 9,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, include CN and CP (including their U.S. operations), and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Combined U.S. + Canadian Average Weekly Rail Carloads of Chemicals 50,000 48,000

2007

46,000

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Canadian Carloads of Chemicals From Same Month Previous Year: Jan. 2006 - Sept. 2009 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% 2006

2007

2008

2009

Data are based on originations, include CN and CP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Combined U.S. + Canadian Rail Carloads of Chemicals From Same Month Previous Year: Jan. 2006 - Sept. 2009 10% 5%

44,000 42,000 40,000

0% 2006

-5%

38,000

2008

-10%

36,000 34,000

-15%

2009

32,000

-20%

30,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-25%

2006

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 8 of 26

In 2008, grain accounted for 8% of rail tonnage, 5% of carloads, and 8% of revenue. Corn accounted for 51% of rail grain tonnage in 2008, followed by wheat (27%), soybeans (15%), and much smaller amounts of sorghum, barley, oats, and other grains. The United States is the world’s top grain producer, but from year to year U.S. grain production — and rail grain movements — can fluctuate widely in response to weather, government policies, fertilizer use and prices, the financial condition of the farm sector, trends in markets overseas (the U.S. is the world’s top grain exporter), and many other factors.

Average Weekly U.S. Rail Carloads of Grain 28,000

% Change in U.S. Rail Carloads of Grain From Same Month Previous Year: Jan. 2006 - Sept. 2009 30%

2007

26,000 20% 2006

24,000

10% 22,000 0% 20,000 2008

18,000

2009

-10% -20%

16,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-30% 2006

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Average Weekly Canadian Rail Carloads of Grain 12,000

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Canadian Carloads of Grain From Same Month Previous Year: Jan. 2006 - Sept. 2009 30% 25%

11,000

20% 10,000

15%

2009

10% 5%

9,000

0%

2006

8,000

2008

2007

-5% -10% -15%

7,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, include CN and CP (including their U.S. operations), and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Combined U.S. + Canadian Average Weekly Rail Carloads of Grain 40,000 38,000

2007

36,000 34,000 32,000

2006

30,000

2008

28,000 26,000

2009

24,000 22,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-20% 2006

2007

2008

2009

Data are based on originations, include CN and CP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Combined U.S. + Canadian Rail Carloads of Grain From Same Month Previous Year: Jan. 2006 - Sept. 2009 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30%

2006

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 9 of 26

Average Weekly Canadian Rail Intermodal Traffic 55,000 2007

% Change in Total Canadian Intermodal Traffic From Same Month Previous Year: Jan. 2006 - Sept. 2009 15% 10%

50,000

5% 45,000

0% 2006

-5% 40,000 2008

2009

-10% -15%

35,000

-20% 30,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, include CN and CP (including their U.S. operations), and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Average Weekly U.S. Rail Carloads: All Commodities Excluding Coal and Grain 200,000 190,000

2006

2007

2008

2009

Data are based on originations, include CN and CP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in U.S. Rail Carloads Excl. Coal and Grain From Same Month Prev. Year: Jan. 2006 - Sept. 2009 10%

2006

5%

2007

180,000

0%

170,000

-5%

160,000

-10%

150,000 140,000 130,000

-25%

-15%

2008

-20%

2009

120,000

-25%

110,000

-30%

100,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-35% 2006

2007

2008

2009

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Average Weekly U.S. Rail Carloads of Waste and Scrap Materials

% Change in U.S. Rail Carloads of Waste and Scrap Materials From Same Month Previous Year: Jan. 2006 - Sept. 2009

12,000

20%

11,000 2007

10,000 9,000

0%

2006

-10%

8,000 7,000

10%

2009

-20% 2008

6,000

-30%

5,000

-40%

4,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-50% 2006

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 10 of 26

Average Weekly U.S. Rail Carloads of Steel and Other Primary Metal Products 16,000 2006

14,000

% Change in U.S. Rail Carloads of Steel and Other Primary Metal Products From Same Month Previous Year: Jan. 2006 - Sept. 2009 20% 10%

12,000

0% -10%

2007

10,000

2008

8,000

-20% -30%

2009

6,000

-40%

4,000

-50% -60%

2,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-70% 2006

2007

2008

2009

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

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

% Change in U.S. Rail Carloads of Crushed Stone, Sand, and Gravel From Same Month Previous Year: Jan. 2006 - Sept. 2009

28,000

15%

26,000 2007

2006

24,000

10% 5%

22,000

0%

20,000

-5%

18,000

-10%

16,000

-15%

2008

14,000

2009

-20%

12,000

-25%

10,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-30% 2006

Data are weekly average originations for each month, exclude U.S. operations of CN and CP, and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

2007

2008

2009

Data are based on originations, exclude U.S. operations of CN and CP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

For some commodities, including those in the next four sets of charts, it makes most sense to combine U.S. and Canadian carloads into a single aggregate. The U.S. and Canadian auto industries, for example, are fully integrated. Likewise, much of the paper and lumber consumed in the United States is carried by Canadian railroads, either in Canada or in the United States.

Combined U.S. + Canadian Average Weekly Rail Carloads of Motor Vehicles* 35,000 32,000

2006

% Change in Combined U.S. + Canadian Rail Carloads of Motor Vehicles* From Same Month Previous Year: Jan. 2006 - Sept. 2009 10%

2007

29,000

0%

26,000

-10%

23,000

-20%

20,000

-30%

17,000

2008

2009

-40%

14,000

-50%

11,000

-60%

8,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

*Includes parts. Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-70% 2006

2007

2008

2009

*Includes parts. Data are based on originations and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Page 11 of 26

Combined U.S. + Canadian Average Weekly Rail Carloads of Metallic Ores 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000

2007 2006

2008

2009

Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

% Change in Combined U.S. + Canadian Rail Carloads of Metallic Ores From Same Month Previous Year: Jan. 2006 - Sept. 2009 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% -80%

2006

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Combined U.S. + Canadian Average Weekly Rail Carloads of Lumber and Primary Forest Products 18,000

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Combined U.S. + Canadian Rail Carloads of Lumber and Primary Forest Products From Same Month Previous Year: Jan. 2006 - Sept. 2009 10%

16,000 2006

14,000

5% 0% -5%

12,000

2007

-10% -15%

10,000

-20%

8,000

-25%

2008

6,000

-30%

2009

-35%

4,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

-40%

2006

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Combined U.S. + Canadian Average Weekly Rail Carloads of Pulp and Paper Products 15,000

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

% Change in Combined U.S. + Canadian Rail Carloads of Pulp and Paper Products From Same Month Previous Year: Jan. 2006 - Sept. 2009 5%

14,000

2006

0%

13,000 -5%

12,000 -10% 2007

11,000 10,000

-15% 2009 2008

9,000

-20% -25%

8,000 Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Data are weekly average originations for each month and reflect revisions from original reporting. Source: AAR Weekly Railroad Traffic

Rail Time Indicators – October 14, 2009

-30%

2006

2007

2008

2009

Data are based on originations and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

Page 12 of 26

GROSS DOMESTIC PRODUCT (GDP)

There Is a Close Relationship Between Economic Growth and Freight Railroad Traffic

U.S. Bureau of Economic Analysis (BEA), measured quarterly and revised as better data become available.

What is it and why is it important? •

•

GDP measures the size of the economy and how fast it’s growing. It’s the single most conclusive piece of information on the health of an economy.

U.S. GDP fell 0.7% in Q2 2009 compared with Q1 2009, according to final estimates released by the BEA on September 30. In the first quarter, real GDP fell 6.4%.

1.9 RR Ton-Miles (right axis)

$11

1.7

$10

1.5 Real GDP (left axis)

$9

1.3

$8 1.1 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

On a broad level, GDP growth and freight rail traffic are closely related (see chart at right).

What are the latest numbers? •

$12 Real GDP (Trillions of $2000)

•

Trillions of Revenue Ton-Miles

Who releases it and when?

Sources: Bureau of Economic Analysis, AAR

U.S. GDP Growth: Q1 2003 – Q2 2010 8% 6% Actual

4% 2% 0%

•

What the BEA said on September 30: -2% “The decrease in real GDP [in Q2 2009] Forecast Estimates for Q3 2009 to Q2 2010 are the -4% primarily reflected negative consensus forecast by some 50 leading economists surveyed by The Wall Street contributions from private inventory -6% Journal in early October 2009. investment, nonresidential fixed -8% investment, residential fixed investment, 2003 2009 '10 2004 2006 2007 2008 2005 personal consumption expenditures, Q2 2009 is preliminary. Source: Bureau of Economic Analysis, Wall Street Journal and exports that were partly offset by positive contributions from federal government spending and state and local government spending.” Translation: GDP fell because higher government spending (which increases GDP) was more than offset by a number of factors that cause GDP to decline, including consumers spending less (including on housing); businesses investing in fewer machines, computers, and other equipment; businesses reducing their inventories, and lower exports.

•

Each month, The Wall Street Journal surveys some 50 leading economists. In the most recent survey, released October 8, the view was that “The worst recession since the Great Depression has left a scorched landscape that will weigh on the labor market and the broader economy for years to come.”

•

What the WSJ said: “The 48 surveyed economists expect the economy to bounce back from four quarters of contraction with 3.1% growth in [GDP] in the just-ended third quarter. Expansion is seen continuing through the first half of 2010, though at a slower rate.”

•

The consensus of the WSJ economists in the October survey called for 3.1% GDP growth in Q3 2009, 2.5% in Q4 2009, 2.6% in Q1 2010, and 2.8% in Q2 2010.

Where to go for more information: •

The most recent BEA news release on GDP, including links to detailed data tables, is here. The BEA will release its first estimate of Q3 GDP on October 29, 2009. Click here for more on the October Wall Street Journal economic survey.

Rail Time Indicators – October 14, 2009

Page 13 of 26

PURCHASING MANAGERS INDEX (PMI) Who releases it and when? •

Institute for Supply Management (ISM – formerly the National Association of Purchasing Managers), near the beginning of each month.

What is it and why is it important? •

The PMI is a compilation of data on new orders, inventory, production, supplier deliveries, and employment, based on a survey of several hundred supply managers at manufacturers throughout the United States. (Supply managers are typically in charge of purchasing/ procurement, inventory control and management, physical distribution and warehousing, and other key functions.) The PMI is considered a key indicator both of actual “on-the-ground” conditions as well as sentiment for what the near- to medium-term will hold.

•

Manufacturing accounts for approximately 12% of U.S. GDP — not as much as it used to be, but the United States is still the world’s top manufacturer. In fact, by itself, U.S. manufacturing would still be around the eighth largest economy in the world.

•

According to ISM, a PMI > 50 indicates that overall manufacturing is expanding; a PMI < 50 indicates that manufacturing is contracting. Also according to ISM, a PMI greater than 41.2, over a period of time, generally indicates an expansion of the overall economy.

What are the latest numbers? •

•

•

The PMI fell to 52.6 in September 2009 from 52.9 in August 2009, marking the first decrease in the PMI since December 2008. The “new orders” component of the PMI fell to 60.8 in September 2009 from 64.9 in August 2009. For several months, the PMI has been suggesting a far more optimistic outlook than most other economic indicators. The decline in September makes the PMI less of an outlier compared to other indicators, but it is still an outlier.

Purchasing Managers Index: January 2005 - September 2009 70 65

New Orders Component

60 55 50 45 40 Overall PMI

35 30 25 20 2005

2006

2007

2008

2009

Data are seasonally adjusted. Source: Institute for Supply Management

What the ISM said regarding the September data: “The manufacturing sector grew for the second consecutive month in September. ...[T]he recovery broadened as the number of industries reporting growth increased from 11 to 13. Both new orders and production are growing, but at a slower rate when compared to August. It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance. ...[I]f the PMI for September (52.6 percent) is annualized, it corresponds to a 3.6 percent increase in real GDP annually."

Rail Time Indicators – October 14, 2009

PMI vs. the Next Month's U.S. Rail Carloadings Excluding Coal and Grain* (Index Jan. 2005 = 100) 110 Next Month's Rail Carloads

100 90

PMI

80 70 correlation over entire period = 87%

60 50 2005

2006

2007

2008

2009

*Jan. 2005 PMI vs. Feb. 2005 rail carloadings, etc., so rail carloads are always one month behind. PMI is seasonally adjusted; carloads are not. Carloads exclude the U.S. operations of CN and CP. Sources: ISM, AAR

Page 14 of 26

•

Since January 2005, PMI has corresponded closely with the following month’s U.S. rail carloads excluding coal and grain1 — though that relationship has become less robust since late 2008, when PMI first fell much farther and has now risen much more rapidly PMI New Orders vs. U.S. Rail Carloadings than rail carloads. (See chart on Excluding Coal and Grain Two Months Later* previous page.) That’s another reason (Index Jan. 2005=100) 120 to suspect that the PMI might be Rail Carloads 110 overstating the magnitude of a Two Months Later 100 turnaround in manufacturing and the economy. 90

•

Likewise, over the past few years, the new orders component of PMI has been closely correlated with U.S. rail carloadings excluding coal and grain two months in the future, but that relationship too has cooled since new orders began surging rapidly.

80 PMI New Orders

70 60

correlation = 80%

50 40 2005

2006

2007

2008

2009

*Jan. 2005 New Orders PMI vs. Mar. 2005 rail carloadings, etc., so rail carloads are always two months behind. PMI is seasonally adjusted; carloads are not. Carloads exclude the U.S. operations of CN and CP. Sources: ISM, AAR

Where to go for more information: •

The press release for the September PMI is here – it includes much more detail than the summary above. The October PMI will be released on November 2, 2009.

MANUFACTURING INVENTORIES AND SALES Who releases it and when? •

The U.S. Census Bureau, near the beginning of each month, covering the month two months prior. (E.g., the report released in early October has data covering August.)

What is it and why is it important? •

The report is based on data reported from manufacturing establishments with $500 million or more in annual shipments. Units may be divisions of diversified large companies, large homogenous companies, or single-unit manufacturers in 89 industry categories. Figures are adjusted for seasonal and trading-day differences but not for price changes.

•

Manufacturers don’t want to hold too much inventory because it costs money to store it and it can become obsolete or spoil. Moreover, inventory earns no return on investment. But manufacturers don’t want too little inventory either, or they could lose sales. Like Goldilocks, they want an inventory level that’s “just right.”

•

When sales fall, inventories must rise if production is kept at the same pace. Eventually, when inventories are too high, “de-stocking” occurs via production cuts. This leads to job losses, fewer raw material purchases, and other negative economy-wide effects.

•

Conversely, when sales rise, either inventories must fall, production must increase, or both. Eventually, inventories becomes too low and “re-stocking” occurs via production increases. This means more employment, more raw material purchases, and other positive economy-wide effects.

1

Due to seasonality issues such as harvests, the role of exports, and other factors, rail carloads of coal and grain are more volatile and less closely tied to manufacturing than other commodity categories. And since PMI focuses on manufacturing, it makes sense to exclude coal and grain when comparing rail traffic to the PMI.

Rail Time Indicators – October 14, 2009

Page 15 of 26

What are the latest numbers? •

•

•

•

•

(Seasonally-Adjusted, $ Billions)

Seasonally-adjusted manufacturing sales were basically flat in August 2009 for the second straight month. In fact, manufacturing sales have been more or less flat for all of 2009.

$575

Seasonally-adjusted manufacturers’ inventories fell 0.8% in August 2009 from July 2009, marking the 12th straight monthly decrease. Inventories in August 2009 were 11% below their year-earlier level.

$450

$550 $525

The inventory-to-sales ratio lends itself to a much less optimistic outlook for U.S. manufacturing than the purchasing managers index does (PMI — see page 14). Given how much higher the manufacturing inventory-to-sales ratio is relative to its recent norms, it seems unlikely that inventory “re-stocking” will provide a significant boost to U.S. manufacturing in the near term. (Some industries will fare better or worse than others, of course.) Things are headed in the right direction — just not terribly quickly. Since January 2005, there has been a very close negative correlation (i.e., when one goes up, the other goes down) between the inventory-sales ratio for manufacturing and rail carloads excluding coal and grain (see chart at right). This inverse relationship has not always been as close as it is now and might not be as close in the future, but current data continue to provide a great illustration of the “derived-demand” nature of freight railroading.

The Census Bureau’s full report on manufacturing sales and inventories in August is here. Figures for September will be released on November 3.

Rail Time Indicators – October 14, 2009

Manufacturing inventories

$500 $475

Manufacturing sales

$425 $400 $375 $350 $325

2005

The inventory-to-sales ratio fell 0.5% in August 2009 from July 2009 to 1.38. That’s down from a peak of 1.46 in January 2009 and March 2009.

Where to go for more information: •

Manufact. Sales & Inventories: Jan. 2005 - Aug. 2009

2006

July 2009 is preliminary.

2007

2008

2009

Source: U.S. Census Bureau

Inventory-Sales Ratio for Manufacturing: January 2005 - August 2009 1.5

1.4

The inventory-sales ratio (inventory/sales) for U.S. manufacturing fell again in August 2009, though it must fall much further still to get to its "normal" level.

1.3

1.2

1.1

1.0 2005

2006

2007

2009

2008

Data are seasonally-adjusted. Source: U.S. Census Bureau

The Manufacturing Inventory-Sales Ratio vs. U.S. Rail Carloadings Excluding Coal and Grain* (Index Jan. 2005 = 100) 130 120

Mfr. Inventory-Sales Ratio

110 100 90 Rail Carloads

80 70

correlation = -96%

60 50 2005

2006

2007

2008

J-Aug '09

Inventory-sales ratio is seasonally adjusted; carloads are not. Data are 3-month moving averages. Carloads exclude U.S. operations of CN and CP. Sources: Census Bureau, AAR

Page 16 of 26

INDEX OF INDUSTRIAL PRODUCTION Who releases it and when? •

The U.S. Federal Reserve Board, around the middle of each month.

What is it and why is it important? •

Industrial production figures are based on the monthly raw volume of goods produced by U.S. industrial firms such as factories, mines, and electric utilities. Sector breakdowns are available. The industrial sector generally exhibits the most volatility in output during a business cycle. Large changes in industrial output can mean that a business cycle has reached an inflection point.

What are the latest numbers? •

Seasonally-adjusted total industrial production rose 0.8% in August 2009 from July 2009. Nothing earth shattering, but it is the second straight monthly increase following a revised 1.0% increase in July 2009.

•

Industrial production has fallen so much since the recession started that if industrial production grew the same 0.8% each month going forward, it would take about 1½ years just to get back to the level it was at in late 2007/early 2008.

Where to go for more information: •

The Federal Reserve release on industrial production in August is here. September data will be released on October 16, 2009. U.S. Industrial Production: Total January 2005 - August 2009

Overall U.S. Industrial Production: % Change From Previous Month January 2005 - August 2009

(January 2005 = 100) 110

2% Resumption of operations after hurricanes.

105

1%

100

0%

95

-1%

90 85

July 09 to Aug 09: +1.0% Aug 08 to Aug 09: -10.7%

-2%

July 09 to Aug 09: +1.0% Aug 08 to Aug 09: -10.7%

-3%

80

-4% -5%

75

2005

2006

2007

2008

2009

2005

Seasonally adjusted. Source: U.S. Federal Reserve Board

2006

2007

2008

2009

Seasonally adjusted. Source: U.S. Federal Reserve Board

U.S. Industrial Production: Select Sectors January 2005 - August 2009

U.S. Industrial Production: Select Sectors January 2005 - August 2009

(January 2005 = 100)

(January 2005 = 100) 130

115

120

110

Manufacturing

105 Chemicals

RR rolling stock

Coal mining

110 100

100

90

95

80

90

70

85

60

Paper

Iron & steel products

80

50

75

40 2005

2006

2007

2008

Seasonally adjusted. Source: U.S. Federal Reserve Board

Rail Time Indicators – October 14, 2009

2009

2005

2006

2007

2008

2009

Seasonally adjusted. Source: U.S. Federal Reserve Board

Page 17 of 26

CAPACITY UTILIZATION Who releases it and when? •

The U.S. Federal Reserve Board, around the middle of each month.

What is it and why is it important? •

Capacity utilization attempts to capture the concept of sustainable maximum output — i.e., the highest output a plant can maintain assuming a realistic work schedule, normal downtime, and sufficient availability of inputs to operate the capital in place. The Fed provides capacity indexes for 87 industries (69 in manufacturing, 16 in mining, and 2 in utilities).

•

In theory, a capacity utilization rate of, say, 70% means there is room to increase production up to 100% without having to build new plants or add equipment. In practice, capacity utilization rates (at least on an economy-wide basis) never come close to 100%. Utilization levels above 82%85% are generally considered "tight" and forecast price increases or supply shortages in the near future. The farther below this level, the more slack there is in the economy.

What are the latest numbers? •

•

•

•

Capacity utilization for total industry (mining, manufacturing, and gas and electric utilities) rose to 69.6% in August 2009, up 0.6% from the 69.0% in July 2009. This marks the second straight monthly increase and the highest level since February 2009. Capacity utilization in June 2009 was the lowest ever recorded (the series began in 1967). Thus, there’s an element of “there’s nowhere to go but up” to the figures for July and August.

U.S. Capacity Utilization: January 2005 - August 2009 85% Bars = Total Industry Red Line = Manufacturing 80%

75%

70%

65%

60% 2005

2006

2007

2008

2009

Source: U.S. Federal Reserve Board

Capacity utilization for manufacturing was 66.7% in August 2009, up from a revised 66.2% in July 2009 and also the highest since February 2009.

U.S. Capacity Utilization: January 2005 - August 2009 100% Iron & steel products

90%

The capacity utilization rates of different industrial sectors vary widely. 80% The chart at right shows capacity 70% utilization for four important industrial Motor vehicles and parts sectors. Note how capacity utilization 60% for iron and steel products neared or 50% exceeded 90% in late 2007 and early Bars = Nonmetallic minerals mining & quarrying 2008 and then fell off a cliff in late 40% 2008. It has been slowly recovering over the past couple of months. It’s 30% 2005 2006 2007 2008 not a coincidence that the producer Source: U.S. Federal Reserve Board price index for iron and steel products (not shown on graph) surged sharply in early and mid-2008 and then fell sharply in late 2008.

Chemicals

2009

Where to go for more information: •

The Federal Reserve release on capacity utilization in August is here. September data will be released on October 16, 2009.

Rail Time Indicators – October 14, 2009

Page 18 of 26

NUMBER OF EMPLOYED PERSONS AND UNEMPLOYMENT RATE Who releases it and when? •

U.S. Bureau of Labor Statistics (BLS) near the beginning of each month.

What is it and why is it important? •

The figures provide a snapshot of the strength of the U.S. labor market and are based on surveys of tens of thousands of households and businesses. In the United States, a gain of at least 150,000 or more jobs from one month to the next is generally considered solid job growth. (Average monthly U.S. job growth from September 2003 through December 2007 was 159,000 jobs.) Anything less constitutes a weak job market.

•

Employment is often considered a lagging indicator because employers often decide to wait until they’re sure an economic recovery is here to stay before making new hires.

•

Weak job numbers cause even the still-employed to become less confident of the future, and, therefore, less prone to spend money (see “Consumer Confidence” and “Retail Sales” below).

What are the latest numbers? •

•

•

•

Net U.S. non-farm employment fell by 263,000 in September 2009 from August 2009. The decline in September was low by 2009 standards, but was an increase from 216,000 net jobs lost in August. The U.S. unemployment rate in September 2009 rose to 9.8%, up from 9.7% in August. In the 21 months from January 2008, the U.S. economy has lost 7.2 million net jobs. It is widely expected that the unemployment rate will stay high for several more years. The consensus of the panel of economists surveyed by The Wall Street Journal in early October 2009 was that unemployment won’t fall below 6% — where it was for several years prior to mid-2008 — until 2013. Some jobs might not come back even in a strong recovery if employers decide that, thanks to productivity gains, they can return to or even exceed previous levels of output with fewer employees than they had before.

Change in U.S. Non-Farm Employment* January 2005 - September 2009 (000s) 400 300 200 100 0 -100 -200 -300 -400 -500 -600 -700 -800

2005: +2.5 million jobs 2006: +2.1 million jobs 2007: +1.2 million jobs 2008: -3.1 million jobs Jan-Sep 09: -4.1 million jobs

2005

2006

2007

2008

2009

*Change from previous month. Seasonally adjusted. Source: U.S. Bureau of Labor Statistics

U.S. Unemployment Rate: Jan. 2005 - Sep. 2009* 12% 11% 10% 9% 8%

The official U.S. unemployment rate rose to 9.8% in September 2009 from 9.7% in August 2009. The much higher unemployment rate for men than for women is in large part a function of huge job losses in male-dominated sectors like construction.

Men

7% 6% 5%

Where to go for more information:

4%

•

3%

The BLS press release on the employment situation in September 2009 is here. Data for October 2009 will be released on November 6, 2009.

Rail Time Indicators – October 14, 2009

Women

2005

2006

2007

2008

2009

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

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CLASS I RAILROAD EMPLOYMENT Who releases it and when? •

Surface Transportation Board (STB), around the middle of the month.

What is it and why is it important? •

Report showing the average number of Class I employees at mid-month. As in other industries, employment in the rail industry is in large part a function of the level of business — i.e., how much freight is being hauled.

What are the latest numbers?

Class I Railroad Employment: Jan. 2002 - Aug. 2009

•

170,000

Class I railroad employment fell to 150,064 in August 2009, down 336 employees from July’s 150,400. Class I employment is now more than 18,500 employees below the recent peak of 168,582 in November 2006. The subcategory “train and engine” employees — consisting mainly of engineers and conductors that actually run the trains — showed an increase of 353 employees in August 2009.

165,000 160,000 155,000 150,000 145,000 140,000

Where to go for more information: •

2002

2003

2004

2005

2006

2007

2008

2009

Data are not seasonally-adjusted. Source: STB

The STB web site for employment data is here.

INDEX OF CONSUMER CONFIDENCE Who releases it and when? •

The Conference Board, last Tuesday of the month.

What is it and why is it important? •

An index based on a monthly survey of 5,000 U.S. households designed to gauge the financial health, spending power, and confidence of the average consumer. Respondents are asked about current conditions and their expectations for the next six months.

•

The index is used mainly to predict future consumer spending, on the theory that consumers who are confident about their job prospects, income, etc. are more likely to make purchases (especially big-ticket purchases) than pessimistic consumers.

What are the latest numbers? •

On September 29, the Conference Board reported that the consumer confidence index fell in September 2009 to 53.1, down from a revised 54.5 in August 2009.

•

What the Conference Board said on September 29: “Consumer confidence, which had improved in August, retreated slightly in September. The Present Situation Index decreased, as consumers viewed both current business conditions and the labor market less favorably than last month. While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news."

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Index of Consumer Confidence: January 2005 - September 2009

U.S. Consumer Confidence vs. Unemployment Rate January 2005 - September 2009

(Index 1985 = 100)

(Index 1985 = 100) 140

120 110

Inverse of the U.S. Unemployment Rate

120

100 90

100

80

80

70 60

60

50

40

Consumer Confidence

40 20

30

correlation over entire period = 86%

20

2005

2006

2007

2008

0

2005

2009

•

2006

2008

2007

2009

Source: Conference Board, BLS, AAR

Source: Conference Board

There is a close correlation between consumer confidence and the unemployment rate (see chart above right), suggesting that if predictions that unemployment will remain near 10% for the foreseeable future hold true, it could be a while before consumer confidence recovers to where it was in 2006 and 2007.

Where to go for more information: •

The Conference Board’s press release on the consumer confidence index in September is here.

RETAIL SALES Who releases it and when? •

The U.S. Census Bureau, around the ninth business day of each month.

What is it and why is it important? •

Uses a monthly survey of 5,000 retailers of all types to track the dollar value of physical merchandise sold. The data are adjusted for holiday differences and seasonal variations, but are subject to sometimes-large revisions and are not adjusted for inflation.

•

Personal consumption accounts for approximately 70% of U.S. GDP. Thus, the health of the economy depends largely on how much “stuff” people buy.

•

It often takes time for consumers to recover from and respond to economic events. Thus, an increase in spending today may reflect the results of an economy that began to recover a few months earlier. A decrease in spending today may confirm an ongoing or worsening recession.

Retail Sales: January 2005 - September 2009 ($ billions) $390 $380 $370

2005: +4.7% 2006: +5.1% 2007: +3.3% 2008: -10.6%

Aug 09 Sep 09: -1.5%

$360 $350

What are the latest numbers?

$340

•

$330

Total retail sales fell 1.5% ($5.2 billion) in September 2009 from August 2009. Sales at motor vehicles and parts dealers fell $6.5 billion in September, more than accounting for the overall decline. Excluding motor

Rail Time Indicators – October 14, 2009

$320 $310 $300 2005

2006

2007

2008

2009

Data are seasonally adjusted. Source: U.S. Census Bureau

Page 21 of 26

vehicles and parts, retail sales in September were up 0.5%, or $1.3 billion, including a 0.9% increase ($440 million) at general merchandise stores (e.g., department stores, warehouse stores, supercenters). •

It’s worth highlighting again that personal consumption contributes about 70% of GDP. That’s why continued weakness in retail sales highlights one of the major threats to economic recovery. Without vibrant consumer spending, it will be difficult for the economy to consistently improve. And as The Wall Street Journal recently pointed out, “Savings by suddenly frugal U.S. households soared to an annualized $566 billion in the second quarter, more than quadruple the rate at the start of 2008.” Money saved is money not spent.

Where to go for more information: •

The Census Bureau’s press release on September retail sales is here. October retail sales will be released November 16, 2009.

LIGHT VEHICLE SALES Who releases it and when? •

The U.S. Bureau of Economic Analysis. U.S. Light Vehicle Sales: Jan. 2005 - Sept. 2009

What is it and why is it important? •

•

(Seasonally-Adjusted Annualized Rate in Millions) 22

Covers U.S. sales of cars and light trucks, including pickups and SUVs. Over the past 50 years, spending on motor vehicles has accounted, on average, for about 3.7% of U.S. GDP.

20

"Employee pricing" promotion

18 16

Aug. 09 to Sep. 09: -35% Sep. 08 to Sep. 09: -26% "Cash For Clunkers" program

14 12 10

In 2008, 6% of U.S. Class I railroad revenue came from hauling autos and auto parts.

8 6 4 2

What are the latest numbers? •

•

With the end of the “cash for clunkers” program, U.S. light vehicle sales in September 2009 plunged 35% from August 2009 to a seasonally-adjusted annualized selling rate (SAAR) of 9.2 million — the same level it was back in April 2009. Light vehicle sales in September 2009 were 26% below September 2008. Rail carloads of motor vehicles and parts are closely correlated with motor vehicle sales. There was an uptick in rail carloads of autos and auto parts in September 2009, presumably in part a function of inventory replenishment efforts by auto dealers after cash-forclunkers sales.

0

2005

2006

2007

2008

2009

Data include passenger cars, SUVs, minivans, and pickups. Seasonally-adjusted. Source: BEA

U.S. Light Vehicle Sales* vs. Combined U.S. and Canadian Rail Carloads** of Autos and Auto Parts (Index Jan. 2005 = 100)

130 120 110 100 90 80 70 60 50 40 30

Auto sales RR carloads of autos and auto parts

2005

2006

2007

2008

2009

*Passenger cars, SUVs, minivans, and pickups. Vehicle sales are seasonally-adjusted annualized selling rate. **Railroad carloads are unadjusted, 3-month moving averages. Source: AAR, BEA

Where to go for more information: •

BEA data on auto sales are here.

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HOUSING STARTS Who releases it and when? •

Census Bureau, around the middle of each month.

What is it and why is it important? •

A housing start is beginning the foundation of a residential home.

•

Housing directly accounts for around 5% of the overall economy and has large spillover effects on other sectors, such as retail sales and manufacturing, since people buying new homes tend to spend on other goods such as furniture, lawn and garden supplies, and U.S. Housing Starts: January 2005 - August 2009 appliances.

•

Housing starts are generally considered to be a “leading indicator” — construction growth usually picks up at the beginning of a business cycle.

(Seasonally-Adjusted Annualized Rate, Millions)

What are the latest numbers? •

On an annualized basis, seasonallyadjusted housing starts in August 2009 were up 1.5% to 598,000 from July 2009. Housing starts have now shown a very slight upward trend over the past few months.

2.5 2.3 2.0

July 09 to Aug 09: +1.5% Aug 08 to Aug 09: -27.3%

1.8 1.5 1.3 1.0 0.8 0.5 0.3 0.0 2005

2006

2007

2008

2009

Source: U.S. Census Bureau

Where to go for more information: •

The Census Bureau’s press release on housings starts in August is here. September’s housing starts will be released on October 20, 2009.

CONSUMER PRICE INDEX (CPI) Who releases it and when? •

U.S. Bureau of Labor Statistics (BLS), mid-month.

What is it and why is it important? •

The CPI is the benchmark inflation guide for the U.S. economy, measuring the changes in the cost of a representative basket of consumer goods and services. Prices are collected in 87 urban areas throughout the country and from about 23,000 retail and service establishments.

•

The “CPI for All Urban Consumers” (CPI-U) is the inflation index most often reported by the media, although BLS publishes hundreds of CPI indexes each month. The “core” CPI — CPI less food and energy — is also commonly used. Food and energy prices are typically more volatile than other prices due to their susceptibility to external shocks (e.g., oil price fluctuations).

•

Among other uses, the CPI is the basis for cost-of-living adjustments for Social Security, federal retirement payments, many private pensions, and food stamps.

What are the latest numbers? •

In August 2009, CPI-U was up 0.4% on a seasonally-adjusted basis compared with July 2009, but down 1.4% on a year-over-year basis, due in part to sharply lower energy costs.

•

On an unadjusted basis, CPI-U was down 1.5% in August 2009 compared with August 2008.

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•

What BLS said: “The 0.4 percent seasonally adjusted increase in the CPI-U was driven by a 9.1 percent rise in the gasoline index. This increase accounted for almost the entire advance in the energy index and over 80 percent of the overall increase. Despite the August increase, the gasoline index has fallen 30.0 percent over the last 12 months..”

Where to go for more information: •

The BLS press release on the July CPI is here. September’s CPI will be released on October 15.

Consumer Price Index*: January 2005 - Aug. 2009 (Index Jan. 2005 = 100) 116 114 112 110

2005: +3.4% 2006: +2.5% 2007: +4.2% 2008: -0.1%

CPI all items July 2009 to Aug 2009: +0.4% (flat)

108 106 CPI less energy and food

104 102 100 98 2005

2006

2007

2008

2009

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

RAILROAD COST INDEXES Who releases it and when? •

The Association of American Railroads (AAR), quarterly.

What is it and why is it important? •

It details changes in the price level of inputs to freight railroad operations.

What are the latest numbers? •

450 400

From Q3 2008 to Q3 2009, railroad wage prices rose 5.1%; wage supplements (i.e., fringe benefits) rose 3.7%; fuel fell 54.6%; and the price of materials and supplies in aggregate rose 12.0%. From Q2 2009 to Q3 2009, railroad wage prices rose 1.5%; wage supplements fell 0.1%; fuel rose 21.1%; and the price of materials and supplies in aggregate rose 2.7%.

Where to go for more information: •

Railroad Chargeout* Prices: Q1 2004 - Q3 2009 (Index Q1 2004 = 100)

350 300 250

Wages rates Wage supplements Fuel Material & supplies

Q3 08Q3 09

Q2 09Q3 09

5.1% 3.7% -54.6% 12.0%

1.5% -0.1% 21.1% 2.7%

200 150 100 50 0 Wage Rates

Wage Supplements

Fuel

Materials & Supplies

*Chargeout prices and wage rates are the prices of expensed items at the time they are actually consumed and charged to the expense accounts. Source: AAR Railroad Cost Indexes

See the AAR web site here or contact Clyde Crimmel at 202-639-2309 or [email protected]. The next quarterly release will be near the end of December 2009.

U.S. DOLLAR EXCHANGE RATE Who releases it and when? •

The Federal Reserve Board, daily.

What is it and why is it important? •

An index comprised of a weighted average of the value of the U.S. dollar against the currencies of a group of major U.S. trading partners.

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•

An exchange rate is the price of one currency against another. A weaker U.S. dollar (“depreciation”) means that U.S. imports become relatively more expensive and U.S. exports become relatively less expensive abroad. 2 All else equal, that means fewer U.S. imports and more U.S. exports. U.S. exports of coal and grain rose substantially in 2007 and 2008, due in part to a lower-valued dollar that made these exports less expensive in global U.S. Dollar Exchange Rate*: Jan. 2005 - Sept. 2009 markets. (Index Jan. 2005 = 100)

•

Conversely, a stronger dollar (“appreciation”) means U.S. imports become relatively cheaper and U.S. exports become more expensive. All else equal, that means more U.S. imports and fewer U.S. exports.

What are the latest numbers? •

The U.S. dollar has been weakening since March 2009. It fell another 0.2% in September 2009 from August 2009.

Where to go for more information: •

104 102 100 98 96 94 92 90 88 86 84 82 80

Aug. 09 to Sept. 09: -0.2% Sept. 08 to Sept. 09: +2.8%

↑ = dollar is getting stronger ↓ = dollar is getting weaker

2005

2006

2007

2008

2009

*Weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners. Source: Federal Reserve Board

Information from the Federal Reserve on exchange rates is here.

DOW JONES ECONOMIC SENTIMENT INDICATOR (ESI) Who releases it and when? •

Dow Jones, on the last business day of the month.

What is it and why is it important? •

The ESI was unveiled on April 30, 2009, so its long-term usefulness is not yet known. According to Dow Jones, the ESI “aims to predict the health of the U.S. economy by analyzing the coverage of 15 major daily newspapers in the U.S. It uses a numerical scale from 0 to 100 to express the balance of sentiment in articles about the economy. ...The ESI’s back-testing to 1990 ...suggests the indicator can help predict economic turning points as much as seven Dow Jones Economic Sentiment Indicator: months in advance of other indicators.” April 2008 - September 2009

What are the latest numbers?

50

•

The ESI for September 2009 was 34.1, down from 35.5 in August and the first decline in seven months.

45

According to Dow Jones, “[M]edia coverage of a higher unemployment rate, continued weakness in the housing market and generally mixed economic news outpaced that of limited positive economic news for the month. ... While the ESI’s drop could be an early indication of the double dip some economists have been warning about,

35

•

(Maximum = 100)

40

30 25 20

Apr-Dec 2008

Jan-Sept 2009

Source: Dow Jones

2

For example, suppose a U.S. coal mine wants to export a $50 ton of coal to Germany. At $1.50 per euro, the coal costs 33 euros ($50/1.5) in Germany. If the dollar gets stronger so that one euro falls to $1.20, the cost of the coal rises to 42 euros ($50/1.2). If the dollar gets weaker so that one euro is, say, $1.80, the coal falls to 28 euros ($50/1.8).

Rail Time Indicators – October 14, 2009

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any sentiment data can be expected to show some random volatility. ... The [ESI] has previously proved much less volatile than other sentiment indicators. The fall in September still leaves it above the level for July.” Where to go for more information: •

Information on the Dow Jones ESI is here. The October ESI will be released at the end of October.

RAIL FREIGHT CARS IN STORAGE Who releases it and when? •

The Association of American Railroads, each month in Rail Time Indicators.

What is it and why is it important? •

The AAR began measuring this in March 2009. (Data for previous periods are not available.) A freight car is deemed to be “in storage” if it has not had a loaded revenue move in more than 60 days. Rail cars are stored when they are not needed; they come out of storage when they are. Figures are for the entire North American rail freight car fleet. Freight Cars in Storage on North American Railroads:

What are the latest numbers? •

As of October 1, 2009, freight cars in storage fell to 462,410, or 29.4% of the North American fleet, down from 478,046 (30.4%) on September 1 and 489,469 (31.1%) on August 1. More than 15,000 cars came out of storage between September 1 and October 1.

March 2009 - October 2009 550,000 500,000 450,000 400,000 350,000

Where to go for more information: •

Contact Frank Hardesty of the AAR’s Policy and Economics Department at 202-639-2321 or [email protected].

n/a 300,000 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Figures are as of the first of the month. Source: AAR

****************************************************** To get on the e-mail distribution list for Rail Time Indicators, send a request to Beth Eagney at [email protected]. If you have questions or comments about the content of Rail Time indicators, contact Dan Keen ([email protected]) or Shannon Stare ([email protected]). Previous editions of Rail Time Indicators are available on the AAR web site here. Information in Rail Time Indicators is obtained from sources believed to be reliable. However, the Association of American Railroads makes no representations as to the accuracy or completeness of such information and assumes no liability for errors or omissions.

Rail Time Indicators – October 14, 2009

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