Railroad Traffic is Indication of Depressed Economy

Note: the graph indicated, show gas price rising this year. It is risen 50 days in a row, the longest streak in records dating to 1996.
By Tom Dyson

In 2005, I wandered into the Simpson Yard in Jacksonville and struck up a conversation with the duty manager. The Simpson Yard belongs to the Norfolk and Southern Railroad. It's their major freight yard in Jacksonville.

"We're slammed," he told me. "We are turning business away we are so busy."

Railroad activity is one of my favorite economic indicators. Railroads haul the most important commodities and goods around the country, like coal, autos, chemicals, lumber, and container boxes. When railroad activity booms, you can bet the economy is booming, too. When the railroads are having problems, it's a safe bet the economy is shrinking.

Last week, I took my son to watch freight trains at a spot train watchers call the Folkston Funnel. Things have changed since 2005...

Jacksonville is the only major city in Florida that does not depend on tourists. It's an industrial town and a major seaport. It's also a major railroad center. Goods leave Jacksonville on mainline "trunk" routes heading south, north, west, and to the Midwest. In other words, Jacksonville is a fantastic place to judge railroad activity.

CSX is the third-largest railroad in America, and it's headquartered in Jacksonville. Two of CSX's busiest routes converge at Folkston, Georgia, about 20 miles north of Jacksonville. And the "Folkston Funnel" is one of the best spots east of the Mississippi River for watching freight trains.

"It's quiet at the moment," said a man with a camera and a notepad. "They've pulled 12 trains a day from the schedule."

"They've closed the yard to the south of here too," he said. "They're using it to store rolling stock, but no trains depart from there anymore."

Right now in America, there are half a million freight cars rusting away on rural sidetracks and in shuttered freight yards. The situation is so bad, some small communities have staged protests to make the railroads remove abandoned freight cars from their neighborhoods. The wagon strings cut towns in half and look ugly. (The Indy Star ran a story about this Here.)

It's the same with locomotives. A new railroad locomotive costs over $2 million. According to Progressive Railroading, the U.S. railroad industry has over 5,000 locomotives "mothballed" and out of service... around 25% of America's total locomotive fleet.

Each week, the Association of American Railroads counts the number of railcars loaded by the railroads. The number of railcars loaded has fallen all year, including double-digit declines in April and May. Loadings so far in 2009 are down about 20% from the same period last year.


The message from the rails is this: The economy is getting worse, and there's no boom in sight. That's in direct conflict with the economic recovery they're talking about on Wall Street.

Judging by the rail pulse, the economy is weak. I don't trust the current move up in the stock market. My guess is it's a giant bear market rally.

Good investing,

Tom