Stocks And Bitcoin May Be Dropping, But Rail Volumes Say 'All Is Well'

The FANG stocks are down, no they are up! Bitcoin has declined dramatically! When will the Fed stop raising rates, and how much will it raise them before it stops? Will there be even more trade tariffs and what will POTUS tweet next? Financial markets have been very volatile and both looking for as well as finding plenty of things to worry about. In times such as these, we prefer to go back to the basics. Are people still making things, shipping things, and buying things? According to the railroad car data, the answer is a definitive "Yes." 

We've talked at length over recent weeks about the inbound import container volume coming into our ports. We've explained at length how that drives demand for trucking, especially dry van trucking, and both the how and why of its ability to predict the strength of holiday shopping.

Another way to follow that data is found in SONAR under RTOIC.USA (Rail Traffic Originated by Intermodal Containers in the US). This weekly data includes volume picked up by all the railroads and includes both international containers coming into the ports as well as domestic containers. For similar reasons to the volume of inbound international containers, this data has also historically been highly correlated with strong consumer spending, especially in the fall.

Unlike the port container volume, it can produce false positive signals on the consumer when diesel prices spike and drive volume off the road and into domestic intermodal (the inverse is also true). That said, diesel prices have been declining in recent months and are now only about 15 percent above year ago levels, yet the rail container volume data is predicting strong consumer spending consistent with the port volume data. So, the consumer economy is still making things, shipping things, and buying things — check.

Rail volumes continue to show strength.

What about the industrial economy? Oil prices have been declining. Most industrial companies are capital intensive and as a result more adversely effected by higher interest rates. Tariffs could arguably hurt the industrial economy long before the consumer economy. So, are the market concerns  warranted?

Our favorite way to answer this question for years has been to look at the volume of chemicals shipped by railroads in the U.S. It has been highly predictive of both the U.S. Industrial Production and the U.S. ISM Manufacturing Index. Why? Simple reason: in order to make or assemble a magnitude of almost anything, you have to consume some chemicals. The more you are making, the more chemicals you'll need. The less you are making, the less chemicals you'll need.

Chemical volumes are a great way to monitor economic health, as nearly everything produced uses chemicals in the manufacturing process.

RTOCH.USA (Rail Traffic Originated by Chemicals – USA) is clearly signaling that the U.S. industrial economy is still making things, shipping things, and buying things – check.

Bottom line: markets often worry too much, and provide opportunities for investors and business planners with cooler heads, especially if they have the data to see a little further over the horizon that the rest of the marketplace is.