Friday, December 3, 2010

Buffet's Favourite Indicator Showing Signs of Moderation

One of my favourite economic indicators is the weekly report on rail traffic produced by the Association of American Railroads (AAR). It is published weekly and gives a timely update on industrial activity. Indeed, Warren Buffet reportedly uses this as his favourite indicator.

I've dissected the numbers and broken them down into the following table, in order to get a fix on how the US economy is performing.
2010 vs. 2009 Period to Period Percentage increase in rail road car load volumes
TotalChemicals        Grain Coal
Jan-0.7%13.2%17.0%-12.1%
Feb-1.5%11.3%8.7%-9.9%
March7.5%15.5%20.4%-0.1%
April15.8%14.1%17.5%7.1%
May15.8%6.8%15.3%6.8%
June10.6%11.6%11.9%2.1%
July4.1%3.7%4.9%-0.4%
Aug5.7%4.3%5.5%1.1%
Sep7.7%7.1%13.8%4.7%
Oct8.7%6.8%11.9%5.3%
Nov65.1%9.0%-9.1%4.0%
Nov135.8%4.1%5.4%2.4%
Nov203.9%4.0%2.4%1.8%
Nov273.2%2.8%-9.8%3.4%
Nov 4.5%5.0%-2.6%2.9%

source: association of american railroads, markets and culture


In fact, the last weekly number (Nov27) is rather weak because in the comparative week in 2009 the Thanksgiving holiday was included in the numbers. It is also to note, how much stronger growth was in H1 of 2010 and the pick up in growth that occurred from mid-July onwards. The car number here is the 'total' number in the first column.

I've included chemicals because it tends to be a cyclical sector. I suspect the dramatic increase in grain in Sep/Oct was due to the Russians halting wheat exports coupled with an exceptional US wheat harvest for 2010.

The stock market wobble from May until mid summer correlates nicely with the drop of in activity. My reading of the situation is that this was due to fears over European Sovereign Debt issues and that this lead to an effect on sentiment in the global economy. Naturally, if the current problems have legs then the corollary is that we could be headed for more problems.

The data certainly suggests a slight moderation in growth, but it is far from clear whether this is the start of a trend or not. I believe it to be contingent upon a successful resolution of the European debt crisis and a quick resumption to foreclosure sales in the US. Unfortunately, the Global Economy is so heavily correlated that a dramatic move in one asset class has severe effects on all the others.

I'll post on this in a few weeks when we get more data, because I think it is a key indicator.


MonthPMIMonthPMI
Nov 201056.6May 201059.7
Oct 201056.9Apr 201060.4
Sep 201054.4Mar 201059.6
Aug 201056.3Feb 201056.5
Jul 201055.5Jan 201058.4
Jun 201056.2Dec 200954.9
Average for 12 months – 57.1
High – 60.4
Low – 54.4


MonthPMIMonthPMI
Nov 201056.6May 201059.7
Oct 201056.9Apr 201060.4
Sep 201054.4Mar 201059.6
Aug 201056.3Feb 201056.5
Jul 201055.5Jan 201058.4
Jun 201056.2Dec 200954.9
Average for 12 months – 57.1
High – 60.4
Low – 54.4


MonthPMIMonthPMI
Nov 201056.6May 201059.7
Oct 201056.9Apr 201060.4
Sep 201054.4Mar 201059.6
Aug 201056.3Feb 201056.5
Jul 201055.5Jan 201058.4
Jun 201056.2Dec 200954.9
Average for 12 months – 57.1
High – 60.4
Low – 54.4


MonthPMIMonthPMI
Nov 201056.6May 201059.7
Oct 201056.9Apr 201060.4
Sep 201054.4Mar 201059.6
Aug 201056.3Feb 201056.5
Jul 201055.5Jan 201058.4
Jun 201056.2Dec 200954.9
Average for 12 months – 57.1
High – 60.4
Low – 54.4

2 comments:

  1. i think grain gets higher priority when compared to last year.

    ReplyDelete
  2. Hi Singh, Thanks for your comment. I think the increase in grain is due to good harvest in the US. Also, the Russians halted grain exports which meant that the US would have been encouraged to export more. In other words, they move more grain towards export terminals (ports etc)

    ReplyDelete