AAR Rail Time Indicators December 2011

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Rail Time Indicators

A Review of Key Economic Trends

Shaping Demand for Rail Transportation

Policy & Economics Department

Association of American Railroads

Washington, D.C.

January 6, 2012



Rail Time Indicators is issued monthly by the Policy and Economics Department of the

Association of American Railroads. It is free of charge.

To get on the e-mail distribution list for Rail Time Indicators , send a request including your nameand business affiliation, if any, 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], 202-639-2326)

or Shannon Stare ([email protected], 202-639-2322).

Copyright 2012 by the Association of American Railroads. Reproduction or retransmittal ofRail Time Indicators within a company for internal use is allowed, as is reasonable redistributionoutside a company (for example, passing it on to someone you think might be interested in it).

Unless approved by the AAR, reproduction or retransmittal for commercial use is prohibitedexcept for short excerpts or quotations. Uploading of Rail Time Indicators to a public web site is

prohibited unless approved by the AAR.

All media inquiries should be directed to Holly Arthur ([email protected], 202-639-2344).

The last six editions of Rail Time Indicators are available on the AAR web site here.

Rail traffic data in Rail Time Indicators are sometimes presented on a seasonally adjusted basisand sometimes on a non-seasonally adjusted basis. Because of the nature of the AAR’s weeklyrail traffic data and the nature of rail traffic (e.g., daily data are not available; some months havefour weeks of data and some have five; holidays may be in one rail traffic month one year and ina different month the next; rail traffic varies by the day of the week; some commodity categories

can exhibit wide swings in carloads from month to month for reasons unrelated to seasonalvariations; the weather can have significant effects on traffic), the seasonal-adjustment processfor rail traffic is not completely precise. Seasonally adjusted rail traffic data should be

considered a complement to, rather than a replacement for, unadjusted rail traffic data.

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.

http://www.aar.org/NewsAndEvents/Rail-Time-Indicators.aspx

http://www.aar.org/NewsAndEvents/Rail-Time-Indicators.aspx



Rail Time Indicators – January 6, 2012 Page 1 of 33

SUMMARY OF MOST RECENT DATA

Economic Indicator Most Recent Data

U.S. Freight Rail Traffic (p. 2) Not Seasonally Adjusted: Carloads in December 2011 7.3% overDecember 2010; intermodal in December 2011 9.4% over Dec. 2010.

Seasonally Adjusted: Carloads in December 2011 1.8% overNovember 2011; intermodal in December 2011 0.4% over Nov. 2011.

Canadian Freight Rail Traffic(p. 4)

Not Seasonally Adjusted: Carloads in December 2011 8.9% over Dec. 2010; intermodal in December 2011 10.2% over Dec. 2010.

Seasonally Adjusted: Carloads in December 2011 6.8% overNovember 2011; intermodal in December 2011 1.7% over Nov. 2011.

Gross Domestic Product(p. 19)

1.8% in Q3 2011, according to the third preliminary estimate releasedon December 22. Revised downward from 2.5% (BEA’s Octoberestimate) to 2.0% (November estimate) to 1.8% (December estimate).

Purchasing Managers Index(p. 20)

to 53.9 in December 2011 from 52.7 in November 2011. New orders

to 57.6 in December 2011 from 56.7 in November 2011.

Non-Manufact. Index (p. 20) to 52.6 in December 2011 from 52.0 in November 2011.

Manufacturing Inventoriesand Sales (p. 21)

Manufacturing sales flat, manufacturing inventories 0.5%, andinventory-to-sales ratio 0.4% in November 2011 over October 2011.

Industrial Production (p. 22) Overall industrial output 0.2% in November 2011 from October 2011;manufacturing output 0.3% in November 2011 from October 2011.

Capacity Utilization (p. 23) to 77.8% in November 2011 from 78.0% in October 2011.

Employment (p. 25) 200,000 net new jobs created in December 2011.

Unemployment Rate (p. 25) to 8.5% in December 2011 from 8.7% in November 2011. Lowestlevel since February 2009.

Class I RR Employment(p. 26)

132 in November 2011 from October 2011 to 160,119 employees.

Consumer Confidence (p. 27) to 64.5 in December 2011 from 55.2 in November 2011.

Retail Sales (p. 28) 0.2% ($883 million) in November 2011 over October 2011.

Light Vehicle Sales (p. 29) to 13.5 million (annualized) in December 2011 from 13.6 million inNovember 2011.

Housing Starts (p. 30) 9.3% in November 2011 to 685,000 from 627,000 in October 2011.

Consumer Price Index (p. 32) Flat in November 2011 compared with October 2011 and 3.4% for theyear ending November 2011.

Rail Freight Cars in Storage(p. 33)

to 273,390 on January 1, 2012 (18.0% of the fleet), up 9,478 carsfrom December 1, 2011.




U.S. AND CANADIAN FREIGHT RAILROAD TRAFFIC

What is it and why is it important?

The Association of American Railroads (AAR) releases its Weekly Railroad Traffic report everyThursday morning. The report contains rail traffic data for the previous week. Weekly data areaggregated into monthly figures in Rail Time Indicators . Railroads reporting to the AARcollectively handle about 95% of total U.S. and Canadian freight rail traffic.

AAR rail traffic data are reported as carloads or as intermodal units. Carload traffic is classifiedinto one of 20 different commodity categories (see the table on page 6 for a list) and is carried ina variety of rail car types (e.g ., tank cars, covered hoppers, gondolas, boxcars, etc.). A unit of railintermodal traffic is either a shipping container (about 85% of U.S. rail intermodal traffic) or a trucktrailer (about 15%) carried on a railroad flat car. Intermodal is not included in carload figures.Commodity detail on the freight inside the container or trailer is not available.

Freight railroading is a “derived demand” industry: demand for rail service occurs as a result ofdemand elsewhere in the economy for the products railroads haul. Thus, rail traffic is a usefulgauge of broader economic activity, especially of the “tangible” economy.

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

A good beginning, some uncertainness in the middle, and a good ending — that describes U.S.rail traffic in 2011. Total carloads for the year were 15.2 million, up 2.2% over 2010’s 14.8million and up 9.7% over 2009’s 13.8 million. Total U.S. rail intermodal volume in 2011 was11.9 million containers and trailers, up 5.4% over 2010’s 11.3 million units and up 20.4%over 2009’s 9.9 million units.

Unfortunately, there’s still a ways to go before U.S. railroads recover all they lost in the recession.U.S. rail carload and intermodal traffic both peaked in 2006, and then bottomed out in 2009. In2009, total carloads were 20.2% lower than in 2006, and intermodal volume was 19.6% lower. In2011, total carloads were 12.4% lower than in 2006 and intermodal volume was 3.2% lower.

Put another way, in 2011 U.S. railroads had recovered about 38% of the carload traffic they hadlost in the recession from the 2006 peak, and intermodal volume had come about 84% of the wayback. The charts below illustrate how intermodal traffic has recovered much more than carloadtraffic.

Rail cars are generally higher capacity today than in years past because of such factors as theuse of lighter-weight aluminum instead of steel, which allow railroads to haul more productiveweight (the cargo) and less non-productive weight (the car). In other words, a rail carload todayis generally worth more, in terms of tons carried, than a carload 15 or 20 years ago. (Think of itas the opposite of the fact that a dollar today is worth less than a dollar 20 years ago, because ofinflation.) The red line in the chart below left is an estimate of the number of 2011-sized carloadsthat would have been required to move the freight that U.S. railroads hauled in each year.

11

12

13

14

15

16

17

18

19

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

U.S. Rail Carloads: Total All Commodities(Millions)

*Adjustment based on changes in average tons per car for commodity c ategories over time andshould be considered approximate. Source: AAR Weekly Railroad Traffic

Actual carloads originated

Adjusted carloads originated*

4

5

6

7

8

9

10

11

12

13

14

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

U.S. Rail Intermodal Trailers and Containers(Millions)

Source: AAR Weekly Railroad Traffic




In 2011, 14 of the 20 carload commodity categories tracked by the AAR saw increases onU.S. railroads compared with 2010, indicating a broad recovery across industry sectors. Forthe second year in a row, the commodity with the largest year-over-year gain was metallic ores

(up 67,631 carloads, or 20.5%). Other commodities seeing carload gains in 2011 over 2010include motor vehicles and parts (up 61,187 carloads, or 9.7%); primary metal products (up56,988 carloads, or 12.0%); chemicals (up 50,721 carloads, or 3.4%); and crushed stone, gravel,and sand (up 44,653 carloads, or 5.2%). The commodity with the biggest carload decline in 2011from 2010 was grain (down 27,946 carloads, or 2.4% — see page 12). The table on page 7 hascommodity-level detail for U.S. railroads for 2009, 2010, and 2011.

In 2011, coal accounted for 44.5% of non-intermodal U.S. carloads, down from 45.4% in 2010and 48.1% in 2009 (which was a record high). In second place for 2011 was chemicals (10.2% of2011 non-intermodal carloads); grain was third (7.4%). Containers accounted for 85.5% of U.S.rail intermodal movements in 2011, a record high and up from 42.0% in 1989, 68.7% in 2000, and85.1% in 2010.

U.S. railroads originated 1,134,580 carloads in December 2011, an average of 283,645 per week

and up 7.3% over December 2010. That’s the biggest year-over-year monthly increase sinceJanuary 2011, but the gain is somewhat overstated because December 2011 ended onDecember 31, 2011, while December 2010 ended on January 1, 2011. That means that the NewYear’s holiday (a very low traffic day) is not included in December 2011 but is included inDecember 2010.

-20%

-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Change in Total U.S. Rail CarloadsFrom Previous Year

Data exclude the U.S. operations of CN and CP and exclude intermodal traff ic.Source: AAR Weekly Railroad Traffic

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Change in Total U.S. Intermodal TrafficFrom Previous Year

Data exclude the U.S. operations of CN and CP. Source: AAR Weekly Railroad Traffic

240,000

260,000

280,000

300,000

320,000

340,000

360,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Average Weekly U.S. Rail Carloads: All Commodities(not seasonally adjusted)

2006 (peak year)

2009

2008

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

2010

2011

-25%

-20%

-15%

-10%

-5%

0%5%

10%

15%

20%

% Change in Total U.S. Rail Carloads From SameMonth Previous Year: Jan. 2006 - Dec. 2011

Data are based on originations, are not seasonally adjusted, exclude U.S. opera tions of CN andCP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

2006 2007 2008 2009 2010

December 2011 was up 7.3% over December 2010 and up 18.6% over December 2009.

2011




In December 2011, 16 of the 20 carload commoditycategories tracked by the AAR saw increases compared withDecember 2010 (see table at right). The table on page 6 has

much more commodity-level detail for December 2011 for U.S.railroads.

U.S. rail intermodal originations totaled 873,390 containers andtrailers in December 2011, an average of 218,348 per week —up 9.4% over December 2010 and the second-highest monthlyintermodal average for any December in history (behindDecember 2006 — see chart above left).

Because of the year-end holidays and other seasonal issues(often including nasty weather), December is always one of thelowest-volume months of the year for U.S. railroads, soseasonal adjustment can be especially helpful. Seasonallyadjusted U.S. rail carloads were up 1.8% in December 2011

over November 2011, their fourth-straight month-to-monthincrease. Seasonally adjusted U.S. rail intermodal trafficwas up 0.4% in December 2011 over November 2011; they’ve risen for five straight months. (See the charts on page 17.)

What are the latest numbers for Canadian railroads?

Canadian rail traffic also improved in 2011. Canadian railroads originated 3,927,217 carloads in2011 — up 3.4% over 2010 and up 20.9% over 2009. Canadian carloads in 2011 were higher in15 of the 20 commodity categories compared with 2010. Canadian railroads also originated 2.5million containers and trailers in 2011, up 2.4% over 2010, up 18.6% over 2009, and thehighest annual total ever for Canadian railroads.

The top three highest-volume commodity categories for Canadian railroads in 2011 were metallic

ores (16.9% of non-intermodal carloads), chemicals (14.7%), and grain (12.0%). Coal accountedfor just 10.9% of Canadian non-intermodal carloads in 2011, compared with 44.5% for U.S.railroads. Containers accounted for 96.8% of Canadian rail intermodal movements in 2011.

In 2011, the biggest year-over-year gains on Canadian railroads were in chemicals (up 41,936carloads, or 7.9%) and metallic ores (up 22,098 carloads, or 3.4%). The commodity with thebiggest decline was grain (down 11,727 carloads, or 2.4%). The table on page 9 has morecommodity detail for Canadian railroads in 2011.

On a non-seasonally adjusted basis, Canadian railroads originated an average of 74,461carloads per week in December 2011, up 8.9% over December 2010. With an average of

170,000

180,000

190,000

200,000

210,000

220,000

230,000

240,000

250,000

260,000


Average Weekly U.S. Rail Intermodal Traffic(not seasonally adjusted)

2006 (peak year)

2009

2008

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

2010

2011

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

% Change in U.S. Rail Intermodal Traffic From SameMonth Previous Year: Jan. 2006 - Dec. 2011

Data are based on originations, are not seasonally adjusted, exclude U.S. operations of CN andCP, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

2006 2007 2008 2009 2010


2011

Month 2009 2010 2011

Jan 0 11 15Feb 1 13 15Mar 0 16 15Apr 0 19 9May 0 19 8Jun 0 17 14Jul 0 13 12Aug 0 16 12Sep 1 14 13Oct 1 15 12Nov 6 13 13Dec 10 16 16

*Out of 20. Source: AAR

# of AAR Commodity Categories*

With Year-Over-Year Gains

For U.S. Railroads




45,222 containers and trailers per week, Canadian intermodal traffic in December 2011 wasup 10.2% over December 2010. The table on page 8 has commodity detail for Canadianrailroads in December.

Seasonally adjusted Canadian rail carloads in December 2011 were up 6.8% overNovember 2011, while seasonally adjusted intermodal volumes in December 2011 were up1.7% over November 2011. (See the charts on page 17.)

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0%

5%

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15%

20%

25%

30%

% Change in Total Canadian Intermodal Traffic FromSame Month Previous Year: Jan. 2006 - Dec. 2011

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

2006 2007 2008 2009 2010


2011

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000


Avg. Weekly Canadian Rail Carloads: All Commodities(not seasonally adjusted)

2006 (peak year)

2009 2008

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

2010

2011

-35%-30%-25%-20%-15%-10%-5%0%5%

10%15%20%25%30%35%40%

% Change in Total Canadian Rail Carloads FromSame Month Previous Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Canadian Rail Carloads: Total All Commodities*(Millions)

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

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Canadian Rail Intermodal Trailers and Containers(Millions)

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

34,000

38,000

42,000

46,000

50,000

54,000


Average Weekly Canadian Rail Intermodal Traffic(not seasonally adjusted)

2007

2009

2008

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

2010

2011 (peak year)




Commodity Dec 2011 Dec 2010 Dec 2009 '11-'10 '11-'09 '11-'10 '11-'09

Agricultural & food products 149,915 154,101 143,636 -4,186 6,279 -2.7% 4.4%

Grain 84,091 87,895 79,346 -3,804 4,745 -4.3% 6.0%

Farm products excl. grain 3,731 4,013 3,090 -282 641 -7.0% 20.7%

Grain mill products (1) 37,655 37,860 38,937 -205 -1,282 -0.5% -3.3%Food products 24,438 24,333 22,263 105 2,175 0.4% 9.8%

Chemicals and petroleum 145,517 137,247 121,350 8,270 24,167 6.0% 19.9%

Chemicals 114,277 111,791 100,014 2,486 14,263 2.2% 14.3%

Petroleum & petr. products (2) 31,240 25,456 21,336 5,784 9,904 22.7% 46.4%

Coal 514,215 486,277 446,086 27,938 68,129 5.7% 15.3%

Forest products 41,152 39,309 34,716 1,843 6,436 4.7% 18.5%

Primary forest products (3) 5,961 5,787 5,576 174 385 3.0% 6.9%

Lumber & wood products 10,267 9,047 7,287 1,220 2,980 13.5% 40.9%

Pulp & paper products 24,924 24,475 21,853 449 3,071 1.8% 14.1%

Metallic ores and metals 103,127 90,784 69,441 12,343 33,686 13.6% 48.5%

Metallic ores (4) 31,714 26,014 16,388 5,700 15,326 21.9% 93.5%

Coke 13,347 12,721 11,313 626 2,034 4.9% 18.0%

Primary metal products (5) 42,282 36,225 29,034 6,057 13,248 16.7% 45.6%

Iron & steel scrap 15,784 15,824 12,706 -40 3,078 -0.3% 24.2%Motor vehicles & parts 52,227 43,505 44,902 8,722 7,325 20.0% 16.3%

Nonmetallic minerals & prod. 101,433 81,102 72,428 20,331 29,005 25.1% 40.0%

Crushed stone, gravel, sand 59,731 44,994 37,628 14,737 22,103 32.8% 58.7%

Nonmetallic minerals (6) 17,463 14,383 16,724 3,080 739 21.4% 4.4%

Stone, clay & glass prod. (7) 24,239 21,725 18,076 2,514 6,163 11.6% 34.1%

Other 26,994 24,695 24,368 2,299 2,626 9.3% 10.8%

Waste & nonferrous scrap (8) 12,079 10,354 12,097 1,725 -18 16.7% -0.1%

All other carloads 14,915 14,341 12,271 574 2,644 4.0% 21.5%

TOTAL ALL CARLOADS 1,134,580 1,057,020 956,927 77,560 177,653 7.3% 18.6%

Trailers 130,574 129,772 117,059 802 13,515 0.6% 11.5%

Containers 742,816 668,465 588,477 74,351 154,339 11.1% 26.2%

TOTAL ALL INTERMODAL 873,390 798,237 705,536 75,153 167,854 9.4% 23.8%

*Data are originations not seasonally adjusted. Includes BNSF, CSX, KCS, NS, UP, Birmingham Southern, Florida East Coast, Lake

Superior & Ishpeming, and Paducah & Louisville. Excludes CN's and CP's U.S. operations. Source: AAR Weekly Railroad Traffic

Difference % Change

U.S. RAIL TRAFFIC: DECEMBER 2011*(4 weeks ending December 31, 2011)

(1) - flour, animal feed, corn syrup, corn starch, soybean meal, DDGs, etc. (5) - primarily iron & steel; some aluminum, copper, etc.

(2) - crude petroleum and all products of petroleum refining (6) - phosphate rock, rock salt, crude sulphur, clay, etc.

(liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc.) (7) - cement, ground earths or minerals, gypsum, etc.(3) - wood raw materials such as pulpwood and wood chips (8) - scrap paper, construction debris, ashes, etc.

(4) - overwhelmingly iron ore, but some aluminum ore, copper ore, etc.

400,000

425,000

450,000

475,000

500,000

525,000

550,000

575,000

600,000

625,000


Average Weekly U.S. Rail Traffic:Total Carloads + Intermodal Units

2006 (peak year)

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, exclude U.S.operations of CN and CP, and reflect revisions to original reporting. Source: AAR

2010

2011

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20%

% Change in U.S. Rail Carloads + Intermodal UnitsFrom Same Month Prev. Year: Jan. 2006 - Dec. 2011

Data are based on originations, are not seasonally adjusted, exclude U.S. operations of CN andCP, and reflect revis ions to original reporting. Source: AAR Weekly Railroad Traffic

2006 2007 2008 2009 2010


2011

0.0%




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% Change in Total U.S. Rail Carloads From SameQuarter Previous Year: Q1 2006 - Q4 2011


2006 2007 2008 2009 2010 2011

-0.04%

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0%5%

10%

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20%

% Change in U.S. Intermodal Traffic From SameQuarter Previous Year: Q1 2006 - Q4 2011


2006 2007 2008 2009 2010 2011

Difference % Change

% of

2011

Commodity 2011 2010 2009 '11-'10 '11-'09 '11-'10 '11-'09 Total

Agricultural & food products 1,994,511 2,046,715 1,906,936 -52,204 87,575 -2.6% 4.6% 13.2%

Grain 1,123,463 1,151,409 1,037,827 -27,946 85,636 -2.4% 8.3% 7.4%

Farm products excl. grain 46,047 48,224 41,843 -2,177 4,204 -4.5% 10.0% 0.3%

Grain mill products (1) 494,783 515,284 490,332 -20,501 4,451 -4.0% 0.9% 3.3%

Food products 330,218 331,798 336,934 -1,580 -6,716 -0.5% -2.0% 2.2%

Chemicals and petroleum 1,917,638 1,830,106 1,667,588 87,532 250,050 4.8% 15.0% 12.7%

Chemicals 1,548,075 1,497,354 1,365,763 50,721 182,312 3.4% 13.3% 10.2%

Petroleum & petr. products (2) 369,563 332,752 301,825 36,811 67,738 11.1% 22.4% 2.4%

Coal 6,749,436 6,730,711 6,651,201 18,725 98,235 0.3% 1.5% 44.5%

Forest products 532,817 514,881 492,862 17,936 39,955 3.5% 8.1% 3.5%

Primary forest products (3) 77,601 83,931 79,753 -6,330 -2,152 -7.5% -2.7% 0.5%

Lumber & wood products 143,199 131,720 118,972 11,479 24,227 8.7% 20.4% 0.9%

Pulp & paper products 312,017 299,230 294,137 12,787 17,880 4.3% 6.1% 2.1%

Metallic ores and metals 1,345,633 1,205,310 829,539 140,323 516,094 11.6% 62.2% 8.9%

Metallic ores (4) 396,780 329,149 173,240 67,631 223,540 20.5% 129.0% 2.6%

Coke 176,786 176,465 144,083 321 32,703 0.2% 22.7% 1.2%

Primary metal products (5) 531,740 474,752 327,582 56,988 204,158 12.0% 62.3% 3.5%

Iron & steel scrap 240,327 224,944 184,634 15,383 55,693 6.8% 30.2% 1.6%

Motor vehicles & parts 692,424 631,237 538,244 61,187 154,180 9.7% 28.6% 4.6%

Nonmetallic minerals & prod. 1,531,565 1,466,184 1,332,387 65,381 199,178 4.5% 14.9% 10.1%

Crushed stone, gravel, sand 901,031 856,378 760,172 44,653 140,859 5.2% 18.5% 5.9%

Nonmetallic minerals (6) 256,023 253,237 242,783 2,786 13,240 1.1% 5.5% 1.7%

Stone, clay & glass prod. (7) 374,511 356,569 329,432 17,942 45,079 5.0% 13.7% 2.5%

Other 391,968 401,140 395,200 -9,172 -3,232 -2.3% -0.8% 2.6%

Waste & nonferrous scrap (8) 167,991 187,410 178,932 -19,419 -10,941 -10.4% -6.1% 1.1%

All other carloads 223,977 213,730 216,268 10,247 7,709 4.8% 3.6% 1.5%

TOTAL ALL CARLOADS 15,155,992 14,826,284 13,813,957 329,708 1,342,035 2.2% 9.7% 100.0%

Trailers 1,720,967 1,684,684 1,639,603 36,283 81,364 2.2% 5.0% 14.5%

Containers 10,171,464 9,598,467 8,236,364 572,997 1,935,100 6.0% 23.5% 85.5%

TOTAL ALL INTERMODAL 11,892,431 11,283,151 9,875,967 609,280 2,016,464 5.4% 20.4% 100.0%

*Data are originations not s easonally adjus ted. Includes BNSF, CSX, KCS, NS, UP, Birmingham Southern, Florida East Coast, Lake Superior &

Ishpeming, and Paducah & Louisville. Excludes CN's and CP's U.S. operations. Source: AAR Weekly Railroad Traffic

U.S. RAIL TRAFFIC: ANNUAL TOTALS*

(1) - flour, animal f eed, corn syrup, corn starch, soybean meal, DDGs, etc. (5) - primarily iron & steel; some aluminum, copper, etc.


(liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc.) (7) - cement, ground earths or minerals, gypsum, etc.(3) - w ood raw materials such as pulpwood and wood chips (8) - scrap paper, construction debris, ashes, etc.(4) - overwhelmingly iron ore, but some aluminum ore, copper ore, etc.




Commodity Dec 2011 Dec 2010 Dec 2009 '11-'10 '11-'09 '11-'10 '11-'09

Agricultural & food products 66,051 60,187 53,412 5,864 12,639 9.7% 23.7%

Grain 36,782 33,201 31,637 3,581 5,145 10.8% 16.3%

Farm products excl. grain 14,562 12,500 9,480 2,062 5,082 16.5% 53.6%

Grain mill products (1) 6,173 6,360 5,722 -187 451 -2.9% 7.9%Food products 8,534 8,126 6,573 408 1,961 5.0% 29.8%

Chemicals and petroleum 62,892 60,306 49,948 2,586 12,944 4.3% 25.9%

Chemicals 41,934 43,001 33,871 -1,067 8,063 -2.5% 23.8%

Petroleum & petr. products (2) 20,958 17,305 16,077 3,653 4,881 21.1% 30.4%

Coal 33,427 30,607 25,604 2,820 7,823 9.2% 30.6%

Forest products 28,328 27,887 23,146 441 5,182 1.6% 22.4%

Primary forest products (3) 5,722 4,913 4,538 809 1,184 16.5% 26.1%

Lumber & wood products 9,204 8,073 5,792 1,131 3,412 14.0% 58.9%

Pulp & paper products 13,402 14,901 12,816 -1,499 586 -10.1% 4.6%

Metallic ores and metals 63,713 58,701 59,481 5,012 4,232 8.5% 7.1%

Metallic ores (4) 49,193 46,294 48,342 2,899 851 6.3% 1.8%

Coke 1,532 1,652 1,389 -120 143 -7.3% 10.3%

Primary metal products (5) 9,358 7,960 7,340 1,398 2,018 17.6% 27.5%

Iron & steel scrap 3,630 2,795 2,410 835 1,220 29.9% 50.6%Motor vehicles & parts 20,021 15,473 15,242 4,548 4,779 29.4% 31.4%

Nonmetallic minerals & prod. 17,589 14,931 12,717 2,658 4,872 17.8% 38.3%

Crushed stone, gravel, sand 7,233 5,320 3,801 1,913 3,432 36.0% 90.3%

Nonmetallic minerals (6) 6,336 5,942 6,054 394 282 6.6% 4.7%

Stone, clay & glass prod. (7) 4,020 3,669 2,862 351 1,158 9.6% 40.5%

Other 5,823 5,427 4,230 396 1,593 7.3% 37.7%

Waste & nonferrous scrap (8) 2,163 990 1,231 1,173 932 118.5% 75.7%

All other carloads 3,660 4,437 2,999 -777 661 -17.5% 22.0%

TOTAL ALL CARLOADS 297,844 273,519 243,780 24,325 54,064 8.9% 22.2%

Trailers 5,991 4,876 5,273 1,115 718 22.9% 13.6%

Containers 174,895 159,240 136,950 15,655 37,945 9.8% 27.7%

TOTAL ALL INTERMODAL 180,886 164,116 142,223 16,770 38,663 10.2% 27.2%

CANADIAN RAIL TRAFFIC: DECEMBER 2011*(4 weeks ending December 31, 2011)

Difference % Change

*CN and CP, including their U.S. operations. Data are originations not seasonally adjusted. Source: AAR Weekly Railroad Traffic





90,000

100,000

110,000

120,000

130,000

140,000


Average Weekly Canadian Rail Traffic:Total Carloads + Intermodal Units

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, include CN andCP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR

2007 (peak year)

20102011

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

% Change in Canadian Carloads + Intermodal UnitsFrom Same Month Prev. Year: Jan. 2006 - Dec. 2011

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

2006 2007 2008 2009 2010


2011




-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

% Change in Canadian Intermodal Traffic From SameQuarter Previous Year: Q1 2006 - Q4 2011

2006 2007 2008 2009 2010Data are based on originations, include CN and CP (including their U .S. operations), andreflec t revisions to original reporting. Source: AAR Weekly Railroad Traffic

2011

0.1%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%10%

15%

20%

25%

30%

% Change in Total Canadian Rail Carloads From SameQuarter Previous Year: Q1 2006 - Q4 2011

2006 2007 2008 2009 2010Data are based on originations, include CN and CP (including their U.S. operations) , andreflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

-0.1%

2011

% of

2011

Commodity 2011 2010 2009 '11-'10 '11-'09 '11-'10 '11-'09 Total

Agricultural & food products 822,122 822,453 814,775 -331 7,347 0.0% 0.9% 20.9%

Grain 470,009 481,736 483,358 -11,727 -13,349 -2.4% -2.8% 12.0%

Farm products excl. grain 158,559 150,179 152,334 8,380 6,225 5.6% 4.1% 4.0%

Grain mill products (1) 82,849 83,165 78,910 -316 3,939 -0.4% 5.0% 2.1%Food products 110,705 107,373 100,173 3,332 10,532 3.1% 10.5% 2.8%

Chemicals and petroleum 811,054 758,268 627,844 52,786 183,210 7.0% 29.2% 20.7%

Chemicals 575,465 533,529 409,172 41,936 166,293 7.9% 40.6% 14.7%

Petroleum & petr. products (2) 235,589 224,739 218,672 10,850 16,917 4.8% 7.7% 6.0%

Coal 429,644 416,696 352,002 12,948 77,642 3.1% 22.1% 10.9%

Forest products 390,987 375,475 353,873 15,512 37,114 4.1% 10.5% 10.0%

Primary forest products (3) 78,842 75,690 74,684 3,152 4,158 4.2% 5.6% 2.0%

Lumber & wood products 129,720 114,993 101,424 14,727 28,296 12.8% 27.9% 3.3%

Pulp & paper products 182,425 184,792 177,765 -2,367 4,660 -1.3% 2.6% 4.6%

Metallic ores and metals 858,374 831,052 598,409 27,322 259,965 3.3% 43.4% 21.9%

Metallic ores (4) 665,150 643,052 459,912 22,098 205,238 3.4% 44.6% 16.9%

Coke 26,248 28,888 21,714 -2,640 4,534 -9.1% 20.9% 0.7%

Primary metal products (5) 119,130 116,535 86,024 2,595 33,106 2.2% 38.5% 3.0%

Iron & steel scrap 47,846 42,577 30,759 5,269 17,087 12.4% 55.6% 1.2%

Motor vehicles & parts 265,316 250,280 195,644 15,036 69,672 6.0% 35.6% 6.8%

Nonmetallic minerals & prod. 274,732 265,604 223,551 9,128 51,181 3.4% 22.9% 7.0%

Crushed stone, gravel, sand 119,330 113,874 83,296 5,456 36,034 4.8% 43.3% 3.0%

Nonmetallic minerals (6) 86,811 85,709 79,225 1,102 7,586 1.3% 9.6% 2.2%

Stone, clay & glass prod. (7) 68,591 66,021 61,030 2,570 7,561 3.9% 12.4% 1.7%

Other 74,988 78,315 80,955 -3,327 -5,967 -4.2% -7.4% 1.9%

Waste & nonferrous scrap (8) 22,295 20,278 25,433 2,017 -3,138 9.9% -12.3% 0.6%

All other carloads 52,693 58,037 55,522 -5,344 -2,829 -9.2% -5.1% 1.3%

TOTAL ALL CARLOADS 3,927,217 3,798,143 3,247,053 129,074 680,164 3.4% 20.9% 100.0%

Trailers 80,375 80,804 82,753 -429 -2,378 -0.5% -2.9% 3.2%

Containers 2,424,706 2,365,950 2,030,157 58,756 394,549 2.5% 19.4% 96.8%

TOTAL ALL INTERMODAL 2,505,081 2,446,754 2,112,910 58,327 392,171 2.4% 18.6% 100.0%

Difference % Change

*CN and CP, including their U.S. operations. Data are originations not seasonally adjusted. Source: AAR Weekly Railroad Traffic

CANADIAN RAIL TRAFFIC: ANNUAL TOTALS*


(2) - crude petroleum and all products of petroleum refining (6) - phosphate rock , rock salt, crude sulphur, clay, etc.






COAL

U.S. rail carloads of coal totaled 6.75 million in 2011, up 0.3% (18,725 carloads) over 2010 andup 1.5% (98,235 carloads) over 2009. In past editions of RTI, we’ve pointed out that the coal share ofU.S. electricity generation has been trending down in recent years and is now around 45%. There areseveral reasons for this, but perhaps the most important is the big decline in natural gas prices forelectricity generators — see the chart on the bottom right — as improved drilling techniques haveunlocked huge new natural gas supplies in North Dakota and elsewhere.

$0

$2

$4

$6

$8

$10

$12

$14

2006 2007 2008 2009 2010 2011

Source: Energy Information Administration

Average Delivered Price of Fuel for theU.S. Electric Power Industry: Jan. 2006 - Oct. 2011

(Dollars Per Million Btu)

Natural gas

Coal4.4

4.8

5.2

5.6

6.0

6.4

6.8

7.2

7.6

'88 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

U.S. Rail Carloads of Coal(Millions)

*Estimate of 2011-equivalent carloads based on the fact that an average carload today carriesmore coal than an average carload in the past. Source: AAR Weekly Railroad Traffic

Bars = actual

Red line = adjusted*

110,000

120,000

130,000

140,000

150,000

160,000


Average Weekly U.S. Rail Carloads of Coal

2009

2008 (peak year)


2007

2010

2011

-20%

-15%

-10%

-5%

0%

5%

10%

15%

% Change in U.S. Rail Carloads of Coal From SameMonth Previous Year: Jan. 2006 - Dec. 2011

Data are based on originations, are not seasonally adjusted, exc lude U.S. operations of CN andCP, and reflec t revisions to original reporting. Source: AAR Weekly Railroad Traffic

2006 2007 2008 2009 2010


2011

4,000

5,000

6,000

7,000

8,000

9,000

10,000


Avg. Weekly Canadian Rail Carloads of Coal

2009 2008

Data are weekly average originations for each month, are not seasonally adjusted, include CN andCP (including their U.S. operations), and reflect revisions to original reporting. Source: AAR

2007

2010

2011

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

% Change in Canadian Carloads of Coal From SameMonth Previous Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011




CHEMICALS

U.S. railroads originated 1.55 million carloads of chemicals in 2011, up 3.4% (50,721 carloads)over 2010, up 13.3% (182,312 carloads) over 2009, and the second highest annual total ever (6,296carloads fewer than 2007’s 1.55 million — see the chart on the bottom right). Still, it wasn’t a terriblyauspicious end for the year — year-over-year U.S. carloads of chemicals grew by progressively smalleramounts as the year went on, including just 1.0% in the fourth quarter (see bottom left chart below).Canadian rail carloads of chemicals actually fell 2.3% in the fourth quarter of 2011.

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

'88 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '1

U.S. Rail Carloads of Chemicals(Millions)

Source: AAR Weekly Railroad Traffic

22,000

23,000

24,000

25,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

33,000


Avg. Weekly U.S. Rail Carloads of Chemicals

2009 2008


2007 (peak year)

2010

2011

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

% Change in U.S. Rail Carloads of Chemicals FromSame Month Previous Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

% Change in U.S. Rail Carloads of Chemicals FromSame Quarter Previous Year: Q1 2006 - Q4 2011


2006 2007 2008 2009 2010 2011

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000


Avg. Weekly Canadian Rail Carloads of Chemicals

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, include CN andCP (including their U.S. operations), and reflect revisions to original reporting. Due to datarevisions, data prior to 2008 are not available. Source: AAR

2010

2011

-50%

-40%

-30%

-20%-10%

0%

10%

20%

30%

40%

50%

60%

% Change in Canadian Carloads of Chemicals FromSame Month Previous Year: Jan. 2009 - Dec. 2011

2009 2010

Data are based on originations, are not seasonally adjusted, include CN and CP (including theirU.S. operations), and reflect revisions to original reporting. Due to comparability i ssues, dataprior to 2009 are not available. Source: AAR Weekly Railroad Traffic

2011

December 2011 was down 2.5% from December 2010 and up 23.8% over December 2009.




GRAIN

U.S. + Canadian grain carloads totaled 1.6 million in 2011, down 2.4% (39,673 carloads) from2010 and up 4.8% (72,287 carloads) over 2009. Last month we noted that the USDA expects U.S. grainexports to fall in the 2011/12 crop year that began in September 2011. The chart on the bottom rightshows recent USDA grain export projections compared with actual exports in recent years. If lowerexports come to pass, they will be a severe headwind for U.S. rail grain totals. Tougher competition fromgrain producers in other countries is a big reason for the expected export decline. Australia, for example,is a major grain exporter and just had a bumper grain harvest.

16,000

18,000

20,000

22,000

24,000

26,000

28,000


Average Weekly U.S. Rail Carloads of Grain

2009

2008


2007

2010

2011

-30%

-20%

-10%

0%

10%

20%

30%

% Change in U.S. Rail Carloads of Grain From SameMonth Previous Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011

7,000

8,000

9,000

10,000

11,000

12,000


Average Weekly Canadian Rail Carloads of Grain

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, include CN and CP(including their U.S. operations), and reflect revisions to original reporting. Source: AAR

2007

2010

2011

-20%

-10%

0%

10%

20%

30%

% Change in Canadian Carloads of Grain From SameMonth Previous Year: Jan. 2006 - Dec. 2011

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

2006 2007 2008 2009 2010 2011


1.2

1.3

1.4

1.5

1.6

1.7

1.8

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

U.S. + Canadian Rail Carloads of Grain(Millions)

Note: grain carried in containers is not reflected in this chart. Source: AAR Weekly Railroad

0

500

1,000

1,500

2,000

2,500

3,000

Corn Wheat Soybeans

U.S. Grain Exports: 2007-2011*(Millions of Bushels)

*Crop years beginning in September ; 2010 is preliminary and 2011 is a USDA estimate.Source: USDA Economic Research Service

2 0 0 7 / 0 8

2 0 0 7 / 0 8

2 0 0 7 / 0 8

2 0 0 8 / 0 9

2 0 0 8 / 0 9

2 0 0 8 / 0 9

2 0 0 9 / 1 0

2 0 1 0 / 1 1

2 0 0 9 / 1 0

2 0 0 9 / 1 0

2 0 1 1 / 1 2

2 0 1 0 / 1 1

2 0 1 1 / 1 2

2 0 1 1 / 1 2

2 0 1 0 / 1 1




CARLOAD AND INTERMODAL TOTALS

ALL COMMODITIES EXCLUDING COAL

ALL COMMODITIES EXCLUDING COAL AND GRAIN

150,000

175,000

200,000

225,000

250,000

275,000

300,000

325,000

350,000

375,000

U.S. Rail Carload Traffic: Jan. 2006 - Dec. 2011

Data are weekly average originations for each month, are not seasonally adjusted, and excludeU.S. operations of CN and CP. Source: AAR Weekly Railroad Traffic

2006 2007 2008 2009 2010 2011100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

U.S. Rail Intermodal Traffic: Jan. 2006 - Dec. 2011

Data are weekly average originations for each month, are not seasonally adjusted, and excludeU.S. operations of CN and CP. Source: AAR Weekly Railroad Traffic

2006 2007 2008 2009 2010 2011

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

200,000

210,000


Average Weekly U.S. Rail Carloads:All Commodities Excluding Coal

2006 (peak year)

2009

2008


2010

2011

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

200,000


Average Weekly U.S. Rail Carloads:All Commodities Excluding Coal and Grain

2006 (peak year)

2009

2008


2010

2011

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

% Change in U.S. Rail Carloads Excluding Coal FromSame Month Previous Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

% Change in U.S. Rail Carloads Excl. Coal and GrainFrom Same Month Prev. Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011




INDUSTRIAL PRODUCTS

PRIMARY METAL PRODUCTS (MAINLY IRON AND STEEL)

IRON AND STEEL SCRAP

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000


Avg. Weekly U.S. Rail Carloads: Industrial Products*

2006 (peak year)

2009

2008

*Data include chemicals; paper; metal products; autos; crushed stone and gravel; metallic ores;and stone and glass products. Data are weekly average originations fo r each month and excludethe U.S. operations of CN and CP. Source: AAR Weekly Railroad Traffic

2010

2011

-40%-35%-30%-25%-20%-15%-10%-5%0%5%

10%15%

20%25%30%35%

% Change in U.S. Rail Carloads of Industrial ProductsFrom Same Month Prev. Year: Jan. 2006 - Dec. 2011*

2006 2007 2008 2009 2010

December 2011 was up 13.2%

over December 2010 and up 30.4% over December 2009.

2011*Data include chemicals; paper; metal products; autos; crushed stone and gravel; metallic ores; andstone and glass products. Data are weekly average originations for each month and exclude theU.S. operations of CN and CP. Source: AAR Weekly Railroad Traffic

2,000

4,000

6,000

8,000

10,000

12,000

14,000


Average Weekly U.S. Rail Carloadsof Steel and Other Primary Metal Products

2007

2009

2008


2010

2011

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

% Change in U.S. Rail Carloads of Steel and OtherPrimary Metal Products From Same Month

Previous Year: Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

% Change in U.S. Rail Carloads of Iron andSteel Scrap From Same Month Previous Year:

Jan. 2009 - Dec. 2011

2009 2010

Data are based on originations, are not seasonally adjusted and exclude U.S. operations of CNand CP. Data prior to 2009 are not available. Source: AAR Weekly Railroad Traffic

2011


2,000

3,000

4,000

5,000

6,000

7,000


Average Weekly U.S. Rail Carloadsof Iron and Steel Scrap

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, and excludeU.S. operations of CN and CP. Data prior to 2008 are not available. Source: AAR

20102011




PETROLEUM & PETROLEUM PRODUCTS (LPGs, ASPHALT, FUEL OIL, LUBRICATING OILS, ETC.)

CRUSHED STONE, SAND, AND GRAVEL

MOTOR VEHICLES AND PARTS

5,000

5,500

6,000

6,500

7,000

7,500

8,000


Average Weekly U.S. Rail Carloadsof Petroleum and Petroleum Products

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, and excludeU.S. operations of CN and CP. Data prior to 2008 are not available. Source: AAR

2010

2011

-20%

-15%

-10%

-5%

0%

5%

10%15%

20%

25%

% Change in U.S. Rail Carloads of Petroleum andPetroleum Products From Same Month Previous Year:

Jan. 2009 - Dec. 2011

2009 2010

Data are based on originations, are not seasonally adjusted and exclude U.S. operations of CNand CP. Data prior to 2009 are not available. Source: AAR Weekly Railroad Traffic

2011


8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000


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

2006 (peak year)

2009

2008

Data are weekly ave rage originations for each month, are not seasonally adjusted, exclude U.S.operations of CN and CP, and reflect revisions to original reporting. Source: AAR

2010

2011

-35%

-30%-25%-20%-15%-10%-5%0%5%

10%15%20%25%30%35%

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

Jan. 2006 - Dec. 2011


2006 2007 2008 2009 2010


2011

8,000

11,000

14,000

17,000

20,000

23,000

26,000

29,000

32,000

35,000


Combined U.S. + CanadianAverage Weekly Rail Carloads of Motor Vehicles*

2007

2009

2008

*Includes parts. Data are weekly average originations fo r each month, are not seasonallyadjusted, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

20102011

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

% Change in Combined U.S. + Canadian Rail Carloadsof Motor Vehicles* From Same Month Previous Year:

Jan. 2006 - Dec. 2011

2006 2007 2008 2009 2010


2011

*Includes parts. Data are weekly average originations for each month, are not seasonallyadjusted, and reflect revisions to original reporting. Source: AAR Weekly Railroad Traffic




METALLIC ORES (OVERWHELMINGLY IRON ORE)

LUMBER AND WOOD PRODUCTS + PRIMARY FOREST PRODUCTS

PULP AND PAPER PRODUCTS

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,00020,000

22,000

24,000

26,000


Combined U.S. + CanadianAvg. Weekly Rail Carloads of Metallic Ores

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, and reflectrevisions to original reporting. Source: AAR Weekly Railroad Traffic

2007

2010

2011

-80%-60%-40%-20%

0%20%40%60%80%

100%120%140%160%

180%200%220%

% Change in Combined U.S. + Canadian Rail Carloadsof Metallic Ores From Same Month Previous Year:

Jan. 2006 - Dec. 2011

2006 2007 2008 2009 2010

December 2011 was up 11.9%

over December 2010 and up 25.0% over December 2009.

2011

Data are weekly average originations for each month, are not seasonally adjusted, andreflec t revisions to original reporting. Source: AAR Weekly Railroad Traffic

4,000

6,000

8,000

10,000

12,000

14,000

16,000


Combined U.S. + Canadian Average Weekly RailCarloads of Lumber and Primary Forest Products

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, andreflec t revisions to original reporting. Source: AAR Weekly Railroad Traffic

2007

20102011

8,000

9,000

10,000

11,000

12,000

13,000

14,000


Combined U.S. + Canadian Average WeeklyRail Carloads of Pulp and Paper Products

2009

2008

Data are weekly average originations for each month, are not seasonally adjusted, andreflect revisions to original reporting. Source: AAR Weekly Railroad Traffic

2007

20102011

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

% Change in Combined U.S. + Canadian Rail Carloadsof Pulp and Paper Products From Same Month

Previous Year: Jan. 2006 - Dec. 2011

2006 2007 2008 2009 2010


2011


-40%

-30%

-20%

-10%

0%

10%

20%

30%

% Change in Combined U.S. + Canadian Rail Carloadsof Lumber and Primary Forest Products From Same

Month Previous Year: Jan. 2006 - Dec. 2011

2006 2007 2008 2009 2010


2011





SEASONALLY ADJUSTED RAIL TRAFFIC




SEASONALLY ADJUSTED RAIL TRAFFIC, cont.

Where to go for more information: Weekly AAR press releases on railroad traffic are available on the AAR web site here. For a

sample copy of an AAR Weekly Railroad Traffic report, e-mail Paul Posey at [email protected] Railroad Traffic is free to AAR members and available by subscription to others.

http://www.aar.org/AAR/NewsAndEvents/Freight-Rail-Traffic

http://www.aar.org/AAR/NewsAndEvents/Freight-Rail-Traffic




GROSS DOMESTIC PRODUCT (GDP)


GDP (the output of goods and services produced by labor and property in a country) measuresthe size of an economy and how fast it’s growing. Assuming it’s measured accurately, it’sprobably the single most conclusive piece of information on the health of an economy.

The GDP figure that gets all the pressis the annualized percentage changein inflation-adjusted GDP from onequarter to the next. It is revisedseveral times as better data becomeavailable.

GDP and freight rail traffic havehistorically been closely correlated,although rail freight traffic tends to bemuch more volatile than the economyas a whole. The chart at right showsthe percentage change in rail trafficversus year-over-year (note: notquarter to quarter) real GDP growth.The correlation isn’t perfect, but it isstrong and positive.

What are the latest numbers?

On December 22, the BEA revised its estimate of Q3 2011 U.S. GDP growth down to 1.8%from November’s estimate of 2.0%, which itself was a downward revision of the original Octoberestimate of 2.5%.

In mid-December, the AssociatedPress (AP) asked three dozen topeconomists for their views on U.S.economic growth in 2012. The

consensus was that U.S. GDPwould grow 2.4% in 2012, up slightlyfrom what will probably turn out to bearound 2.0% growth in 2011. The APconsensus is consistent with the 2.3%consensus forecast for 2012 GDPfrom the most recent monthly survey(from early December) of 50prominent economists by The Wall Street Journal.

What are the biggest risks to the U.S.economy? They include thepossibility (some say certainty) of a severe recession in Europe; the effects of a slowdown in

growth in China and elsewhere in Asia; potential retrenchment in U.S. consumer spending due toflat income growth, continued high unemployment, and a desire to shore up household balancesheets; and potential problems in the Middle East (as we write this, there is saber rattling goingon in Iran, for example) that could provide a severe negative shock to oil markets. You canprobably think of many other potential risks.

Where to go for more information:

The most recent BEA news release on GDP, including links to detailed data tables, is here. BEAwill release its first estimate of fourth quarter 2011 GDP growth on January 27.

-24%-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%% Change in U.S. GDP vs. Rail Traffic

Percentages are year-over-year. Traffic = carloads + intermodal Source: BEA, AAR

bars = GDPline = rail traffic

'01 '02 '06'04'03 '10 '11'05 '07 '08 '09

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Quarterly Real U.S. GDP Growth: Q1 2005 – Q4 2012(annualized % change from previous quarter)

Source: Bureau of Economic Analysis, Wall Street Journal forecasters

2011

Actual

Forecast

2012

Estimates for Q4 2011 to Q2 2012 are the consensus forecast by around 50 leading economists surveyed by The Wall Street Journal in early December 2011.

2005 2006 2007 2008 2009 2010

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm




PURCHASING MANAGERS INDEX (PMI) and NON-MANUFACTURING INDEX (NMI)


The PMI is released by the Institute for Supply Management (ISM – formerly the NationalAssociation of Purchasing Managers) and combines data on new orders, inventory, production,supplier deliveries, and employment. It is based on a survey of several hundred supplymanagers at manufacturers throughout the country and is considered an indicator both of actual“on-the-ground” conditions as well as near- to medium-term sentiment. The NMI is like the PMI,except that it tracks services.

Manufacturing accounts for around 12% of U.S. GDP — not as much as it used to, but the U.S. isstill by far the world’s top manufacturer. Much of what railroads haul, of course, consists of rawmaterials for manufacturing or finished manufactured goods. Services account for around two-thirds of U.S. GDP and around 80% of private-sector employment.

According to the ISM, a PMI > 50 indicates that overall manufacturing is generally expanding; aPMI < 50 indicates manufacturing is generally contracting. Likewise, an NMI < 50 indicates theservices sector overall is contracting; an NMI > 50 indicates the service sector is expanding.


The PMI rose to 53.9 in December 2011, up from 52.7 in November 2011 and the highest it’sbeen since July 2011. The “new orders” component of PMI also rose, to 57.6 in December

from 56.7 in November (see chart below left). The PMI for December indicates that ground lostin the summer has been largely regained, and there’s now a bit of breathing room between wherethe PMI currently stands and the 50 level that signifies a contraction in manufacturing. That said,the PMI remains well below where it was in early 2011 and where it was a year ago (58.5).

What the ISM said about the December PMI: “Manufacturing is finishing out the year on apositive note, with new orders, production and employment all growing in December at fasterrates than in November, and with an optimistic view toward the beginning of 2012 as reflected bythe panel in this month's survey.”

The NMI rose to 52.6 in December 2011 from 52.0 in November 2011 (see the chart aboveright), almost recovering to October’s level. The “new orders” component of the NMI rose to 53.2in December from 53.0 in November. Like the PMI, the NMI at the end of the year wassignificantly lower than it was at the beginning of the year.

Where to go for more information: The ISM’s press release on the December PMI is here; January’s PMI will be released February

1. The press release on the December NMI is here; January’s NMI will be released February 3.

20

25

30

35

40

45

50

55

60

65

70

Data are seasonally adjusted. Source: Institute for Supply Management

Purchasing Managers Index (PMI):Jan. 2006 - Dec. 2011

2005 2006 2007 2008 2009 2010


2006 2007 2008 2009 2010 2011

New orders

recession

Overall PMI(> 50 = manuf. is expanding)

(< 50 = manuf. is contracting)

20

25

30

35

40

45

50

55

60

65

70


Non-Manufacturing Index (NMI):Jan. 2008 - Dec. 2011

2008 2009 2010

Overall NMI(> 50 = non-manuf. is expanding)(< 50 = non-manuf. is contracting)

2011

New orders component

http://www.ism.ws/about/MediaRoom/newsreleasedetail.cfm?ItemNumber=22116







MANUFACTURING INVENTORIES AND SALES


Firms don’t want to hold too much inventory because it costs money to store and it can becomeobsolete or spoil. Plus, inventory earns no return on investment. But firms don’t want too littleinventory either, or they could lose sales. Like Goldilocks, they want inventory that’s “just right.”

When sales fall, inventories must rise if production is kept at the same pace. Eventually, when inventories are too high, “destocking” occurs via production cuts. This leads to job losses, fewerraw material purchases, and other negative economy-wide effects. When sales rise, eitherinventories must fall, production must increase, or both. Eventually, inventories become too lowand “restocking” occurs via production increases. This means more employment, more rawmaterial purchases, and other positive economy-wide effects.

What are the latest numbers? According to the Census Bureau, manufacturing sales were essentially flat in November 2011

compared with October 2011. Meanwhile, manufacturing inventories rose 0.5% ($2.8 billion)in November. The resulting inventory-sales ratio for manufacturing rose 0.4% in November,reaching its highest level since October 2009 (see chart top right). The gap between salesand inventory rose too, continuing the trend it’s been on for two years (see chart lower left).

The Census Bureau releases data on manufacturing new orders at the same time it releases dataon inventories and sales. The dashed line in the chart on the top left below shows thatmanufacturing new orders closely track sales. New orders rose 1.8% ($8.2 billion) in November2011 following declines in September and October.

1.0

1.1

1.2

1.3

1.4

1.5

1.6

2006 2007 2008 2009 2010

Data are seasonally-adjusted. Source: Census Bureau

Inventory-Sales Ratio for Manufacturing:Jan. 2006 - Nov. 2011

2011

recession

Nov. 2011 = 1.34,highest since Oct. 2009

$325

$350

$375

$400

$425

$450

$475

$500

$525

$550

$575

$600

$625

Data are seasonally-adjusted but not adjusted for inflation. Source: Census Bureau

Manufact. Sales & Inventories: Jan. 2006 - Nov. 2011($ Billions)

Manufacturing inventories

2006 2007 2008 2009 2010 2011

recession

Manufacturing sales

New orders

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

Data are seasonally-adjusted. Source: Census Bureau

Gap Between Manufacturing Inventories andManufacturing Sales: Jan. 2006 - Nov. 2011

($ Billions)

2006 2007 2008 2009 2010 2011

recession

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2006 2007 2008 2009 2010

Data are seasonally adjusted. Source: Census Bureau

Inventory-Sales Ratio:Manufacturing vs. Retail vs. Wholesalers

Jan. 2006 - Oct. 2011

2011

Manufacturing

Retail

Wholesalers

Total

recession




The inventory-sales ratio for manufacturing remains much higher than it was in 2007 and 2008.The chart on the bottom right of the previous page shows that the same ratio for retailers istrending down and is far below where it was in 2007 and 2008, as retailers adopt a “once burned,twice shy” mentality.


The Census Bureau’s report on manufacturing sales and inventories in November is here.

Figures for December 2011 will be released on February 3, 2012. INDUSTRIAL PRODUCTION


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. Data are obtained from a variety ofgovernment and industry sources. Manufacturing accounts for about 75% of industrialproduction, but utility and mine output are key components as well.

The industrial sector typically exhibits the most volatility in output during a business cycle. Largechanges in industrial output can mean that a business cycle has reached an inflection point.

What are the latest numbers? U.S. industrial production unexpectedly fell 0.2% in November 2011 from October 2011, the

first real decline in seven months. (Technically, it fell 0.004% in September 2011, but that doesn’tcount as a real decline.) The manufacturing component of industrial production fell 0.3% inNovember, its first decrease after six straight monthly increases (see chart below right).

The top chart on the next page shows changes in industrial production in November for severalkey industrial sectors. Increases for iron and steel products (4.2%), railroad rolling stock (6.8%),and paper (1.1%) were offset by declines in motor vehicles (-3.4%), wood products (-1.7%), andconsumer durables (-1.4%).1 Manufacturing excluding motor vehicles and parts fell 0.2% inNovember.

Industrial production has clearly been trending up, albeit slowly, for many months (see bottomcharts on the next page), and there’s no clear reason at this point to think November’s decline isan inflection point signaling darker days ahead. That’s especially so in light of other more positive

1A broad category of long-lasting things like washing machines and other appliances, home electronics, cars, and

furniture. Durable goods usually have long periods between successive purchases.

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Data are seasonally adjusted. Source: Federal Reserve

Overall U.S. Industrial Production:% Change From Previous Month

Jan. 2006 - Nov. 2011

2006 2007 2008 2009 2010 2011

recession

hurricanes

Oct. 2011 to Nov. 2011: -0.2%

-4%

-3%

-2%

-1%

0%

1%

2%


Manufacturing Component of Industrial Production:% Change From Previous Month

Jan. 2006 - Nov. 2011

2006 2007 2008 2009 2010 2011

recession

Oct. 2011 to Nov. 2011: -0.3%

http://www.census.gov/manufacturing/m3/prel/pdf/s-i-o.pdf

http://www.census.gov/manufacturing/m3/prel/pdf/s-i-o.pdf




indicators such as the improvement in the ISM’s purchasing manager’s index in November andDecember (see page 20) and the improvement in new orders for manufacturing (see page 21).

That said, no one should think that the U.S. economy is growing so fast that there won’t be somefits and starts in industrial expansion, and slowing economic growth abroad is sure to have someeffect on U.S. producers. The bottom line is that industrial production is worth keeping a closeeye on.


The Federal Reserve release on industrial production in November 2011 is here. December

2011 data will be released on January 18.

CAPACITY UTILIZATION


Capacity utilization attempts to capture the concept of sustainable maximum output — i.e ., thehighest output a plant can maintain assuming a realistic work schedule, normal downtime, and

75

80

85

90

95

100

105

110


U.S. Industrial Production: Jan. 2006 - Nov. 2011(Index January 2006 = 100)

2006 2007 2008 2009 2010 2011

recession

Total industrial production was down 0.2% in Nov. 2011; manufacturing was down 0.3%.

Overall

Manufacturing

-20%

-15%

-10%

-5%

0%

5%

10%


U.S. Industrial Production: % Change From Prev. YearJan. 2006 - Nov. 2011

2006 2007 2008 2009 2010 2011

recession

Nov. 2010 to Nov.2011: +3.7%

55

6065

70

75

80

85

90

95

100

105

110

115

Total IP Total mfg. Iron &steel

Woodproducts

Motorvehicles

Paper Chemicals Consumerdurables

RR rollingstock

U.S. Industrial Production: Jan. 2011 - Nov. 2011(Dec. 2007 = 100)

% shown is the change from the previous month. Data are seasonally adjusted. Source: Federal Reserve

Where each sector was at start of recession

Nov.2011:-0.2%

Nov.2011:-0.3%

Nov.2011:-1.7%

Nov.2011:-3.4%

Nov.2011:+1.1%

Nov.2011:-0.9%

Nov.2011:-1.4%

Nov.2011:+6.8%

Nov.2011:+4.2%

http://www.federalreserve.gov/releases/G17/Current/default.htm





sufficient availability of inputs to operate the capital in place. The data cover manufacturing,mining, and electric and gas utilities.

In theory, a capacity utilization rate of, say, 70% means there is room to increase production up to100% 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 portend price increases or supply shortages in the nearfuture. The farther below this level, the more slack there is in the economy or particular sector.

Firms in every industry walk a tightrope when it comes to capacity. If they take too long to bringback idled capacity or build new capacity, they risk shortages and lost sales. Or, they could facehigher costs in other areas (e.g ., higher overtime costs). On the other hand, adding capacity thatends up not being used adds costs with no offsetting returns.

What are the latest numbers? Overall U.S. capacity utilization fell 0.2 percentage points in November 2011 to 77.8% from

78.0% in October, the second decline in three months (see chart below right). Capacityutilization was 75.8% in November 2010. Capacity utilization for manufacturing fell to 75.8%in November 2011 from 76.1% in October 2011; it was 73.4% in November 2010.

The chart on the bottom below shows how capacity utilization has changed for several key

sectors in the first 11 months of 2011. Note the big increase in capacity utilization for iron andsteel products in November and the big decline for motor vehicles and parts.

60%

65%

70%

75%

80%

85%


U.S. Capacity Utilization: Jan. 2006 - Nov. 2011

2006 2007 2008 2009 2010 2011

Overall

Manufacturing

Overall capacity utilization was down 0.2 percentage points in November 2011 to 77.8%.

recession

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%


% Point Change in Total U.S. Capacity UtilizationFrom Previous Month: Jan. 2006 - Nov. 2011

2006 2007 2008 2009 2010 2011

hurricanes

recession

Nov. 2011: -0.2 percentage points

50%

55%

60%

65%

70%

75%

80%

85%

90%

Total IP Total mfg. Chemicals Motorvehicles

Iron & steel Paper Woodproducts

Utilities Coal mining

Capacity Utilization: January 2011 - November 2011

Note: Data are percentage point changes from prior month. Data are seasonally adjusted. Source: Federal Reserve

Nov.2011:-0.2%

Nov.2011:-1.1%

Nov.2011:+0.1%

Nov.2011:-0.9%

Nov.2011:+1.0%

Nov.2011:+3.4%

Nov.2011:-2.4%

Nov.2011:-0.7%

Nov.2011:-0.3%





The Federal Reserve release on capacity utilization in November 2011 is here. December 2011data will be released on January 18.

NUMBER OF EMPLOYED PERSONS AND UNEMPLOYMENT RATE


Released by the U.S. Bureau of Labor Statistics, the figures provide a snapshot of the strength ofthe U.S. labor market. Because of their visibility and political importance, they are probably thesingle most anticipated and widely publicized economic indicators in the world.

They are based on two separate surveys: 1) an “establishment survey” of more than400,000 businesses, and 2) a “household survey” of 60,000 households. Among other things,the net number of jobs gained or lost in a given month and the employment by industry figurescome from the survey of businesses. The unemployment rate, the size of the labor force, and thelabor force participation rate, among other data, come from the household survey. The twodifferent surveys sometimes produce puzzling results. For example, in the same month there canbe a sharp drop in the unemployment rate (household survey) without many new jobs created(establishment survey).

In the United States, a gain of 150,000 or more jobs from one month to the next is generallyconsidered solid job growth. (Average monthly U.S. job growth from September 2003 throughDecember 2007 was 157,000 jobs.) Job growth of 100,000-120,000 is needed just to keep upwith the typical growth in the labor force from one month to the next.

Employment is often considered a lagging indicator because employers often decide to wait untilthey’re sure an economic recovery is here to stay before making new permanent hires. In themeantime, they might rely on more hours for existing workers or on temporary workers. Weak jobnumbers 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).


200,000 net new jobs were created in December, the fourth largest gain in 2011. For all of

2011, 1.6 million net new jobs were created, the most of any year since 2006.

The official unemployment rate fell from 8.7% in November 2011 to 8.5% in December 2011 (see chart below right).

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

U.S. Unemployment Rate: Jan. 2006 - Dec. 2011*

The official U.S. unemployment rate fell to 8.5% in December 2011 from 8.7% in November.

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

2006 20092007 2008 2010 2011

Men

Overall

Women






A December 28 report in The Wall Street Journal points out that the bust in the housing market isconstraining labor market mobility because workers who might otherwise move from placeswhere jobs are scarce to places where jobs are more plentiful are finding it too difficult to sell theirhomes. The problem is especially acute for people who are “underwater” — i.e., with housesworth less than the mortgage balance. Of course, the housing bust also directly means fewerconstruction workers (see chart below left).

The chart above right shows that in recent weeks there has been a drop in initial unemploymentclaims, a good sign for labor markets — especially when they drop below 400,000.

Where to go for more information: The BLS press release on the December 2011 employment situation is here. Data for January

2011 will be released on February 3, 2012. CLASS I FREIGHT RAILROAD EMPLOYMENT


The data show the average number of Class I freight railroad employees at mid-month. As inother industries, employment in the rail industry is largely a function of the level of business,although there is also some seasonality to it.


Class I freight rail employment wasdown slightly (132 employees) inNovember 2011 from October 2011,to 160,119. It’s not unusual for railemployment to drop a bit at the end ofthe year for seasonal reasons.Employment in November 2011 was5,077 (3.3%) higher than it was inNovember 2010.

Where to go for more information: The STB web site for railroad

employment data is here.

135,000

140,000

145,000

150,000

155,000

160,000

165,000

170,000

Class I Railroad Employment: Jan. 2004 - Nov. 2011

Beginning in January 2010, the bars in this chart are around 1,000 employees higher than inprevious months due to the inclusion of employees from two large railroads acquired by aClass I railroad. Data are non-seasonally adjusted. Source: STB

2004 2005 2006 2007 2008 2009 2010 2011

Oct. 2011 toNov. 2011: -132

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

Weekly Initial Unemployment Claims:January 2006 - December 2011

Figures are 4-week moving averages. Source: U.S. Department of Labor

2006 20092007 2008 2010 2011

recession

400,000 is generally considered the threshold below which the economy

is thought to be adding jobs at a decent pace.

http://www.bls.gov/news.release/empsit.nr0.htm

http://www.stb.dot.gov/econdata.nsf/322683bcf67f4143852566210062ac90?OpenView



http://www.bls.gov/news.release/empsit.nr0.htm




CONSUMER CONFIDENCE



Consumer confidence rebounded sharply for the second straight month in December,rising to 64.5 from 55.2 in November and completing its recovery from the big late-summerdecline (see chart at right). The indexis now at its highest level since April2011 (when it was 66.0) and slightlyabove where it was one year ago(63.4 in December 2010).

Don’t get carried away, though —consumer confidence is still nowherenear where it needs to be to signal a

healthy economy, and it’s still noteven back to its post-recession high of72.0 from February 2011.

What the Conference Board saidabout the December index: “[T]heConsumer Confidence Index is nowback to levels seen last spring….Consumers’ assessment of currentbusiness and labor market conditions improved again. Looking ahead, consumers are moreoptimistic that business conditions, employment prospects, and their financial situations willcontinue to get better. While consumers are ending the year in a somewhat more upbeat mood,it is too soon to tell if this is a rebound from earlier declines or a sustainable shift in attitudes."


The Conference Board’s press release on December’s consumer confidence index is here. January’s consumer confidence index will be released on January 31.

The index, released by the Conference Board on the last Tuesday of the month, is based onsurveys received from about 3,000 U.S. households. It is designed to gauge the financialhealth, spending power, and confidence of the average U.S. consumer. Respondents are

asked about current conditions and their expectations for the next six months. The index is designed to predict future consumer spending, on the theory that the more

confident consumers are about their job prospects, income, etc., the more likely they are tomake purchases, especially big-ticket items. As David Wyss (the chief economist at Standard& Poor’s) has said, “A confident consumer buys a new car. A cautious consumer repairs theold one.”

Consumers’ psyches are most heavily influenced by economic factors, such as gas prices, theunemployment rate, and how much money they have to spend, but non-economic factors —such as terrorist attacks, a military victory, or even a good performance at an internationalsporting event — can come into play too. Because there is always going to be some “noise”and month-to-month volatility in consumer confidence, trends are more important than a singledata point.

0

10

20

30

40

50

60

70

80

90

100

110

120

Index of Consumer Confidence:Jan. 2006 - Dec. 2011

(Index 1985 = 100)

Source: Conference Board

2006 2007 2008 2009 2010 2011

recession

http://www.conference-board.org/press/pressdetail.cfm?pressid=4370

http://www.conference-board.org/press/pressdetail.cfm?pressid=4370




RETAIL SALES


The Census Bureau surveys 5,000 retailers of all types to track the dollar value of physicalmerchandise sold. The data are adjusted for holiday differences and seasonal variations but arenot adjusted for inflation. Personal consumption accounts for approximately 70% of U.S. GDP.Thus, the health of the economy depends largely on how much people buy.

What are the latest numbers? Retail sales in November 2011 rose 0.2% ($883 million) over October 2011 to $399.3 billion

(see chart below left), the highest level ever. (The data are not adjusted for inflation.) Still, the0.2% increase was less than the 0.5% or 0.6% increase most analysts were expecting.

Most of the increase in November 2011 was due to non-store retailers (a proxy for Internet sales),which were up 1.5% ($521 million) for the month. Sales for motor vehicles and parts dealerswere up 0.5% ($330 million) in November. Sales at grocery stores were down 0.3% ($143million); sales at restaurants and other food and drinking places were down 0.3% ($106 million).

The chart at right is an update of a chart we last showed in August. It shows estimated mortgageand consumer debt as a percentageof disposable personal income. Thispercentage has been falling forseveral years and by Q3 2011 wasdown to 11.1%, its lowest level sincethe fourth quarter of 1994. To theextent consumers think they havedebt under control, they might bemore willing to increase theirspending, thereby boosting retail

sales. The growth in retail sales forthe past few months suggests thismay now be happening.


The Census Bureau’s press releasecovering November 2011 retail salesis here. December 2011 retail saleswill be released on January 12.

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Data are seasonally adjusted but are not adjusted for inflation. Source: Census Bureau

% Change in Total Retail Sales from Previous Month:Jan. 2006 - Nov. 2011

2006 2007 2008 2009 2010 2011

Up 0.2% in Nov. 2011

$310

$320

$330

$340

$350

$360

$370

$380

$390

$400

$410

Data are seasonally adjusted but are not adjusted for inflation. Source: Census Bureau

Total Retail Sales: Jan. 2006 - Nov. 2011($ billions)

2006 2007 2008 2009 2010 2011

recession

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

Source: Federal Reserve

Mortgage and Consumer Debt as a Percentage ofDisposable Income: Q1 2005 - Q3 2011

2005 2006 2007 2008 2009 2010 2011

http://www.census.gov/retail/marts/www/marts_current.pdf

http://www.census.gov/retail/marts/www/marts_current.pdf




NEW LIGHT VEHICLE SALES


Data cover U.S. sales of cars and light trucks, including pickups and SUVs. Over the past 50years, spending on motor vehicles has accounted, on average, for about 3.7% of U.S. GDP.Monthly auto sales are often referred to in terms of seasonally-adjusted annualized rates (SAAR).In 2010, 6% of U.S. Class I railroad gross revenue came from hauling autos and auto parts.

What are the latest numbers? New light vehicle sales fell to 13.5 million on an annualized and seasonally-adjusted basis in

December 2011, a slight decline from 13.6 million units in November 2011.

New light vehicle sales in all of 2011 of 12.7 million (not seasonally adjusted) were up by 22%from the recession’s low point in 2009, but are still well short of the nearly 17 million sold annuallyin the years preceding the recession.

An article in The Wall Street Journal onDecember 21

sttalked about how the

strength of the yen against the dollar (seethe chart at right) has made it very difficultfor Japanese automakers to make moneyexporting cars to the United States.

As a consequence, over the next few yearssome Japanese automakers are expectedto sharply increase their North Americanproduction to replace exports from Japan.Clearly, rail auto traffic patterns wouldchange if this happened.

An article in The Washington Post onJanuary 4

threported that U.S. auto sales

are projected to climb to somewherebetween 13.5 million and 14 million units in2012. Analysts say, however, that production will not return to the pre-recession levels until 2015.


BEA data on auto sales are here.

70

75

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85

90

95

100

105

110

115

120

125

Yen-U.S. Dollar Exchange Rate*: Jan. 2006 - Dec. 2011

*Yen per dollar. Source: Federal Reserve Board

2007 2008 20092006 2010

= dollar is getting stronger = dollar is getting weaker

2011

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

U.S. Light Vehicle Sales(millions)

*Passenger cars, SUVs, minivans, and pickups. Source: AAR, BEA, NADA

http://www.bea.gov/national/xls/gap_hist.xls







HOUSING STARTS


A housing start is beginning the foundation of a residential home. Historically, housing hasdirectly accounted 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 spendon other goods such as furniture, lawn and garden supplies, and appliances.

Since January 2006, single family homes have accounted for 79% of housing starts and multi-family buildings 21%. Housing starts, especially for multi-family buildings, often fluctuateconsiderably from month to month, so trends are more important than a particular point in time.

In the past, housing starts have usually been considered a “leading indicator” becauseconstruction growth usually picks up at the beginning of a business cycle. However, factors intoday’s housing market — including a huge oversupply of existing houses due to slow sales andwidespread foreclosures — means new construction is a big drag on the economy today.

What are the latest numbers? One of the all-time great movies is a 1987 romantic comedy called “The Princess Bride.” In it,

one of the characters says, “Well, it just so happens that your friend here is only mostly dead.There's a big difference between mostly dead and all dead.” For several years, it appeared thatthe housing sector was “all dead,” but it turns out that maybe it’s just been “mostly dead.”

Evidence for the fact that it may only be “mostly dead” is that housing starts totaled anannualized 685,000 in November 2011. That’s the highest monthly total since April 2010(see chart below left), up 9.3% over October 2011’s 627,000, and the fifth year-over-yearmonthly increase in the past six months (see chart top left of the next page).

Of course, “mostly dead” is still not the preferred outcome — housing starts are still ridiculouslylow. 30-year fixed mortgage rates recently fell to their lowest point ever, but that can’t overcomeall the other problems the sector is facing, including a huge supply of foreclosed and soon-to-beforeclosed homes and tremendous uncertainty regarding the entire housing finance system.

Most of the increase in November 2011 was due to sharply higher starts for buildings with five ormore units (i.e ., apartment buildings and townhouses). They totaled an annualized 230,000 inNovember 2011, their highest level since September 2008 and up 32.2% over October 2011 (seebottom line in the chart above left). Housing starts for single family homes in November 2011

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

U.S. Housing Starts: Jan. 2006 - Nov. 2011(Seasonally-Adjusted Annualized Rate, 000s)

Source: Census Bureau

2006 2007 2008 2009 2010 2011

Single-family units

Multi-family units

Total

Single- Mult i-

Family Family Total

Oct. '11-Nov. '11 2.3% 32.2% 9.3%

Nov. '10-Nov. '11 -1.5% 180.5% 24.3%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

% Change From Previous Month inU.S. Housing Starts: Jan. 2006 - Nov. 2011


2006 2007 2008 2009 2010 2011

Nov. 2011:

+9.3%




were 447,000, up a modest 2.3% over October 2011’s 437,000 but the highest of any monthsince June 2011 (see top line in the chart above left).

The chart above right shows the decline in the U.S. homeownership rate over the past five years.(The 65.9% in Q2 2011 was the lowest since Q1 1998.) As former homeowners have become

renters due to foreclosures and other factors, the demand for rental units has increased andhelps explain recent increases in housing starts for multifamily buildings.

We last showed the chart below left five months ago. It shows the number of homes underconstruction — i.e., houses started but not yet completed — for the past several years. Thefigures for September, October, and November 2011 are all positive, meaning that more newhomes were started those months than were completed. It’s the first time that’s happened forthree consecutive months since November 2005 through January 2006 and constitutes moreevidence that the housing sector has a pulse (albeit a weak one) after all.

The chart above right is a variation of one we show each month. The chart this month showsnon-seasonally adjusted, 3-month moving average housing starts and rail carloads of lumber andwood products. Note the extremely strong positive correlation: rail carloads of lumber and woodproducts won’t recover until the housing sector does.


The Census Bureau’s press release on housing starts in November 2011 is here. December datawill be released on January 19.

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

Month-To-Month Change in New Homes UnderConstruction: Jan. 2006 - Nov. 2011

Data are based on seasonally-adjusted numbers. Source: Census Bureau

2006 2007 2008 2009 2010 2011

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

% Change in U.S. Housing Starts From the SameMonth Previous Year: Jan. 2006 - Nov. 2011


2006 2007 2008 2009 2010 2011

Nov. 2011: +24.3%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,00018,000

20,000

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160180

200

U.S. Housing Starts vs. U.S. + Canadian RailCarloads of Lumber, Wood & Forest Products

correlation = 98%

2006 2007 2008 2009 2010 2011

Housing starts(left scale, 000s)

Rail carloads (right scale)

Data are not seasonally adjusted, are 3-month averages, and include Canadian railroads becausemuch of the lumber consumed in the U.S. originates in Canada. Source: AAR, Census Bureau.

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

http://www.census.gov/construction/nrc/pdf/newresconst.pdf




CONSUMER PRICE INDEX (CPI)


The CPI is the benchmark inflation guide for the U.S. economy. It measures the changes in thecost of a representative basket of consumer goods and services. The BLS collects prices frommore than 20,000 retail and service establishments throughout the country.

The “CPI for All Urban Consumers” (CPI-U) is the inflation index most often reported by themedia, although BLS publishes thousands of CPI indexes each month. The “core” CPI — definedas CPI less food and energy — is also commonly used. Food and energy prices are typicallymore volatile than other prices due in part to their susceptibility to external shocks.

It’s hard not to have at least a little inflation when an economy is growing, but inflation can harmeconomies in many ways. Just one example: inflation confuses price signals — producers don’tknow if higher prices are simply part of an inflation-related adjustment or if they signal higherdemand that warrants expanded production. It is believed that the Federal Reserve regardsinflation of 1.5% to 2% to be about right for the U.S. economy.

The CPI-U or a related index is the basis for cost-of-living adjustments for Social Security, federalretirement payments, many private pensions, and food stamps.

What are the latest numbers? In November 2011, the overall CPI was flat while the “core CPI” (excludes food and energy)

rose 0.2% (see chart below left). For the year ending in November 2011, the overall CPI was up3.4% (down from a recent peak of 3.9% in September 2011, see chart below right) and the coreCPI was up 2.2% (its highest increase since October 2008).

Most economists think the inflation rate will decline next year. For example, the consensus in themost recent monthly poll of prominent economists by The Wall Street Journal forecast CPI growthof around 2.3% in 2012 and 2013. Factors that would lead to slower inflation in 2012 include

slower growth in China and Europe that would reduce global demand for energy, steel, and manyother commodities; continued high unemployment and slow growth in employee earnings thatkeep a lid on retailers’ prices; and continued oversupply in housing that will constrain prices.


The BLS press release on the November 2011 CPI is here; the December CPI will be released onJanuary 19.

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Month-to-Month Change in the Consumer Price Index:Jan. 2006 - Nov. 2011*

2006

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

2007 2008 2009 2010 2011

Bars = overall

Line = excludingfood and energy

The overall CPI was basically flat in Nov. 2011.

CPI excl. food and energy was up 0.2% in Nov. 2011.

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Year-Over-Year Change in the Consumer Price Index:Jan. 2006 - Nov. 2011*

2006

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

2007 2008 2009 2010 2011

Bars = overall

Line = excludingfood and energy

Up 3.4% in the year ending Nov. 2011.

Up 2.2% in the year ending Nov. 2011.

http://www.bls.gov/news.release/cpi.nr0.htm

http://www.bls.gov/news.release/cpi.nr0.htm




RAIL FREIGHT CARS IN STORAGE


A freight car is “in storage” if it has had a loaded revenue move since 2005, but not in the past 60days. Rail cars are stored when they are not needed due to lack of demand; they come out ofstorage when demand improves. Figures are for the entire North American rail freight car fleetand include rail cars owned by railroads, leasing companies, shippers, and others. The totalfreight car fleet changes from month to month as new cars are added and old cars are scrapped.

There is a great deal of complexity in freight car usage patterns. For example, increases indemand for rail service for a particular commodity relative to another mean that some car typesmight be in very short supply at the same time that others are plentiful; a freight car might gothrough cycles where it is stored for a few months and then returned to service for a few months;and changes in scrap metal prices might make scrapping cars more attractive at one time thananother.


As of January 1, 2012, 273,390 freight cars were in storage, an increase of 9,478 fromDecember 1, 2011, and equal to 18.0% of the North American fleet, excluding cars without aload since before 2005 (see charts below).

In July 2009, 1.603 million cars were in the fleet, including cars without a load since before 2005.From July 2009 through December 2011, 62,107 new cars were installed, while 130,059 carswere scrapped or otherwise removed, yielding a net reduction of 67,952 cars in the NorthAmerican fleet.

527,060 cars were in storage on July 1, 2009 (including cars that last moved loaded prior to2005). By January 1, 2012, that was down to 285,388, for a reduction of 241,672. Subtractingthe 130,059 cars scrapped or otherwise removed yields a net of 111,613 cars that have been

returned to service. Of the 502,853 cars that were in storage on July 1, 2009 (excluding those that last moved loaded

prior to 2005), only 56,190 remained in storage continuously through January 1, 2012. Nearly89 percent of the cars that were in storage at the peak have either carried a load since then (andperhaps subsequently returned to storage), or been scrapped.


Contact Frank Hardesty ([email protected], 202-639-2321). Media inquiries should go to HollyArthur ([email protected], 202-639-2344).

200,000

250,000

300,000

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400,000

450,000

500,000

550,000

North American Freight Cars in Storage

Data are as of the first of the month; % are cars stored as % of total fleet. Source: AAR

Mar-Dec '09 2010

18.0% of the fleet

31.9% of the fleet

n/a

2011 2012

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

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5,000

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North American Freight Cars Out of Storage

Figure for Jan. 2011 = difference in cars in storage on Feb. 1, 2011 compared to cars in storage onJan. 1, 2011; other months calculated similarly. Source: AAR

May-Dec '09 2010 2011

AAR Rail Time Indicators December 2011

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