Inter-modal volume has continued to rise, while carloads originated have remained steady, at best. Inter-modal volume is nothing more than the number of carloads that are transferred from 1 mode of transportation to another i.e. from ships to trains. The inter-modal volume for the week ended August 7 was 231,208 carloads, about 1% off from the prior week's 232,895 which was the largest weekly result since October 17, 2008. According to the AAR, "In the first six months of 2010, import TEUs (twenty-foot equivalent units) at six major ports - Los Angels, Long Beach, Savannah, New York and New Jersey, Seattle, and Norfolk - rose 18.2% compared with the first six months of 2009. Export TEUs rose 17.4%." This increase of inter-modal volume was consistent with the June surge in imports. As one can see, I am calling for a slight widening of the trade gap, a bit over $51.0 billion, which will be led by another increase in imports. This is clearly what the inter-modal traffic is showing us. The increase in inter-modal traffic is an important barometer because it tells us that demand is picking up WITHIN in the US however the same cannot be said for our international trading partners (evident from the trade gap).
Now let us look at housing starts and the monthly average of lumber carloads. There was a slight uptick from June into July, which allows us to forecast a similar slight up tick in housing starts or even a possible slowdown (which makes sense considering it can only move up or down, but I digress). I don’t think the latter is likely, since these two series generally correlate pretty well and that overall rail volume picked up nicely in July. What does this tell us? Well basically the housing market is going to remain stagnant for some time now and we should all begin to accept this fact. There have been 0 signs of life from this extremely important industry, including Monday's reading of 13 from the NAHB.
Looking at the big momma, GDP, we can see that activity is clearly slowing down. With this latest reading for the trade gap, I am inclined to cut my GDP forecast almost in half, to around 1.3%. However, this would be in direct violation of the rail volume trend, which is rising considerably. Let it be known that this is the quarterly average for rail loads originated. It should also be said that GDP has NEVER strayed this far for the trend of rail volume, which leads us to conclude two important points: 1. That the next two revisions to Q2 GDP may not be as significant as we originally thought and 2: That we are in a new normal (i.e. tremendous stimulus, government intervention ect) and that our old friend, rail volume, may not be as reliable in forecasting GDP as she once was.
These next few reports will give us a gauge on how demand is behaving here in the US. My advice,would be to short Treasuries even though slow growth is going to persist from some time. My reasoning...what goes down, well, must come up.