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GDP Growth’s All a Bunch of Garbage…

May 13th, 2010 Michael McDonough

I often analyze the volume of U.S. train car activity released by the Association of American Railroads, hoping to find some magical predictive power over equities, manufacturing, IP, etc…, but what I usually end up with is a mediocre coincident indicator.  While in some isolated incidents the index can exert considerable forecasting prowess, volatility and past false positives make interpreting these results extremely difficult.  Nevertheless, despite its shortcomings the data have a big advantage in that it is a weekly release, and unlike other indices cannot be impacted by speculative investors, as it tracks the actual volume of cars on track. 

The AAR breaks its data down into trains carrying various commodities, which can be an excellent tool to track developments in a specific sector.  But, for a moment I wanted to highlight a surprising correlation I found between trains carrying waste and U.S. GDP growth.  While a lot of the commodities these indices track are quite seasonal (not too much wheat to transport in the middle of winter) waste appears to track year over year GDP growth quite tightly, with a few clear exceptions in 2005.  As of 4/30/10 the volume of trains carrying waste hit its highest level since 2008, which given its relationship toward GDP is indicative of continued ‘robust’ growth for the second quarter.  Of course this series isn’t the missing link in GDP forecasting, but another mostly unpublicized index pointing toward the current strength of the U.S. economy.    

Source: AAR

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