The dark clouds just continue to gather on the nation’s economic horizon.
This time, rail traffic has plunged to recessionary levels, according to Wolf Street.com
’s Wolf Richter.
U.S. railroad cargo in 2015 dropped the most in six years, and 2016 isn’t expected to be any better.
"Transportation is a measure of how well the real economy is clicking," Richter wrote.
"The deterioration in the second half of 2015 dragged the whole year down from 2014: carloads fell 6.1%, according to the Association of American Railroads (AAR), while intermodal containers and trailers edged up 1.6%, for a total decline of 2.5%. But the deterioration late in the year was a doozie," he explained.
"In December, total volume dropped 8.9% year over year, with both components down: even intermodal containers and trailers, which had been holding up for much of the year, edged down 0.7%; and carloads (bulk commodities, autos, and the like) plunged 15.6%.
Only four of the 20 carload categories showed gains," he said.
"But the big ones got crushed: carloads of coal, the largest category – done in by the low price of U.S. natural gas emanating from the collapsing natural gas industry – plunged 27.9%; metallic ores, the second-largest category, plunged 39.1%; and petroleum and petroleum products, the third largest category, plunged 20.5%. The commodities rout is tearing into railroads with a vengeance!"
Meanwhile, railroads are resorting to measures like lowering of headcount and trimming of capital spending to overcome the difficult times and remain viable, Zacks
reported. "Nevertheless, it is still poised to be a difficult phase for stocks in the space as demand for coal is not likely to improve radically any time soon," it said.
"Since coal is a key revenue-generating commodity for railroad operators, it is only natural that the decline in domestic coal shipments has hurt stocks in the space big time. Soft commodity prices apart, strength of the U.S. dollar has also negatively impacted railroad results."
However, not all experts paint such a dire prediction for rail stocks themselves.
Rail carriers’ shares are poised for a rebound from their worst performance in at least 25 years, Bloomberg
Union Pacific Corp., CSX Corp. and Kansas City Southern each are expected to rise more than 20 percent this year, according to the average of analysts’ target prices compiled by Bloomberg. Norfolk Southern Corp. trails the field with an expected 11 percent return but that’s largely because its stock already was boosted by a takeover campaign from Canadian Pacific Railway Ltd. that began in November.
Cheap valuations coupled by railroads’ efforts to boost freight prices and improve efficiency will drive stock prices, Bloomberg reported.
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