Growth in railroad-shipping volume shows the U.S. economic expansion is gaining momentum, even with rising energy prices in the first quarter.

Total rail volumes excluding grain and coal shipments rose 7.9 percent to 4.6 million carloads in the quarter ended March 31, according to data compiled by the Association of American Railroads in Washington. It was the second-highest increase in a first quarter, following last year’s 9.3 percent rise.

“This is almost double the first-quarter growth rates of the last economic recession, during the 2003-2006 recovery period,” said John Mims, a transportation analyst in Richmond, Virginia, at BB&T Corp. Rail volumes were on the “high end” of his expectations for the first quarter, and his projections for the second quarter assume the pace of volume recovery will continue.

Rail-car shipments that exclude coal and grain, such as chemicals and metals, represent the bulk of materials that go into industrial production, so an increase in volumes bodes well for the broader economy, Mims said.

“We’ve had no indications from the rails that they’re pulling back on their projections for strong commodity shipments throughout the year, which is a strong indication that industrial production will continue to improve,” Mims said.

He has a “buy” rating on Jacksonville, Florida-based CSX Corp. and on Union Pacific Corp. in Omaha, Nebraska, the two largest companies in the Standard & Poor’s 500 Railroads Index. They are “seeing more margin improvement” because of strong pricing gains and cost management, he said.

CSX has gained 18 percent this year, closing at $76.21 yesterday; Union Pacific is up 3 percent, closing at $95.35.

Industrial Production

According to Mims’ calculations, the correlation between the 12-month average of total rail-car loadings excluding grain and coal and the Federal Reserve’s industrial-production index is 0.88. A correlation of 1 would show the rail volumes and index move in lockstep, while a value of zero shows there is no relationship.

Manufacturing output, which makes up 75 percent of all industrial production, rose 0.6 percent in February, the eighth consecutive monthly increase, according to Fed data released last month.

The gains in the rail industry show the economy was able to withstand shocks such as severe winter weather, unrest in the Middle East, the earthquake and tsunami in Japan and higher gasoline prices in the first quarter, said Art Hatfield, a transportation analyst at Morgan Keegan & Co., based in Memphis, Tennessee.

Stimulus Projects

“It’s pretty good when you consider we’re at the tail end of all the stimulus projects out there,” Hatfield said. “That’s an indication the economy is beginning to right itself.”

In its March meeting, the Fed’s policy-making Open Market Committee said indicators of industrial production “were at levels consistent with solid increases in factory output in the coming months” and its business contacts are planning to expand production to meet an anticipated rise in sales.

“A further increase in business activity also indicated that the economic recovery remained on track,” according to the minutes of the Fed’s meeting.