(This story was originally published as a Diary entry on Real Money Pro.)
This morning we had several regional economic/manufacturing reports that, when collected together, painted a picture of a slowing domestic economy with the top-line figures, but more so with the underlying order data.
Just a few weeks ago, there were those that saw the big miss with the August Empire Manufacturing Index, which came in at -14.9 vs. the expected 4.5, as a blip. Based on what we've received today and since the Empire report, it's increasingly hard to argue against a slowing economy.
I tend to look at weekly rail traffic figures and other indicators to assess the vector and velocity of the U.S. economy. Sadly, weekly rail traffic supports the slowing-economy view. The most recent data for the week ended Aug. 22, showed a 3.7% year-on-year drop in weekly rail traffic with declines in metallic ores and metals (down 15%), petroleum and petroleum products (down 12%) and coal (down 6.4%) -- no real surprise on those last two.
I always say one data point doesn't define a trend, but in this case if we trace the rail traffic data back over prior weeks we find year-on-year carload declines of 4.4% for the week ended Aug. 8 and 6.5% for the week ended Aug. 1. Not the direction that points to a pick-up from the now better-than-expected second-quarter 2015 GDP revision.
Falling rail traffic means less stuff getting to manufacturing facilities, distribution centers and so on. Hard to see a vibrant economy when stuff isn't moving around the country. Not good for railroads like CSX (CSX), Norfolk Southern (NSC), Union Pacific (UNP) and the like. It also means slack in the system, which is not good for new railcar demand for Trinity Industries (TRN), Greenbrier (GBX), American Railcar (ARII) and others as leasing companies like GATX (GMT) and the railroads slow net railcar additions.
Lastly, there is the overall tone of the manufacturing economy, which, if we aggregate all of the August activity in these regional reports, doesn't point to a pronounced rebound coming in September.
Very hard in my view to get behind industrial-related names here, like Paccar (PCAR), for example, as well as those like General Electric (GE), Honeywell (HON) and other global player that have exposure to a slowing U.S. and a contracting China. Yes, you buy cyclicals when things look ugly, but you should do so when things are ugly and have hit bottom. The first sign I tend to look for is a bottoming-out in backlog data and we haven't seen it yet.
