Ray Jay sees life in rail…and the economy

More good economic news coming from the Canadian railroads, according to a report out from Raymond James’ equity research railroad analyst:

Railroad freight volumes have bottomed and are on the road to recovery, in our view, suggesting the industry is poised to enjoy a healthy tailwind alongside a gradual improvement in the North American (N.A.) and global economies. While still down sharply yoy (17.3%), freight and intermodal carload originations have shown steady improvement after struggling to find a bottom during the final weeks of May. Specifically, we note that North American (N.A.) volumes have risen by approximately 20.0% over the past four months, an impressive updraft by most accounts. Moreover, a closely watched basket of leading economic indicators continues to support this improving trend, which we view as encouraging.

That being said, the magnitude and duration (i.e. sustainability) of this tailwind remains fiercely debated. Unprecedented stimulus outlays have clearly had a demonstrative impact on global economies. As the stimulus spending abates, however, many leading economists question whether the void can be filled by traditional consumer demand. This logically raises the question whether railroads are currently benefitting from a ‘gale force’ system that is prone to blowing itself out, or alternatively, a ‘fresh breeze’ that makes for steady sailing throughout our forecast horizon. Our belief is that the answer lies somewhere in between.

My friend “Howard” (he’s the one who watches the Vancouver coal terminal loading activities for signs of economic trends) would say: “watch the number of trucks on the highway…that’s Economics 101”. You can take this Raymond James report in the same vein.

MRM
(I own CP)