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ECONOMY: US Economy Is Rolling Along

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By Peter G. Hall, Vice-President and Chief Economist EDC *

The searing heat of the 2012 summer has its equal in the temperature of the debate on the US economy. Nascent slowing in certain key indicators has provoked the bears and led to a flurry of downward revisions to forecasts. Others maintain that momentum is still there. Confusion is combining with the inordinate persistence of pessimism to shroud the near term in a thick haze. At the same time, there is good news – certain measures of current activity are doing reasonably well.

Analysts often look to an economy’s transportation sector as a gauge of overall performance. Summer sees a lot of personal transportation, but it’s really the business flows that are critical. Across the different key modes – air cargo, port activity, rail and trucking – there is still a decent amount of growth to date, suggesting that business activity continues to roll along at a respectable pace.
Shipments by air seem to be the most vibrant among all modes. Data only extend through March of this year, but are very impressive. Eastern airports saw a 24 per cent annualized gain in the past six months, with the most recent months being the strongest. By the same measure, Los Angeles was up 29 per cent, and Chicago up 40 per cent. Cargo traffic is measured in tonnes, so all calculations are net of price movements. These figures are a lot stronger than recent news on the economy suggest.
Growth in other modes is more modest, but still speaks of underlying business strength. Container shipments at West Coast ports are up 4.3 per cent over last year’s levels. Performance has been volatile in recent months, but the trend is still pointing upward. East Coast activity is not as impressive, coming in flat on a year-to-year basis, likely reflecting European weakness.
Rail traffic is mixed, but on balance, the story is upbeat. Second-quarter intermodal traffic is up 4.2 per cent compared with last year’s figures, and the April-June figures were up by an annualized 6.6 per cent over the previous quarter. Carloads have not fared as well, but weakness is largely attributable to lower foodstuff shipments – the result of weaker 2011 crops – and a 13 per cent drop in coal shipments. In contrast, petroleum product shipments are up almost 50 per cent, and auto industry shipments have risen 24 per cent in the past 12 months.
Figures are more modest for trucking. Inflation-adjusted year-on-year growth is decent, at 4.1 per cent, but the latest months show a flattening trend. However, businesses seem sanguine about the most recent figures; heavy-duty truck sales, a well-regarded business activity barometer, are up 27 per cent over last year, and rose 14 per cent in the second quarter alone.
All told, the numbers are encouraging. Business flows seem to be maintaining a rhythm that suggests recent slowdown hype may be overblown. It may be argued that these flows may just end up in inventories – a possibility, but unlikely, given current just-in-time inventory technology and widespread economic pessimism. What these numbers, along with other key indicators, seem to be reinforcing is the underlying momentum in US economic growth.

The bottom line?

Bashing the U.S. economy is a popular sport at the moment. Here’s another set of indicators that at least give pause for thought on the present avalanche of gloom and doom.

The views expressed here are those of the author, and not necessarily of Export Development Canada.


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