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Bank of America analysts ponder if rail freight slowdown is prelude to recession

US RAIL freight volume has dropped the most in six years in 2015, and prospects do not look good for 2016, reports Bloomberg.

"We believe rail data may be signalling a warning for the broader economy," the recent note from Bank of America says.

"Carloads have declined more than five per cent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter.

"The current period of substantial and sustained weakness, including last week's -10.1 per cent decline, has not occurred since 2009," said the research note.

BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the US economy.

What they found was all such drops in rail carloads preceded, or were accompanied by, an economic slowdown, excluding the 1996 extremely harsh winter.

"Similar periods of weakness have occurred in only five other instances since 1985: Most of 1988, the first half of 1991, several weeks in early 1996, late 2000 and early 2001 and late 2008 and most of 2009" Kall either overlapped with a recession, or preceded a recession by a few quarters."

Many say a shift away from coal-powered energy, a slowdown in the industrial sector and the petering out of the US shale boom would naturally lead to fewer goods being moved by rail.

But Mr Hoexter and his team suggest the slowdown is spreading to more consumer-oriented segments; Intermodal carloads typically related to consumer goods were up one per cent in the first quarter of 2015 and 3.6 per cent in the second quarter, but fell 1.7 per cent in the final quarter of last year.