Railroad Crossing

Railroad Crossing

over 4 years ago1 min

American businesses are shipping fewer and fewer goods – everything from cars to coal – by rail this year, flashing a warning sign about the health of the world’s biggest economy.

What’s going on here?

Railroad carloads fell 5.5% in the third quarter from a year earlier. That’s the biggest drop in three years, and follows a decline in each of the previous quarters.

Container contraction
Container contraction

Why should I care?

Freight is essential to the smooth running of the economy, so it’s often among the first sectors to suffer when businesses lose confidence. If a factory decides to slow production, for example, it’ll need fewer deliveries of materials – and fewer trains and trucks for transport.

Stock market watchers have tracked the interactions of transport stocks and the wider equity market for over a century. That’s meant the search for patterns of movement between the Dow Jones Transportation Average (DJTA) and the Dow Jones Industrial Average has become something of a cottage industry.

This week, technical analysts – who make predictions based on price charts – got excited when they spied a “death cross” pattern in the DJTA. In other words, the 50-day moving average dropped below the 200-day moving average – which these TA types reckon is a sign of further losses to come.

A pattern of behavior
A pattern of behavior

A broad recession is by no means guaranteed: America’s economy continued to chug along in 2016, even as carloads dropped 4.5%. But it is a reliable bellwether, so be sure to keep an eye on the direction of travel in transport stocks in coming months.

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