Some Positive Signs For The Economy

By Eric Fox | July 12, 2010 AAA

The current gloomy outlook on the economy and a belief in the upcoming double dip recession is fast becoming a consensus view among investors. However, there have been some signs of strong activity across the U.S. economy. Although these reports may not be comprehensive enough to make a case that the economy is fine, they bear mentioning, if only to counteract the negative psychology in the market.
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Railroad Traffic
The Association of American Railroads has reported that rail traffic carloads in the U.S. were up by 18.8% for the week ending July 3, 2010, over the same week in 2009. The number of carloads, at 286,777 was also up by 0.4% over the comparable week in 2008.

Intermodal traffic also moved higher, and was up by 36.6% and 19.1% over 2009 and 2008, respectively. Rail carloads for the first six months of the year are now up by 7.8% over the comparable period in 2009.

The 2009 number was a fairly easy comparison since traffic was so weak at that time, but investors should take some comfort that rail traffic is above the 2008 level.

Obviously these reports are positive for the railroad companies, including Norfolk Southern (NYSE:NSC) and Union Pacific (NYSE:UNP). CSX Corp (NYSE:CSX) reports its earnings on July 13, 2010, and analysts will be sure to question management about any signs of weakening demand.

Containerboard
Several paper and packaging companies have pushed through price increases recently on containerboard and other products. Many investors look at sales and other fundamental data about containerboard as an important read into the strength of the economy since the product is tied directly to the shipments of goods.

RockTenn (NYSE:RKT) recently increased prices for containerboard by $60 per ton. Following the lead of Georgia-Pacific Corp., a private company and large producer.

RockTenn also instituted a $40 per ton price increase effective at the beginning of August on several brands of coated recycled paperboard products. Coated recycled paperboard is used for food and non-food packaging.

These price increases may not stick completely, as customers can shop around for lower prices. Other large containerboard players like International Paper (NYSE:IP) and Packaging Corp. of America (NYSE:PKG) have not yet publicly matched these price increases. However, if the industry were seeing weakness then it wouldn't make sense to be so aggressive on pricing in the face of falling demand. Another possibility is that the price increases are more due to the strong fundamentals in the product, as inventories at the lowest levels in years.

Bottom Line
The current outlook for economic growth among investors is pessimistic, but there still are some positive signs on the economic front. These should be noted and incorporated into the market's view on the economy.

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