The IMF expects the U.S. economy to grow 2.5% in the fourth quarter. Business investment, ample energy supplies, and consumer spending have led to increased productivity. After the Fed cut interest rates by half a percentage point in September economists are generally positive. The Conference Board’s leading economic index indicates continued moderate growth for the balance of this year and into early 2025. The Fed is committed to maintaining the economy’s strength. But with September’s surprising job growth[1] most now expect the Fed to be hesitant on future rate moves. The personal consumption expenditures index peaked in June 2022 at 7.1% and in August was down to 2.2%. With the manufacturing PMI below 50% manufacturing employment fell by 28,000 jobs in the third quarter. Consumer spending continues to support the economy. Housing starts remain challenged (year to date through August down 4% from last year). Homeowners with low mortgage rates are not moving resulting in limited secondary market opportunities.
Sixty-four percent of Boeing’s machinists rejected Boeing’s last contract offer. Negotiations continue but production of 737s, 767s, and 777s remain stalled. Consumer inflation is the problem. Even with a 35% wage increase wages have not kept pace with the cost of living. The shortage of new equipment deliveries is keeping mid-life generation models in the air. The strike is also impacting the supply chain and parts shortages will slow production once the strike is settled. But the outlook for Boeing’s best-selling 737 remains strong. Originally introduced in 1968 the type has four generations with several variants. The 737 MAX has improved fuel efficiency, and its aerodynamic design allows it to fly up to 3,800 nautical miles compared to the 737-800’s 3,500 nautical miles. The MAX also allows higher seating capacity which has allowed American, Delta, and United to configure aircraft seating to fit their route pattern business strategies. Its main competitor? The Airbus A320neo fleet.
Total railcar loads (excluding coal) were 86,782 or 1.4% higher in the first nine months of 2024 than in 2023. Intermodal in the same period was up 9.5% (882,064 units). “Economically sensitive” rail traffic which excludes grain and coal but includes intermodal has grown. Third quarter of 2024 U.S. carloads of chemicals were up 3.8% over the third quarter of 2023. At 1.27 million (50,588 carloads year to date through September) they were the highest January to September period on record. More than half of chemical carloads consist of a variety of industrial chemicals, including soda ash, caustic soda, urea, sulfuric acid, and anhydrous ammonia. Plastic and synthetic resins account for close to a quarter (agricultural chemicals make up the balance). Coal accounts for 15% of U.S. electricity generation and the IEA does not expect coal-fired capacity to be replaced fast enough in the near term. GATX reported 3rd Quarter rail fleet utilization of 99.3%, a renewal success rate of over 80% with renewal rates up 26.6% during the quarter with an average renewal term of 59 months[2]. OPEC trimmed its forecast for oil demand growth and the markets expect Brent to be averaging $74 in the fourth quarter and $65 a barrel in the first quarter of 2025.
Market fundamentals drive Aero and Rail results but don’t explain everything. Firm management is key. Invest with professionals trained to measure risk, estimate probabilities, and make decisions based on current and future equipment values. Call RESIDCO.
Glenn Davis 312-635-3161
[2] Railway Age, GATX 3Q24: ‘Consistent With Expectations’, October 22, 2024.
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