November’s jobs report exceeded expectations (payrolls increased by 227,000[1]) yet the Fed lowered its benchmark interest rate December 18th by a quarter of a percentage point (to between 4.25% and 4.5%). Fed Chairman Powell’s recap: “I think we’re in a good place, but I think from here it’s a new phase and we’re going to be cautious about further cuts.” Tariffs[2], inflation, and the Fed’s policy outlook may keep rates where they are for 2025. Legislative turbulence is evident even before the new administration takes office January 20, 2025. Government spending, regulatory rollbacks, federal agency reconfigurations, an emphasis on boosting production of oil and natural gas, revisiting the U.S.-Mexico-Canada free trade agreement and implementation of policies that advance domestic manufacturing while discouraging reliance on Chinese and foreign manufacturing are on the table. Most will recall President Jimmy Carter as the ‘great deregulator.’ His legacy includes both the United States Airline Deregulation Act of 1978, which removed federal control over fares, routes, and market entry of new airlines, and the Staggers Rail Act of 1980, which eliminated tariff filing requirements for railroads, enabling private contracts and improving the financial health of the railroad industry. Thanks in no small part to President Carter, air travelers have enjoyed benefits, and Class Ones have passed cost savings on to shippers in the form of lower rates.
Long lived rail assets provide critical support to the domestic supply chain. Bulk transport of raw materials and finished goods will grow with domestic manufacturing growth. Trump’s first term boosted business for North America’s freight railroads. Between 2018 when Trump first introduced tariffs, and 2023, freight flows between the U.S., Canada and Mexico rose 28% by value. The amount moving on railroads increased 17% over the same period.[3] For the week ended December 21, 2024 U.S. freight rail traffic climbed 7.8% to 523,912 carloads and intermodal units. Both carloads and intermodal units were up compared to the same week in 2023 (230,857 carloads in the week, a .3% increase, and 293,055 containers and trailers, a 14.6% increase). Through 51 weeks of 2024 carload traffic is down 3.0%, intermodal up 9.3% for an overall net gain of 3.4%.[4] Intermodal is up as it is a more cost effective alternative to full truckload transport. Using rail for long distance hauls and trucks for shorter distances delivers both cost and environmental benefits.
Major air carriers lifted their revenue guidance for the year’s final quarter as travel demand held steady. Higher-than-expected demand is driving an increase in revenue per available seat mile and is expected to carry over into 2025. The TSA logged the 10 busiest days ever in 2024 (it screened 3.09 million people on Thanksgiving Sunday (edging out the previous record of 3.01 million travelers reached in July). Midlife narrow-body aircraft are the workhorses of air carrier fleets. Focusing on midlife aircraft with a long remaining useful life creates lease investment alternatives that reduce risk. They can be monetized in multiple ways and produce ample in-service cash flows.
GDP rose 3.1% in Qtr3. The economy remains strong. There will be fiscal policy and geopolitical tensions in 2025, but the new year will bring a friendlier regulatory environment and a path to putting our economy on a better growth footing. Aero and Rail transportation equipment provide scalable opportunities with risk that can be segmented across equipment types and credits. For actionable insights that allow more informed decisions, Call RESIDCO.
Glenn Davis 312-635-3161
[1] U.S. Department of Labor, December 6, 2024.
[2] Trump has pledged to use tariffs as a crucial part of his economic policy.
[3] Wall Street Journal, Railroad Looks Past Any Tariffs, December 3, 2024.
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