The first word in the Association of American Railroad’s annual Rail Industry Outlook is “uncertainty,” as a slew of economic and policy issues weigh on the business in 2025.
To further temper optimism, the report says that uncertainty is more pronounced amid cyclical factors and expectations for policy changes in the year ahead.
“Potential shifts in fiscal policy, trade, immigration, taxation and regulatory frameworks — alongside evolving monetary policy from the Federal Reserve — are contributing to heightened economic uncertainty as we enter 2025,” wrote Rand Ghayad, AAR chief economist and senior vice president of policy and economics, in the report. “The interplay between these policies will be critical in determining whether the labor market remains resilient enough to sustain consumer spending and support continued rail intermodal growth, as seen in 2024.
“Similarly, the trajectory of the manufacturing sector, which has faced two years of persistent weakness that has weighed heavily on rail carload volumes, will depend on how broader economic conditions evolve in response to both fiscal and monetary measures in the months ahead.”
What the report doesn’t say explicitly is that much of that uncertainty is driven by expectations for business under a second Trump administration.
Railroads posted a strong finish to 2024. Intermodal volume saw its third-highest year ever, capped by record December traffic on continued strong consumer spending and percolating port activity.
Declining coal shipments continued to drag down carloads. However, excluding coal, carloads were narrowly up in December from the same month in 2023, and for 11 months in 2024 — the first time that had occurred since 2018, led by chemicals and grain.
The AAR’s Freight Rail Index (FRI) measuring seasonally adjusted intermodal volumes plus carloads excluding coal and grain in December rose 2.2% from the previous month, to its highest point since January 2021.
“This sustained upward trend indicates that, despite persistent manufacturing weakness and policy-related uncertainties, the broader U.S. economy remains on relatively firm footing as we begin 2025,” Ghayad wrote.
Consumer spending, a “pivotal support” for intermodal, remains “robustly strong” on an equally solid labor market.
Adjusted for inflation, spending was 2.9% higher than in November 2023 while spending on goods increased by 3.4% — its biggest gain in a year — following increases of 3% in September and October.
Containers accounted for a record 96.3% of U.S. intermodal originations in 2024, on concurrent double-digit gains in port volumes, particularly on the West Coast.
Consumer spending was underpinned by an average of 186,000 new jobs per month in 2024, the report said, down from an economically unsustainable 251,000 in 2023 but on par with the 183,000 monthly average from 2010-2019. Inflation-adjusted average earnings were higher on a year-over-year basis for 20 straight months through December 2024 after 25 consecutive monthly declines.
Unemployment dipped to 4.1% in December 2024, about where it has been for the past six months.
The report called out some labor headwinds. The rate of workers who voluntarily quit their jobs for better opportunities fell from 2.1% in October to 1.9% in November, matching its lowest level since May 2020. Initial unemployment claims edged higher in December, while it took job seekers longer to find a job than a year or two ago.
Even so, “the labor market continues to exceed expectations, offering optimism that consumer spending and rail intermodal activity will remain supported,” wrote Ghayad. “A sudden downturn in the labor market that becomes self-reinforcing, a decline in confidence prompting consumers and businesses to save more for uncertain times, and a return of rising inflation that could erode purchasing power are among the potential obstacles to continued spending growth.”
The year-on-year rate of decline in key inflation indexes such as the Consumer Price Index and the Federal Reserve’s favored Personal Consumption Expenditures index moderated through the end of 2024, indicating inflationary risks remain. But that was enough to spur interest rate cuts in September, November and December as the Fed sought to stabilize the jobs market and find a “neutral” interest rate amenable to sustainable growth, moderate inflation and low unemployment.
“In practical terms, the current policy environment places the economy — and industries such as railroads — in a holding pattern,” Ghayad wrote. “While the Fed’s rate cuts offer some relief, uncertainty remains elevated. Key questions around future inflation trends, interest rate adjustments, and the broader economic outlook will continue to shape business conditions in the months ahead.”
The decline in U.S. manufacturing over the past two years has weighed on carload traffic, and while business confidence is higher ahead of 2025, uncertainties remain.
In 2024, coal shipments fell 13.6% from a year ago to 2.94 million, lowest on record but still accounting for more than a quarter of all carloads. Excluding coal, U.S. carloads increased 1.9% in December, the 11th straight y/y gain, 1.5% in the fourth quarter and 1.4% for the year.
Twelve of 20 carload categories tracked by the AAR were higher in 2024 than in 2023. Increased exports helped grain lead at 1.07 million carloads, up 8.5%, though it represented the fewest carloads since 2019.
Chemicals totaled 1.69 million carloads in 2024, a record, up 4.1% y/y, and have grown each month since September 2023 due in part to low natural gas prices for producers that use gas as a feedstock or energy source.
Carloads of petroleum products in 2024 were the most since 2019, the report said, on higher crude oil shipments, while the manufacturing slowdown pushed steel products to their lowest level since 2020.
Motor vehicles rose 1.2% in 2024 y/y but declined in November and December.
“Recent surveys from the National Association of Manufacturers and the Business Roundtable suggest that business confidence rose in the fourth quarter of 2024 in anticipation of 2025,” Ghayad wrote. “How 2025 will play out is unknown, but railroads are prepared to help their customers and the economy continue to grow.”
