MAY-JUN 2018

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RTA EVENT CALENDAR US Real GDP Growth, Population and Laborforce Participation Rate CONTACT US RTA EVENT CALENDAR CONTACT US ADVERTISE Stella-Jones Corp. Railway Tie Association Wheeler Lumber Nisus Corporation MiTek Industries CROSSTIES • MAY/JUNE 2018 11 earners, though, have a lower marginal propensity to consume goods and services. That is, for any additional dollar earned, they tend to consume less and save more, in the form of bonds and equities, for example. Another factor is that the U.S. population is heavily indebted as compared to income (Figure 2). As a result, many consumers have not been able to take full advantage of the low interest rate environment to borrow, as they did during previous recoveries. Thus, expectations for the consumer to step up spending further may not be realistic. Of course, personal tax cuts may help. But, unless there is evidence of progress in real wage increases, consumer-spending growth may remain relatively subdued. Nonetheless, recent increase in economic activity will provide some positive lift in rail freight traffic. One freight sector that can't be predicted at this time to be positive for railroads is coal. Last year, coal production increased by 6.2 percent, substantially helped by coal exports, in spite of U.S. energy-related coal consumption being the lowest since 1982. It is not only low natural gas prices that drive this trend. Since 2000, improvements in the efficiency of the natural gas-fired power sector increased significantly due to implementation of the combined-cycle generator (Figure 3). This process reroutes the waste heat from the gas turbine into a nearby steam turbine for extra power generation. Also, overall electricity generation shows a declining trend. Since 2007, U.S. net production of electricity declined by 3.7 percent. This is a rather surprising finding. The likely reasons are the shift from goods production to services, plus more efficient appliances, more efficient light bulbs, and more people living in apartment buildings, which have fewer outside walls than do houses. EIA projections do not suggest any shift from current trends. In addition, exports of coal are also projected to decline in the coming year and half. However, there are some proposals of the administration that could, if implemented, change the outlook for coal significantly. As reported by Reuters and other news agencies, there is a working document MARKET UPDATE 50.0% 52.0% 54.0% 56.0% 58.0% 60.0% 62.0% 64.0% 66.0% 68.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Laborforce participation rate Real GDP and Population growth Labor force participation rate GDP growth (annual %) Population growth GDP Trend FIGURE 1 Source: World Bank US Real GDP Growth, Population and Laborforce Participation Rate Extrapolated Non-profit organizations debt Consumer Other Student Loan Consumer Credit Card Consumer Auto Loan Consumer HE Revolving Consumer Mortgage Aggregate Debt-to-Income Ratio FIGURE 2 Aggregate Households and Nonprofit Organizations Debt-to-Income Ratio TABLE 1 Real Household Income Growth from 1967 to 2016 (five equal groups segmented by household income) Period Lowest Fifth Second Fifth Third Fifth Fourth Fifth Highest Fifth From 1967 to 1997 31% 18% 25% 38% 64% Last 50 years 29% 24% 33% 53% 91% Last 20 years -2% 5% 7% 11% 17% Last 10 years -3% 1% 2% 4% 10%

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