A rail industry trade group says February data on freight volumes, inflation and manufacturing suggests a soft landing for the economy, with inflation declining and no significant slowdown in economic growth.
Railcar loads increased 6.5% year over year, led by gains in grain, coal and other industrial products. Shipments so far this year were the highest since 2023, Rand Ghayad, chief economist at the Association of American Railroads, wrote in a monthly analysis.
Intermodal volumes recovered 1.5% as average weekly volume set a record for the month.
A steady increase in SONAR flatbed truck rates indicates early signs of a manufacturing recovery, but one that an executive at a railcar builder told FreightWaves has not extended to gondolas, which carry steel, scrap metal and other flatbed-type cargo.
Ghayad highlighted the closely watched February manufacturing PMI, which was above 50% for the second consecutive month, while manufacturing production in January reached its highest level since October 2022, “suggesting a possible turning point in industrial activity.”
While the unstable labor market is a concern, layoffs remain relatively low, suggesting employers are still reluctant to cut jobs. “Looking ahead, a manufacturing sector recovery, continued resilience in consumer spending and an easing of trade tensions would support rail volume growth, while persistent inflation, a weakened labor market, high interest rates and uncertain global trade policy could weigh on demand,” Ghayad said. After indicators of slower growth in January, “Significant uncertainty remains. But for railways, the latest data points to a more favorable context for freight demand in the coming months.”
Intermodal marks record month
In February, 14 of the top 20 vehicle freight categories posted year-on-year gains, led by grains, coal, chemicals and petroleum products. Ghayad said: “This suggests that industrial activity and demand for freight movement are strengthening. That’s important because many railcar loading sectors tend to move closely with the underlying activity of the real economy, making rail volumes a clear real-time signal of changing freight demand.”
Intermodal shipments on U.S. railroads averaged 280,687 units per week in February, a record and the first year-over-year increase in six months. The January-February total of 2.19 million containers and trailers, up 1.9% year-on-year, remained the second-highest total on record for the first two months of a year. “The combination of modest year-over-year weakness and still elevated absolute volume suggests underlying demand for goods has cooled but not collapsed,” Ghayad said.
The AAR Freight Rail index that tracks seasonally adjusted intermodal shipments and railcars, excluding coal and grain, rose 1.8% in February, the third monthly increase in the last four months. The FRI tracks the rail traffic segments most sensitive to changes in the broader economy.
Coal is once again the king of freight cars
February coal carloads improved 6.9% year over year, with the highest average weekly volume since September 2025. Cold weather, firmer natural gas prices and elevated electricity demand helped coal account for 26.6% of non-intermodal volume, ahead of chemicals at 15.3% and grains at 11.2%.
Loaded vehicles in the United States, excluding coal, improved 6.3% in February, the strongest year-over-year percentage increase in more than two years. Those carloads posted year-over-year increases in 22 of the past 25 months, “demonstrating that non-coal transportation demand has remained more resilient than many leading indicators might suggest,” Ghayad wrote. Year-to-date rail carloads rose 5.4% to 1.29 million, the most since 2015.
Strengthening exports pushed grain carloads to the highest February weekly average since 1990 and the highest for any month since January 2021. January-February volume was up 21.8% year-over-year and was also the highest since 1990, although Ghayad noted that covered hoppers at that time were limited to 100 tons of capacity compared to 111 tons today.
“Most of the variation in grain loads reflects changes in export demand, and grain exports have strengthened,” the analysis found. “The U.S. Department of Agriculture recently projected that U.S. corn exports will set a record this year. With corn accounting for about half of U.S. grain carloads, that export strength is translating directly into higher rail volume.”
Chemicals, after a record year in 2025, rose 3.3% in February with record weekly shipments taking the category to an all-time monthly record and a high mark for the first two months of a year.
Ghayad said geopolitical tensions in the Middle East could drive up natural gas prices. “A sustained increase would hurt the competitiveness of energy-intensive U.S. chemical production, which could eventually soften chemical shipments even as higher natural gas prices support coal demand,” he said.
North American rail vehicle shipments improved 3.1% in February (the first year-over-year increase in six months) and average weekly carloads hit their highest level in five months. But Ghayad expressed a mixed perspective. The National Automobile Dealers Association recently forecast that new vehicle sales will be 16 million in 2026, up from 16.2 million in 2025. “Affordability pressures remain significant, with higher sticker prices and high monthly payments continuing to sideline many buyers,” Ghayad said.
Labor market uncertainty and policy-related volatility are complicating production planning and consumer demand, he added. Motor vehicles account for approximately 8% of US rail revenue.
For the first time in six months, the number of wagons in storage fell in February, by almost 18,000, as all major types saw fewer idle wagons. If that trend continues, Ghayad said, it would suggest that freight demand is strengthening enough for railroads and other railcar owners to return equipment to service “in a more significant way.”
Green shoots for manufacturing?
Among key economic indicators, the ISM Manufacturing PMI was 52.4% in February, the second consecutive month above the 50% threshold that separates expansion from contraction. “In the 38 months to December 2025, the index was above 50% only once, making this recent move notable,” Ghayad said.
He called it “encouraging” that the new orders index reached 55.8%, while the backorder index rose to 56.6%, its highest level since mid-2022. “These measures do not guarantee a lasting recovery, but they do suggest that the manufacturing industry may be regaining enough traction to become important for transportation demand again,” he said.
Preliminary data from the Federal Reserve shows that US manufacturing production in January was the highest since October 2022. That and the PMI data “point to an industrial sector that could finally be stabilizing after a long period of weakness, a development that would be especially important for railroads.”
A stronger services PMI, trending upward over the past six months to reach a near four-year high, “supports the broader freight environment by bolstering employment, income growth and consumer demand,” Ghayad said. This preserves household spending and continued support for intermodal and other consumption-related traffic.
Stability of interest rates, moderation of inflation
The Federal Reserve is expected to leave the federal funds rate unchanged at 3.5%-3.75% at its March 17-18 meeting, where it has been since mid-December. “Authorities appear to want more time to evaluate the incoming data; they remain divided on whether inflation or labor market weakness pose the biggest risk,” Ghayad said. The effects of the Iran war also weigh on the Federal Reserve’s decisions.
The core consumer price index excluding food and energy rose 2.5% in February, its slowest pace since March 2021, and an indicator that inflation continues to inch toward the Federal Reserve’s 2% target. Ghayad said: “For railroads and their customers, more stable inflation and a patient Federal Reserve help reduce uncertainty around borrowing costs and capital planning, while supporting a more stable freight demand environment.”
Labor market instability
Job creation in a weakening labor market has slowed significantly and the unemployment rate has tended to rise. Job growth has alternated between gains and losses for 10 straight months, highlighting unusually unstable labor demand.
While unemployment rose to 4.4% in February, near a five-year high, Ghayad said layoffs have moderated. Inflation-adjusted wage growth also remains positive, he said, which should continue to support consumer spending for now.
Consumer spending showed modest growth in February. More broadly, while it has boosted GDP growth in recent years, weaker spending will quickly be felt by the broader economy. This would likely manifest itself first in intermodal volumes.
Is there room for cautious optimism?
Ghayad said the coming months should reveal whether the recent improvement in cargo volumes and signs of macroeconomic stabilization can turn into something more lasting.
“Manufacturing appears to be regaining some balance, service sector activity remains strong and consumer spending has not yet plummeted,” he said. “If those conditions hold, the environment for rail traffic should improve further. The labor market remains the key factor. For now, however, the balance of recent data suggests that the freight economy may be on somewhat firmer ground than seemed likely just a month ago.”
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Read more articles by Stuart Chirls here.
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