Interesting Times

If garbage is any indication, the U.S. economy is strengthening.

The number of freight cars carrying waste jumped 45 percent in April and May from the same period last year to 79,044, according to the Washington-based Association of American Railroads. Waste freight hasn’t grown as fast for any quarter since at least 1994.

Shipments of waste and scrap have a higher correlation with economic growth than coal or copper, according to data compiled by Bloomberg News. (To see an Interactive Insight version of the story, click here.)

“It’s sort of like measuring horsepower by looking at the smoke coming out of the tail pipe,” Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York, said in a telephone interview. “It’s consistent with our broader view that economic growth is accelerating.”

The world’s largest economy grew at a 3.3 percent annual pace in the second quarter, according to the median forecast of 64 economists surveyed by Bloomberg News from June 2 to June 8. Gross domestic product expanded at a 3 percent pace in the first three months of the year.

Shipments of scrap and waste are “coming back slowly but surely” as the economy recovers, said Lauren Rueger, a spokesman at Jacksonville, Florida-based CSX Corp., the third- largest U.S. railroad by 2009 sales.

Statistical Correlation

The correlation coefficient between carloads of waste and year-over-year growth in gross domestic product from the first quarter of 2001 through the same period of 2010 is 0.82, according to Bloomberg calculations. A correlation of 1 would show the pair moving in lockstep, and a minus 1 reading reflects opposite changes. That is the strongest correlation among 21 categories sent by rail and tracked by the AAR.

Shipments of metals, with a 0.79 correlation coefficient, are the next highest. The coefficient for coal is among the lowest at 0.32.

The AAR says iron and steel make up 42 percent of waste and scrap, followed by municipal waste and demolition products at 32 percent; paper, 11 percent; ashes, 5 percent, non-ferrous metals, 4 percent; and chemical waste, 1 percent. Miscellaneous waste accounts for the remaining 4 percent.