A rail industry trade group says February data on freight volumes, inflation, and manufacturing suggest a soft landing for the economy, with easing inflation and no significant slowdown in economic growth.
Carloads increased 6.5% year-over-year, led by gains in grain, coal, and other industrial products. Year-to-date shipments were the highest since 2023, wrote Rand Ghayad, chief economist for the Association of American Railroads, in a monthly analysis.
Intermodal volumes rebounded by 1.5% as weekly average volume marked a record high for the month.
A steady climb in SONAR flatbed truck rates indicate the early signs of a manufacturing recovery, but one that an executive with a railcar builder told FreightWaves hasn’t extended to gondolas, which carry steel, scrap and other flatbed-type cargoes.
Ghayad highlighted the closely-watched Manufacturing PMI in February, which was above 50% for the second consecutive month, while manufacturing output in January reached its highest level since October 2022, “suggesting a possible inflection point in industrial activity.”
While the unsettled labor market is a concern, layoffs remain relatively low, suggesting employers are still reluctant to cut jobs. “Looking ahead, a recovery in manufacturing, continued resiliency for consumer spending, and easing trade tensions would support rail volume growth, while persistent inflation, a weakening 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 railroads, the latest data points to a more supportive backdrop for freight demand in the months ahead.”
Intermodal marks record month
In February, 14 of 20 major carload categories saw year-over-year gains, led by grain, coal, chemicals, and petroleum products. Said Ghayad, “That suggests industrial activity and goods movement demand are firming. That matters because many carload sectors tend to move closely with underlying real‑economy activity, 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 gain in six months. The January-February total of 2.19 million containers and trailers, off 1.9% y/y, were still the second-highest total ever for the first two months of a year. “The combination of modest year-over-year softness and still-elevated absolute volume suggests underlying goods demand has cooled but not collapsed,” Ghayad said.
The AAR Freight Rail Index tracking seasonally-adjusted intermodal shipments and carloads excluding coal and grain rose 1.8% in February, the third month-to-month increase in the past four months. The FRI follows rail traffic segments most sensitive to shifts in the broader economy.
Coal again king of commodity carloads
February coal carloads improved 6.9% y/y, with average weekly volume the most 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, 15.3%, and grain, 11.2%.
U.S. carloads excluding coal were better by 6.3% in February, the strongest y/y percentage gain in more than two years. Those carloads posted y/y increases in 22 of the past 25 months, “showing that freight demand outside coal has remained more resilient than many headline indicators might suggest,” Ghayad wrote. Carloads year-to-date increased 5.4% to 1.29 million, the most since 2015.
Strengthening exports pushed grain carloads to the highest weekly February average since 1990 and the highest for any month since January 2021. January-February volume increased 21.8% y/y and were also the most since 1990, although Ghayad noted that that era’s covered hoppers were limited to 100 tons capacity compared with 111 tons today.
“Most variation in grain carloads reflects changes in export demand, and grain exports have been strengthening,” the analysis found. “The U.S. Department of Agriculture recently projected that U.S. corn exports will set a record this year. Because corn accounts for roughly half of U.S. grain carloads, that export strength is translating directly into stronger rail volume.”
Chemicals, off a record year in 2025, rose 3.3% in February with record weekly shipments pushing the category to an all-time monthly record, and high mark for the first two months of a year.
Ghayad said geopolitical tensions in the Middle East could send natural gas prices higher. “A sustained rise would weigh on the competitiveness of energy-intensive U.S. chemical production, which could eventually soften chemical carloads even as higher natural gas prices support coal demand,” he said.
North American vehicle shipments by rail improved by 3.1% in February — the first year-over-year gain in six months — and weekly average carloads reached their highest level in five months. But Ghayad remarked on a mixed outlook. The National Automobile Dealers Association recently forecast new vehicle sales at 16 million in 2026, down from 16.2 million in 2025. “Affordability pressures remain significant, with higher sticker prices and elevated monthly payments continuing to sideline many buyers,” said Ghayad.
Labor market uncertainty and policy-related volatility are complicating production planning and consumer demand, he added. Motor vehicles account for roughly 8% of U.S. rail revenue.
For the first time in six months the number of railcars in storage fell, by nearly 18,000, in February as every major type saw fewer idled cars. If that trend continues, Ghayad said, it would suggest freight demand is strengthening enough for railroads and other railcar owners to bring equipment back into service “in a more meaningful way”.
Green shoots for manufacturing?
Among key economic indicators, the ISM Manufacturing PMI was 52.4% in February, the second straight month above the 50% threshold that separates expansion from contraction. “In the 38 months through December 2025, the index was above 50% only once, making this recent move notable,” Ghayad said.
He termed “encouraging” that the new orders index reached 55.8%, while the backlog of orders index rose to 56.6%, its highest level since mid-2022. “These measures do not guarantee a durable rebound, but they do suggest that manufacturing may be regaining enough traction to matter again for freight demand,” he said.
Federal Reserve preliminary data shows U.S. manufacturing output in January was the highest since October 2022. That and the PMI data “points to an industrial sector that may finally be stabilizing after a long period of weakness, a development that would be especially important for railroads.”
A stronger Services PMI trending higher over the past six months to a near-four-year high “supports the broader freight environment by reinforcing employment, income growth, and consumer demand,” said Ghayad. That preserves household spending and ongoing support for intermodal and other consumer-linked traffic.
Interest rate stability, moderating inflation
The Federal Reserve is expected to leave the federal funds rate unchanged at 3.5%–3.75% at its meeting March 17-18, where it has been since mid-December. “Policymakers appear to want more time to assess incoming data; they remain divided over whether inflation or labor market weakness poses the greater risk,” said Ghayad. The effects of the Iran war are also weighing on the Fed’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 move gradually toward the Fed’s 2% target. Said Ghayad, “For railroads and their customers, steadier 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 softening labor market has slowed significantly, and the unemployment rate has been trending higher. Job growth has alternated between gains and losses for 10 consecutive months, highlighting unusually unsettled 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’s fueled GDP growth in recent years, weaker spending will be quickly felt by the broader economy. That would likely show up first in intermodal volumes.
Room for cautious optimism?
Ghayad said that the next few months should reveal whether recent improvement in freight volumes and signs of macro stabilization can build into something more durable.
“Manufacturing appears to be regaining some footing, service‑sector activity remains firm, and consumer spending has not yet broken,” he said. “If those conditions hold, the backdrop for rail traffic should improve further. The labor market remains the key swing factor. For now, however, the balance of recent data suggests the freight economy may be on somewhat firmer ground than seemed likely just a month ago.”
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