AAR’s State of the Industry Report focuses on impact of railroads on U.S. economy

The financial impact of the United States railroad industry on all facets of the nation’s economy cannot even come close to being understated.

For those that are not sold on this thesis, they need to look no further than research recently issued by the Association of American Railroads (AAR) in its second “State of the Industry Report” that features input from an economic impact study by Towson University’s Regional Economic Studies Institute (RESI).

Some of the report’s key findings focusing on the economic role of railroads are as follows:

• The $28 billion in investments by freight railroads in 2014 represents more than half of the total federal spending on transit formula grants, federal highway construction programs and airport investment programs combined.
• The $274 billion in economic activity created by U.S. railroads generated almost $33 billion in state and federal tax revenues and supported almost 1.5 million jobs in 2014.
• One job in the freight rail sector supports nine others impacted by the industry, including retail, manufacturing, transportation and warehousing.
• Rail’s state and local tax output exceeded taxes collected by 30 U.S. states in 2014.

The report is broken up into four features, focusing on the impact of rail on the nation’s economy, customers, consumers, and railroad regulations. AAR president and CEO Ed Hamberger made it clear just how essential railroads are to the domestic economy in the report.

“For manufacturers and consumers, small and large businesses, energy companies and farmers, freight rail is the basic building block that allows a great sweep of economic activity to take place across the country,” said Hamberger. “Without railroads, our economy would be vastly different.”

One a June media conference call, Hamberger added that the figures cited in the report from Towson’s RESI researchers showed how railroad investments spur significant economic activity within sectors tied to the railroad industry and the economy at large.

In its work, Towson measured the direct, indirect, and induced impacts of freight rail investments, with some of its additional findings showing that to replace one mile of tracking requires 176 tons of steel, 270 steel joints, 6,000 pipe links, 4,300 anchors, 3,000 ties, and tons of rocks and ballasts. Hamberger noted that these materials come from hundreds of U.S.-based suppliers and support jobs in those industries.

Dr. Daraius Irani, lead researcher and chief economist at Towson’s RESI, said that the railroad sector is a significant economic engine in the U.S., not counting its role in supporting industries like retail and agriculture.

“Our analysis focused on one year of operations and one year of capital investment,” said Irani. “It’s an ongoing endeavor, with the numbers expected to grow, as the railroads support a significant part of our economy.”

The jobs and employment analysis in the report served as a proxy for GDP and wages, according to Irani. Direct Class I jobs were at 166,000 in 2014 and indirect jobs, which are based on business-to-business type support, were at 720,000. Induced jobs that are generated by household income expenditures totaled 592,000, for a total of 1.4 million jobs created or supported by U.S. railroads in 2014.

What’s more, the total impact of U.S. freight railroad jobs in 2014 accounted for 1.1% of the U.S. labor force, 1.6% of U.S. GDP, and 1.3% of all wages paid in 2014, according to the report. “This is a fairly substantial amount of economic impact supported by the railroads,” added Irani.