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One railroad executive perfectly laid out the problem facing the US economy

Standing on Railroad Tracks
Standing on Railroad Tracks

(Flickr / Hank James)

There are a lot of ways to look at the US economy and not be totally wrong.

If you wanted to take a bullish view, you could point to unemployment or consumer goods to say US consumers are driving the economy forward.

If you wanted to take a bearish view, you could say manufacturing and corporate profits aren't this disastrous unless we're careening toward a recession.

On a recent earnings conference call, Pat Ottensmeyer, president of the major railroad Kansas City Southern, laid out a succinct outline of what industrial-oriented companies are seeing in the economy and why things are so uncertain.

Here's Ottensmeyer (emphasis ours):

As you've heard from all of the other rails that have reported so far, the short-term outlook is very uncertain. And as a result, we're just not in a position to provide more definitive guidance regarding volume, revenue or operating ratio. Many of you on the call this morning have as much or better information regarding the economic outlook, commodity and currency markets than we do.

I was at a rail industry conference last week and I thought when railroad executive characterized the current landscape quite well when he said, and I am paraphrasing here, 'We're in an energy-market depression, an industrial and manufacturing recession, but somehow the consumer is doing OK.' We do know that the long-term outlook is strong. And for the near-term, we will focus, again, on those things over which we have more control, to drive long-term continued improvement in all of our key metrics.

In the fourth quarter, KCS reported adjusted earnings of $1.23 a share, down 3% from the prior year, on revenue that fell 7% to $598 million. The company said overall carload volumes fell 2% in the quarter.

Overall, railroads are seeing massive declines in the amount of bulk materials — such as coal and oil — that are being shipped on their lines. Intermodal traffic, which moves finished goods such as cars, has done less poorly over the past year.

The conundrum, then, is basically which side of the economy will win out: consumer strength or manufacturing weakness?

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