With Union Pacific, Canadian Pacific Railway and CSX reporting downbeat quarterly earnings recently, company executives and analysts say the rail sector is clearly in recession — and the industry may signal contraction in the broader economy as well.

On Thursday, top U.S. railroad operator Union Pacific (UNP) said freight revenue for coal plunged 31% in Q4, and industrial products slid 23%. Chemical freight revenue fell 7%, and agricultural products dropped 12%. Automotive revenue rose 1%.

Intermodal — containers used by trains, trucks and ships that carry consumer goods, such as electronics — declined 14%, indicating weakness beyond the battered energy sector.

The railroad slump, along with sputtering U.S. manufacturing, signs of plateauing auto sales, weak exports due to the strong dollar, and slowing growth in China all signal to some that the U.S. may be heading toward full-blown recession.

.
‘Death By A Thousand Cuts’

.
“With Union Pacific earnings today we did another of the death by a thousand cuts,” Nomura railroad analyst Matt Troy told IBD. “Their message was consistent with what we have been hearing. It’s another indicator the U.S. economy is stagnating, and we are increasingly stepping toward another recession.”
Union Pacific management also voiced caution that auto sales aren’t sustainable at record levels and predicted 2016 freight volumes will be slightly lower.
Retail spending has been weak too, though consumers appear to be shifting their dollars to services from goods, and Union Pacific’s drop in year-end volume was still nothing compared to what was seen in 2008 and 2009, the company said.
“It’s hard to speak to whether there is recession,” CEO Lance Fritz said on a conference call. “Certainly our volume drop-off is dramatic.”
Union Pacific shares fell 3.6% to 71, the lowest since April 2013. Canadian Pacific (CP), which reported a 19% drop in revenue from crude shipments, rose 0.5%.

.
Seen In Previous Recessions

.
CSX (CSX) CEO Michael Ward was more downcast after the company also reported dismal quarterly results earlier this month.
“You can almost think of it as a straight recession except for, say, markets like automotive and housing-related,” he said on a Jan. 13 call. “You’re seeing pressure on most of the markets.”
The American Association of Railroads trade group said Wednesday that total U.S. rail traffic for the week ended Jan. 16 was down 8.2% compared to the same week a year earlier.
Shipments of intermodal containers, which made up 52.1% of total traffic, eked out a 1.1% increase for the week. But oil and petroleum shipments fell 18.5% and accounted for just 2.5% of total shipments. Coal was 14.9% of the total, but that’s far below the roughly 21% figure in 2013.
Bank of America Merrill Lynch railroad analyst Ken Hoexter said the magnitude of the recent rail volume decline has only been seen five other times since 1985 — and they all preceded or overlapped recessions.
“Railroads and trucks are viewed as leading economic indicators,” he said. “They don’t make anything, they just move it. And clearly less is being moved.”

*********

Original story

TLB recommends other economic news at Investor’s Business Daily