(The following story by Bob Cox appeared on the Forth Worth Star-Telegram website on October 31, 2009.)
FORT WORTH, Texas — Pardon Matt Rose if he isn’t ready to shout that happy days are here again.
The Commerce Department reported Thursday that the economy grew in the third quarter, and economic prognosticators say it appears that the Great Recession is over.
But Rose, chief executive of Fort Worth-based Burlington Northern Santa Fe Corp. and BNSF Railway Co., is more restrained. There are some hopeful signs based on the railroad’s business the last couple of months, and “it’s not the crisis it was, but it’s far from recovering,” he said.
The railroad business, it turns out, is a pretty good leading indicator of what’s going on in the U.S. economy.
Much of the heavy raw materials consumed by industry, the lumber to build homes and the coal burned to produce electric power, are all primarily shipped by rail. The clothing, sneakers and toys imported from Asia are packed into containers, shipped by freighters to a U.S. port, and then loaded onto a rail cars destined for regional warehouses.
So it doesn’t take long for even small variations in the U.S. economy to show up in BNSF’s operations.
For instance, the current recession officially began in December 2007, according to the National Bureau of Economic Research. But the group didn’t make that call until December 2008.
At BNSF, meanwhile, very early in 2007 it was becoming apparent to railroad executives that the U.S. economy had shifted into reverse. After several years of steady year-to-year and quarter-to-quarter growth, BNSF freight shipments declined 1 percent in the first quarter of 2007. Then shipments fell 4 percent in the second quarter, then 5 percent in the third quarter.
That trend was continuing into 2008, even before the economy became front-page news daily as Bear Stearns folded, Lehman Brothers collapsed and General Motors veered into the ditch. When those things happened, and panicked Americans began holding onto dollars as if they were coated with glue, BNSF’s business plunged off a precipice.
In the first quarter of this year, the railroad’s shipments of consumer and industrial products, the two sectors that most directly reflect the economy, were down 24 percent and 27 percent, respectively, from the same period three years ago.
“We really are a great kaleidoscope for the economy,” Rose said in an interview last week.
BNSF executives have a pretty good feel at any given time for what’s happening to their customers, even without being told or checking the order book. The railroad could tell consumer spending was slowing because freight cars and containers were spending more time parked at warehouses.
“If it’s taking 60 days to unload it, you know [consumer] demand isn’t exactly soaring off the charts,” Rose said.
In the third quarter, BNSF’s intermodal shipments — shipping containers and trailers carried on rail cars — fell 37 percent from the same period a year ago.
Economists looking for clues to what is happening in the real world pay attention to the railroads and other transportation services. For example, to prepare the Federal Reserve’s Beige Book economic report produced eight times a year, staff at the Federal Reserve Bank of Dallas talk to BNSF and Union Pacific, along with trucking companies and small-package carriers like UPS and FedEx.