Each month one or two high-profile government reports show the US is
growing, adding jobs and generally recovering from the Great Recession. But
it's not clear how that can be, when the part of the economy that makes and
moves real things keeps shrinking. Here's a chart, published recently by Zero
Hedge, showing that US manufacturing has been contracting for the past
year:
Meanwhile, the companies that move physical things around are falling
hard:
Railroad
stocks drop after companies give downbeat outlooks
Railroad stocks dropped sharply Wednesday, after both Kansas City Southern
and CSX Corp. provided downbeat outlooks for the current quarter at an
analyst conference.
The sector's decline helped pull the Dow Jones Transportation Average,
down 2.1%, much more than the 0.9% decline in the Dow Jones Industrial
Average. Kansas City Southern's stock was the biggest loser in the group,
tumbling 7.1% on volume that was more than double the full-day average,
according to FactSet.
The company's chief financial officer, Michael Upchurch, said at the
Credit Suisse industrials conference in Florida, that fourth-quarter revenue
would decline in the "high single-digit" percentage range from
year-ago levels, according to a transcript provided by FactSet.
Analysts surveyed by FactSet were expecting, on average, fourth-quarter
revenue of $622 million, which implies a 3.3% decline.
CSX slumped 3.7% in active trade, after CFO Frank Lonegro said at the same
conference that domestic coal movements have declined "more
significantly in the fourth quarter than expected." As a result, he said
earnings-per-share growth is now expected to be about 3%. The company had
said in October that it expected full-year EPS growth in the "mid-single
digits."
Among the more-active shares of other railroad companies, Union Pacific
Corp slid 2.8% and Norfolk Southern Corp shed 2.8%.
One reason for the discrepancy between overall growth and real stuff is
that most of today's economy is made up of services, and they're doing okay
(chart from Business
Insider):
What is the service sector? Mostly software, restaurants, banks,
construction companies, retailers, doctors and hospitals.
Can an economy thrive if it doesn't make or move physical things?
Intuitively the answer is no, because most of the services mentioned above
either maintain the status quo (like healthcare and restaurants) or (like
houses) consume rather than build capital. As for banking, in its current
incarnation it's almost certainly a net negative, draining capital from
productive uses and funneling it to trading desks and political action
committees.
The US, in short, is engaged in an experiment to see how long an economy
can function with services growing and manufacturing contracting. As with so
many of today's monetary and fiscal experiments, no one knows when definitive
results will come in. But the data so far aren't encouraging.
