"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 6 hours The FANG Stock Investors Should Avoid
  • 1 day Is This The Death Of The iPhone X?
  • 1 day Is London Still The Financial Capital Of The World?
  • 1 day Is Gold Staging A Comeback?
  • 1 day The $200 Million ‘Golden Parachute’ For Rupert Murdoch
  • 1 day Bitcoin’s Breakout Is Not As Bullish As it Seems
  • 1 day Farmers On Edge As Trade War Hits U.S. Grain Shipments
  • 2 days Is Silver Poised For A Massive Break Out?
  • 2 days Meet The Hedge Fund Billionaires Club
  • 2 days The Next Housing Crisis Could Be Right Around The Corner
  • 2 days Cartel's, Pirates And Corruption Cost Mexico $1.6 Billion Per Year
  • 2 days Africa’s Fastest Growing Economy
  • 2 days The Blockchain Boom Hits The Utilities Sector
  • 2 days Why Smart Money Is Selling Off Right Before The Bell
  • 3 days Tech Giants Rally Ahead Of Earnings Reports
  • 3 days Global Debt Hits 225% Of GDP
  • 3 days The World’s First Trillionaire Will Be A Space Miner
  • 3 days How Student Debt Could Cause The Next Real Estate Crisis
  • 3 days This $550 Billion Industry Is Betting On Bitcoin
  • 3 days One Commodity Set To Soar On Russian Sanctions
3 Stocks to Watch This Earnings Season

3 Stocks to Watch This Earnings Season

Stocks began Friday with a…

Investors Bullish As Earnings Season Kicks Off

Investors Bullish As Earnings Season Kicks Off

The first round of earnings…

John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

More Info

The 'Real Stuff' Economy Is Falling Apart

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:

Annual Percent Change in US factory Orders

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.

Dow, KSU and CSX Charts

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):

ISM Manufacturing and Non-Manufacturing 2005-2015

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.

 

Back to homepage

Leave a comment

Leave a comment