• 402 days Will The ECB Continue To Hike Rates?
  • 402 days Forbes: Aramco Remains Largest Company In The Middle East
  • 404 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 804 days Could Crypto Overtake Traditional Investment?
  • 809 days Americans Still Quitting Jobs At Record Pace
  • 811 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 814 days Is The Dollar Too Strong?
  • 814 days Big Tech Disappoints Investors on Earnings Calls
  • 815 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 817 days China Is Quietly Trying To Distance Itself From Russia
  • 817 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 821 days Crypto Investors Won Big In 2021
  • 821 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 822 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 824 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 825 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 828 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 829 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 829 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 831 days Are NFTs About To Take Over Gaming?
Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

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