Consumer Is ‘Wild Card’ for U.S. Growth
Stock Chart for Union Pacific Corp (UNP)
Union Pacific Corp. (UNP) is watching rail shipments of consumer goods, auto parts and vehicles for clues to whether the economy may slip back into recession later in 2011, Chief Executive Officer Jim Young said.
While cargos of farm products and coal build toward the seasonal peak in shipping that occurs about this time each year, Union Pacific hasn’t seen as much demand for consumer goods, Young said yesterday in an interview at Bloomberg’s headquarters in New York.
“The real wild card is the consumer,” Young said. “It’s still a positive, but I’m a little nervous with it.”
Union Pacific, the largest U.S. railroad by sales, is a “good barometer” of the economy, hauling everything from autos to electronics in addition to commodities, Young said. Consumer spending accounts for 70 percent of the U.S. economy, and job growth has stagnated with the unemployment rate running at 9.1 percent.
So-called intermodal shipments that can move by a combination of rail, road and sea were down 1 percent through August from a year earlier, according to Union Pacific, which is based in Omaha, Nebraska. The shipping containers used for those moves often contain retail goods.
The railroad also has been tweaking its projections for the timing of the peak shipping season, when demand rises because of new model-year autos, farm harvests and stores restocking inventory for the Christmas season. Young said yesterday that the bump in shipments should begin this month, compared with the company’s July 21 forecast for an August start.
Some workers at Union Pacific are reining in purchases even though they’re not in danger of losing their jobs, Young said, recounting conversations with employees at town-hall-style meetings. That may bode ill for U.S. consumer spending, he said.
“If you lose that, you could have a real problem,” Young said. “I don’t see it right now, and I’m counting on a positive end of the year. But I think we’re kind of on the edge.”
Last year’s shortage of rail cars is gone now, leaving some cars idle, Young said. He said his uncertainty about consumers extends to the fate of the new auto models that the railroad is now shipping for “bullish” carmakers.
“They are moving a lot of product,” Young said. “The question is whether they will get them off the showroom floor.”
Auto sales in August ran at a seasonally adjusted annual rate of 12.1 million vehicles, the third-slowest pace of 2011. Among the slumping companies is Toyota Motor Corp. (7203), battered by safety recalls in 2010 and this year’s earthquake and tsunami in Japan. Toyota’s August deliveries were 13 percent less than a year earlier.
Young predicted that Toyota’s shipments will return to the levels seen before the quake and tsunami, which disrupted production and the Toyota City, Japan-based automaker’s supply network.
Union Pacific’s 4.8 percent drop this year in New York Stock Exchange trading through yesterday was smaller than the 5.7 percent decline for the Standard & Poor’s 500 Index. The railroad has benefited from price increases and rising volumes in the five other major product categories besides intermodal.
Union Pacific is boosting investment by 30 percent this year to $3.3 billion on confidence that demand for shipments will return to its 2006 weekly peak of 204,000 rail cars, Young said. Weekly carloads dropped to as low as 141,000 per week in 2009 and are now running at about 180,000, he said.
A workforce that numbered almost 43,000 at the end of last year may not grow by the original plan for as many as 1,500 employees, Young said. With a softening economy, the range is now 1,000 to 1,500 new hires, he said.
“I’ve shaved it back a little,” he said.
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