A low unemployment rate, a strong housing market, booming car sales: Some pictures of the U.S. economy are downright rosy.
But there could be a storm brewing — a rumbler that has some people mentioning another “r” word: recession.
It has been whispered about at the highest levels for some time now. In February, the Wall Street Journal’s survey of global economists showed that the gurus of the green stuff pegged the odds of recession in the next 12 months at 21 percent — twice that of a year ago and the highest since 2012.
A recession is defined as a drop in business, trade and industrial activity signaled by a decline in gross domestic product for two consecutive quarters. And no one likes what comes with that: job cuts, wage freezes, reduced working hours and frazzled household budgets as businesses cope with low demand by reducing expenses.
The textbook definition hasn’t happened yet. And most experts don’t think there is an immediate danger. But the whispers are growing louder — train-whistle loud if you listen to what is coming out of two economic bellwethers with heavy ties to Nebraska.
Many see the health of Union Pacific Railroad and BNSF Railway as indicative of the health of the overall economy, because they haul the raw materials that make the world go: food, fuel, fiber and construction materials. Low shipments from producers to processors to end users, the reasoning goes, mean low economic activity.
“Anyone can have opinions about the economy, but the freight data doesn’t lie,” said Matt Troy, a transportation industry analyst for Nomura Securities in New York City. “If transportation companies aren’t moving it, no one is selling it and no one is buying it.”
And freight shipments are way down — 6 percent lower so far in 2016 for all U.S. railroads than at the same point in 2015.
As for how the railroads are behaving — as opposed to what some economic experts are saying about the broader economy — they already are in deep drawback on jobs: More railroad workers are on furlough, or temporary layoff, than at any time since the 2007-09 Great Recession.
Omaha-based Union Pacific, employer of 8,000 Nebraskans and the second-largest U.S. railroad, has 4,100 people on furlough. That is more than at any time since 2008 and 2009.
Texas-based BNSF, owned by Omaha’s Berkshire Hathaway and the largest U.S. railroad, has 4,600 on furlough, also the most since the last recession. BNSF employs about 5,000 Nebraskans.
Neither railroad had any comment for this story. Both are still profitable, and each employs more than 40,000 people overall to run their vast rail networks in the western United States.
But expectations for the near future are muted. BNSF Chairman Matt Rose told an energy industry conference in Montana last week that the railroad has stopped hiring and is offering buyouts to older employees. He said the rough patch might last for years.
And it can’t be blamed strictly on lower shipments of oil — North American production trimmed due to plummeting prices — or on coal, which is way out of favor as an electric utility fuel. Shipments of both have fallen dramatically at both Union Pacific and BNSF.
Also down year-over-year at Union Pacific, according to recent regulatory filings, are grain (8 percent), stone, gravel and sand (20 percent) and metals products (14 percent). At BNSF, food shipments are down 3 percent, metals 17 percent, and scrap metal 13 percent.
“It is getting harder and harder to trivialize these trends,” said Joseph Schwieterman, a transportation industry professor at DePaul University. “This is becoming cause of concern. I can’t remember last when almost everything was down.”
Gross domestic product is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. It’s the best snapshot of a nation’s economic might.
The United States, by one widely followed World Bank measure, has the largest economy, worth about $18 trillion a year. Nations in the middle of the Top 50, such as Argentina, have economies worth about $1 trillion. Smaller countries, such as Macedonia, have annual GDPs of $10 billion — less than half the annual operating revenue of giant U.S. companies such as Union Pacific and BNSF.
Size is one thing, however, and growth is another. Economists say the important thing is for an economy each year to produce more and better goods and services, and the personal incomes that can afford to purchase them. And U.S. growth lately hasn’t been snappy.
The last recession ended in June 2009, according to the National Bureau of Economic Research. Since then — between 2010 and 2015 — real annual GDP growth hasn’t surpassed the 2.5 percent growth of 2010. It has now been 10 straight years that the nation’s GDP has not grown by the 3 percent a year that many economists say is indicative of a vibrant and expanding economy.
The thesis in favor of a coming recession is gaining traction among the world’s investors and money managers. Last week, economists at BNP Paribas, the France-based third-largest bank in the world, wrote in a report that the U.S. economy peaked at the end of 2014. Corporate-profit weakness, slow investment by private businesses and low consumer spending are worrying, BNP Paribas said.
Also last month, the oldest quarterly survey of macroeconomic forecasts in the United States, begun in 1968 and conducted by the Federal Reserve Bank of Philadelphia, showed muted expectations.
Based on surveys of 40 forecasters, the median expectation for U.S. GDP growth was trimmed for the first three quarters this year — with expectations for first-quarter growth sliced to 2 percent, from 2.5 percent. For the second quarter, the estimate has been pared to 2.5 percent, from 2.6 percent. In the third quarter, Philadelphia Fed forecasters expect 2.3 percent growth, from an earlier expectation of 2.9 percent.
Although none of that adds up to a recession, it does indicate a cooler outlook.
And that is a view shared by some area business owners.
“Things are a little sluggish,” said John Vyhlidal, one of the owners at Omaha metal fabricator Tri-V Tool & Manufacturing, which serves the ag, telecommunications and industrial markets, among others.
“We are still hiring and still running some overtime,” he said, “but not hiring as aggressively and not running as much overtime.”
Vyhlidal said the plant is running about 45 hours a week, down from the 52 hours when times were flush. Though he wouldn’t call current conditions recessionary, he said, “they are far from booming.”