Has the Industrial Recession Already Started?

CSX, a large railroad company, reported earnings last week that greatly missed expectations.  Their CEO had a memorable quote regarding the economy: “The present economic backdrop is one of the most puzzling I have experienced in my career,” says Chief Executive James Foote.  He elaborated and said a reduction in volume from industrial customers was a key driver behind their earnings miss and concern for the rest of the year.

The Cass Freight Index also indicates that the economy has slowed.  If you have an interest in understanding the economy, I highly recommend subscribing to their newsletter.  It is free and a link is below. 

It is clear that the industrial economy has slowed.  Has it slowed enough to the point of contraction is the open question.  Recall that a major inventory build contributed to the reported 3.1% GDP growth in Q1 2019.  Part of the reason for the inventory build was the threat of tariffs.  The tariffs are now in place. 

I had a conversation with a friend who owns a manufacturing business.  Tariffs have impacted his business both from a supply standpoint and for his export business.  He said, albeit a little more colorfully than my paraphrasing, “Why would I invest with all of this uncertainty?  I’m not buying equipment and I’m not hiring until there is some clarity.”  Uncertainty leads to risk aversion.  Risk aversion leads to economic slowdowns.  I think we’re there for the industrial segment of the economy. 



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