HispanicBusiness

The Commerce Department reported Thursday that the economy grew in the third quarter, and economic prognosticators say it appears that the Great Recession is over.

But Rose, chief executive of Fort Worth-based Burlington Northern Santa Fe Corp. (NYSE:BNI) and BNSF Railway Co., is more restrained. There are some hopeful signs based on the railroad's business the last couple of months, and "it's not the crisis it was, but it's far from recovering," he said.

The railroad business, it turns out, is a pretty good leading indicator of what's going on in the U.S. economy.

Much of the heavy raw materials consumed by industry, the lumber to build homes and the coal burned to produce electric power, are all primarily shipped by rail. The clothing, sneakers and toys imported from Asia are packed into containers, shipped by freighters to a U.S. port, and then loaded onto a rail cars destined for regional warehouses.

So it doesn't take long for even small variations in the U.S. economy to show up in BNSF's operations.

For instance, the current recession officially began in December 2007, according to the National Bureau of Economic Research. But the group didn't make that call until December 2008.

At BNSF (BNI), meanwhile, very early in 2007 it was becoming apparent to railroad executives that the U.S. economy had shifted into reverse. After several years of steady year-to-year and quarter-to-quarter growth, BNSF freight shipments declined 1 percent in the first quarter of 2007. Then shipments fell 4 percent in the second quarter, then 5 percent in the third quarter.

That trend was continuing into 2008, even before the economy became front-page news daily as Bear Stearns folded, Lehman Brothers collapsed and General Motors veered into the ditch. When those things happened, and panicked Americans began holding onto dollars as if they were coated with glue, BNSF's business plunged off a precipice.

In the first quarter of this year, the railroad's shipments of consumer and industrial products, the two sectors that most directly reflect the economy, were down 24 percent and 27 percent, respectively, from the same period three years ago.

"We really are a great kaleidoscope for the economy," Rose said in an interview last week.

BNSF executives have a pretty good feel at any given time for what's happening to their customers, even without being told or checking the order book. The railroad could tell consumer spending was slowing because freight cars and containers were spending more time parked at warehouses.

"If it's taking 60 days to unload it, you know [consumer] demand isn't exactly soaring off the charts," Rose said.

In the third quarter, BNSF's intermodal shipments -- shipping containers and trailers carried on rail cars -- fell 37 percent from the same period a year ago.

Economists looking for clues to what is happening in the real world pay attention to the railroads and other transportation services. For example, to prepare the Federal Reserve's Beige Book economic report produced eight times a year, staff at the Federal Reserve Bank of Dallas talk to BNSF and Union Pacific, along with trucking companies and small-package carriers like UPS and FedEx.

"It's all anecdotal, but it does give us an idea of what's happening in the economy," said Laila Assarie, staff economist at the Dallas Fed.

In a recent speech, Dallas Fed President Richard Fisher said that across the U.S., "roughly 178,000 railroad-owned freight cars, which placed end-to-end would total some 2,900 miles, have been laid up in storage for at least five months" because of the economy.

There's little a railroad can to stimulate demand for its services. Cutting freight rates doesn't generate more demand for lumber or new autos.

As a result, BNSF has had to make significant cutbacks during the downturn. Its systemwide employment, which averaged about 41,500 during 2006, is down to about 37,800 this year. Locally, employment has remained steady at about 3,000, the company says. The railroad has parked 900 locomotives, turned 200 others back to leasing companies, and has 28,000 freight cars sitting idle.

On the flip side of the business equation, BNSF is using a lot less fuel and paying less per gallon for it. In the third quarter, BNSF spent $743 million less for fuel than it did a year earlier.

And with the economic slump has come an opportunity to do maintenance work, which must be performed in good times and bad, for far less money as material and labor costs decline.

Rose said his reading from BNSF's operations and other sources is that the U.S. economy is stabilizing, but the road to recovery could be long and uphill.

At a recent meeting of The Business Council, a group of the world's top CEOs, Rose said the mood was improved over a year ago, when "people were walking around with a dazed look.

"This year, people are still concerned, but they're starting to feel better. Across the board, people would say the economy is recovering, but the speed of the recovery is what is concerning."