FTR’s Gross takes a look at the changing economy

In his opening comments assessing the economy at last week’s RailTrends conference hosted by Progressive Railroading magazine and independent railroad analyst Tony Hatch, FTR Senior analyst Larry Gross said the economy continues to slog ahead at a relatively tepid pace, coupled with some volatility in terms of overall GDP growth.

And amid that slogging, Gross said there is currently an economic hand-off occurring between the industrial sector and the consumer sector.

“There are a lot of obstacles and a lot of headwinds, as the economy continues to move, and the hand-off is showing how the industrial side of the economy is kind of exhausted, and they have handed it off to the consumer side,” he said.

While that may be viewed as a good news type of thing as the consumer sector of the economy is much more larger than the industrial one, the problem from a freight perspective is that a percent of growth in GDP driven by consumers has a lot less freight content than the industrial sector, he explained, adding that 2 percent growth now is not the same as what 2 percent growth was a year ago, with the economy feeling the effects of that.

Looking at the industrial side, Gross noted that inventories are rising and have been more or less throughout the entire course of the economic recovery.

“That is a new phenomena, because for many, many years all the way throughout the deregulated era inventory declined,” he said. “This is a sea change in our economy and a very underreported trend.”

That is highlighted, he said, with current levels of residential spending nowhere near 2006 levels, which he said were ultimately unsustainable. But he added that there is also room to grow in that side of the economy.  

And while the current economic recovery may be viewed as slow, Gross said it is not unexpectedly slow and is following a trend that has been intact for quite some time, when compared to previous recoveries going back to 1982.