Removing the Nonsense about the Economy using CSX's own Q3 Financial Report

By John Galt
October 19, 2011 – 13:30 ET

The story from CNBS today highlights the hypocrisy of today's financial media and the fact that they would rather act as arms of propaganda for the regime, be it Democrat or Republican, in power, so as to convince your grandma to buy 20 shares of stock in any company so they can fleece her just one more time before she dies.

CSX ‘Barometer' Shows Improving US Economy: CEO

The story at CNBC from Margo D. Beiler and highlighted on their insipid network stated the following (from the article):

“We are a good barometer of the economy and we did see some uptick in September,” he said.

For instance, his railroad is seeing some growth in shipments to the nation's retailers for the Christmas shopping season.

“It's a normal fall peak where retailers are stocking the stores for the Christmas time,” he said. “We do expect continued growth, not robust but modest, in the coming quarters.”

That of course is in direct conflict with this Los Angeles Times story from October 14, 2011:

Cargo surge takes a holiday at L.A., Long Beach ports

The usual boost in imports from retailers stocking shelves for the holiday shopping season hasn't materialized. Instead, container traffic through the Port of Los Angeles showed a slight overall decline in September. A drop is also expected for that month in Long Beach.

Somewhere in the middle is a kernel of truth, and for God's sake I can not believe I'm saying this, but my money is on the Los Angeles Times (Yes, I know, drug test me).

Why the skepticism?

Let's review the highlights from the third quarter financial report submitted by the very same CEO you can watch at the link above on CSX and its data.

The primary commodities as I like to call them indicate a deterioration quarter over quarter except for lumber which can be attributed to the low price and fact that China is looking to spend its massive U.S. dollar reserves buying American and Canadian lumber products. Also of note is the somewhat shocking deterioration in food and consumer goods from 27K units to 24K unites moved.

With the other industrial commodities declining and the fact that new model year car shipments bolstered that category, Q4 is looking poor despite the preachings in the video above.

Moving forward to a very reliable predictor of domestic economic activity, the coal shipment measurement for utility usage experiences a 7.5% decline and is now below levels from every quarter since Q3 2006, indicating either a massive deployment of solar arrays or decline in industrial demand across the Eastern United States.

Since that is a forward looking indicator, and the CEO did praise the export levels, let's review the equipment utilization aspect which is a key measure not of efficiency, but of demand. As the chart below reflects, they did lease more cars at a slightly higher level than the previous quarter with a 1% increase due to seasonal demand, yet the number is far below pre-recession levels:

The average number of cars online daily however indicates that demand did not meet the necessary profit margin for the increase in leases, so how did they achieve a profit?

Cutting costs, of course by increasing freight rates via fuel surcharges and running the trains in a less timely manner. I must give CSX credit however for increasing their on time percentage above last quarter's number but still 1/3+ of the time, the shipments will be late if the freight is moved via CSX:

The bottom line?

The reflection of deteriorating domestic demand and inability of the economy to grow railroad utilization rates above 2009 levels should be a warning sign that the next dip in the mega-recession/depression of this century is still under way. If the fourth quarter declines at the pace I anticipate, CSX might be profitable, but it will be at the expense of service and an indication that the recession is well under way.

To read the full quarterly report from CSX, click on the link below:

CSX, Q3, Financial Report via SEC Edgar