Our grandson, Declan, is very much about 2 years old and very much into trains. Especially Thomas, a blue train engine. So in Declan’s vocabulary, trains are known as “Ta-Ta.” There are “blue Ta-Ta’s” and “red Ta-Ta’s” and even “gray Ta-Ta’s.” In Declan’s world right now, the trains are always moving.
That is not the case for the real trains. Take a drive down Riverside Parkway and look at all the train engines sitting parked all together. They don’t have anything to pull. Railroad stocks are down this year as much as 20% because they have nothing to pull. Coal shipments are down. Oil and gas shipments are down. Agricultural products and building material shipments are all down because of a sluggish U.S. economy. Train volume is a leading indicator of where our economy is heading. Trains generally don’t move finished products, but they move the raw materials used to make the finished products. If trains aren’t moving, then it usually means that demand for goods is slowing which indicates a slowing economy.
The Fed, on the other hand is focused on jobs. On how many are being created and what kind of salary those jobs are paying. Employment is a lagging indicator of where our economy is heading. Employers wait as long as they can during the economic downturns to lay people off and they try and go as long as they can into a recovery before they begin hiring again. The fed’s theory is that if more people are working, then the more they will spend on goods and services, thus sparking inflation. I find it interesting that there have been a lot of jobs created this year (at least according to the government statistics), yet during the same period, train shipments have shown double digit declines.
If the Fed is right and all these new jobs will spur new demand for things, then the Ta-Ta’s should start moving again soon. If the Ta-Ta’s are right, then the economy is already beginning to slow and the fed will have little reason to raise interest anytime soon. Time will tell, but at least the Ta-Ta’s are always moving in Declan’s world.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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