As Chairman and CEO of Berkshire Hathaway, Warren Buffett has access to a wealth of information that can be useful for evaluating the state of the overall economy. The non-insurance operating businesses controlled by Berkshire run the gamut in terms of covering different sectors of the economy. In many cases, the businesses are large and representative of the experience that might be expected for other companies in the sector. Although Mr. Buffett is known for not interfering in the management of the operating companies, he does receive frequent reports from each business.
While investors do not have access to weekly results from Berkshire’s operating companies, we do know that Mr. Buffett also regularly monitors railway traffic in the United States. Rail traffic is an indicator of overall economic activity and a surprising amount of granularity exists within the data published by the Association of American Railroads (AAR).
Each week on Thursday, the AAR publishes a press release covering shipments for the prior week. For example, the press release published yesterday covers the week ending August 8, an excerpt of which is provided below:
The Association of American Railroads today reported that rail traffic continues to reflect the down economy. For the week ended Aug. 8, 2009, U.S. railroads reported originating 274,633 cars, down 16 percent compared with the same week in 2008. Regionally, carloadings were down 14.1 percent in the West and 18.8 percent in the East.
For the first 31 weeks of 2009, U.S. railroads reported cumulative volume of 8,159,672 carloads, down 18.9 percent from 2008; 5,764,816 trailers or containers, down 17.1 percent, and total volume of an estimated 868.3 billion ton-miles, down 18 percent.
The press release also reports on Canadian and Mexican rail shipments along with consolidated data for North America.
Each month, the AAR publishes Rail Time Indicators which provides more detail than the weekly press releases. In addition to providing information on rail shipments, other measures of economic growth are also discussed in the summary section. Information for individual sectors of the economy such as agriculture, chemicals, forest products, and automobiles are included in the report.
After following the AAR press releases and monthly Rail Time Indicators report for the last few months, I have found that the data provided generally are more useful for detecting the emergence of “green shoots” than many of the forecasts provided by economists through other sources. For example, the rail reports show that shipments are still down sharply from last year but have shown some improvement in recent months. This is consistent with the theory that the economy may be reaching an inflection point. However, with shipments still down by double digits from this time last year, it is hard to argue that many “green shoots” have emerged yet.
Warren Buffett always recommends that investors should not fixate on the macroeconomy when making investment decisions. However, for those who are interested in following the overall economy, a great starting point is to keep up with the AAR press releases and monthly reports.