Tags: Carr | Buffet | railcar | loads

NPR Turns Buffett’s Favorite Economic Indicator into Garbage

By Michael Carr   |   Friday, 24 Aug 2012 11:42 AM

Billionaire investor Warren Buffett was once asked what he thought the most important economic indicator was. Buffett answered that he liked to follow railcar loadings and truck traffic because railroads and highway traffic reflect the state of the economy.

If goods are being manufactured, they have to be shipped and this will show up in Buffett’s railcar loadings and trucking indicator.

Recently, National Public Radio’s business show Marketplace highlighted an alternative view of this indicator. The show’s guest studied the importance of monitoring the number of railroad cars loaded with trash and found a strong correlation between the amount of garbage shipped in the United States and economic growth.

Right now, garbage is flashing an economic warning sign. Waste-filled railcars have seen a steep decline relative to last year. The speed of the decline is equivalent to what was seen in 2008 as the Great Recession brought the economy to a standstill.

Critics of the garbage indicator were quick to point out that recycling is diverting trash from landfills. That is true, but recyclables are still shipped somewhere and should increase the number of railcar loadings rather than reduce it.

Total railcar loadings are down in the country, as are gas and diesel fuel use. Buffett’s favorite indicators are negative and confirmed by another real-time economic indicator, electricity production, which is also down compared with a year ago.

It is very likely the economy has slowed significantly in the third quarter and that will be confirmed by data released in mid-November, just after the presidential election.

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