Rail Woes May Slow Economy
The nightmare traffic jam on the nation’s largest railroad, the Union Pacific, is taking a toll on the U.S. economy by delaying coal deliveries, causing bottlenecks in the food supply, and hindering factory shipments.
As a result, prices could rise even as overall U.S. growth cools with the weather. “Our coal stocks are certainly below where we thought they’d be,” said Mark Werner, superintendent of fuels at City Public Service of San Antonio, Texas. “We’re pulling in our horns and getting ready for winter by making arrangements for fuel oil and alternate sources of coal.”
An expected record grain harvest is likely to compound the rail backup. And General Motors Corp. Chairman John Smith Jr. recently warned that sales and production at the world’s biggest auto manufacturer could be hurt by the railroad crisis.
The problems at Dallas-based Union Pacific Corp., which intensified in the spring after it completed the acquisition of the ailing Southern Pacific Rail Corp., persist in slowing freight. The railroad reported that it held up 348 trains in the week ended Oct. 24 because of a shortage of locomotives, crews or space on the tracks. Average train speeds have slowed as a result to 13.3 miles per hour that week from 17.9 mph in January.
Coal-starved utilities are seeing higher operating costs. Use of natural gas instead of coal has added $100,000 to $150,000 a day since September to generating costs, said Andy Ramirez, vice president for power production at the municipally owned Austin Electric Utility in Austin, Texas.
Prices of consumer goods delivered by rail could also rise if the congestion causes supplies to dwindle. “The problem retailers face is having to pay more to obtain the goods they need on time for the holiday season” and that could mean higher prices for finished goods, said Barnett Banks chief economist Lynn Reaser in Jacksonville, Florida.
Freight logjams, like the Union Pacific’s, are symptomatic of an economy that’s been growing at an unsustainable pace since the fourth quarter of last year, Federal Reserve Gov. Susan Phillips told reporters Tuesday in Chicago.
Moreover, a report released Tuesday suggests the economy is poised for more growth in the months ahead. The Conference Board’s index of leading economic indicators rose 0.2 percent in September, the fifth consecutive month increase, after rising 0.2 percent in August. Yesterday, figures from the National Association of Purchasing Management pointed to an increase in factory orders and output during October.
Still, the rail logjam is also a reason “why we might see some moderation in growth,” Phillips said, though for now the Fed remains on alert for signs of rising prices stemming from unmet consumer demand.
Reaser estimates the Union Pacific’s problems could shave two-tenths of a percentage point from U.S. gross domestic product in the current fourth quarter, reducing growth to a 2.5 percent annual rate from 3.5 percent in the third quarter.
“There’s bound to be a ripple effect” on the U.S. economy, said Guy Brenkman, president and chief executive of Pioneer Railcorp.