Warren Buffett's favorite indicator is sending mixed signals about the economy

warren buffett bnsf train

(Rick Wilking/Reuters)
Warren Buffett.

Railcar traffic is a great indicator of GDP. Warren Buffett said it was the one number he would use to gauge the health of the economy if he were stuck on a desert island.

Based on last week's railcar numbers, Buffett may be left scratching his head on that island.

Railcar traffic fell 2.4% last week from the same week a year ago according to the Association of American Railroads. This follows a gain of 1.4% year over year from the week before.

While some up and down may be expected, the data only complicates the economic outlook the further into it you look.

Essentially there are two types of railcars: carloads and intermodals. Carloads move more bulk commodities, such as coal and oil, while intermodals move more finished products, such as cars and toys. The numbers for these two types are moving in opposite directions.

Carload traffic decreased by 6.6% last week and 4% for the first six months on a year-over-year basis. On the other hand, intermodal traffic was up both last week and for the year compared to 2014, at 2.4% and 2.6% respectively.

This does seem to connect with other economic data. Intermodal is increasing at a slow pace, which makes sense as retail spending has been up and down, including during a disappointing June, and personal spending is just now turning the corner after an anemic start to the year.

railcar traffic

(Association of American Railroads)
Fredrik Eliasson, CFO of railroad giant CSX, told Business Insider there are a few reasons for this. "Consumers don't feel as emboldened despite the fact the economy is dynamic and growing. There are still memories of 2008 and 2009 in their minds," he said.

On the flip side, commodity prices are cratering, and the carloads are showing as much. Eliasson said that the lowered prices have been a drag on shipments of everything from corn and fertilizer to coal and oil.

While railcar traffic seems to be contradictory on the surface, it is reflecting the mixed results from the economy.

Eliasson noted that automobiles and products for the housing market, both markets are improving drastically, are also showing improvement, which coupled with the improving consumer sentiment shows the economy is heading in the right direction.

"The economy is chugging along at a slow and steady pace and I feel it will continue to do so. We're doing good in the long term."

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