This Vicious Cycle is What Bedevils the US Economy

wolfstreet.com / by Wolf Richter / Apr 20, 2017

Railroads slash capital spending, and CSX digs deeper, after two years of Freight Recession.

CSX reported quarterly earnings on Wednesday. Revenues increased 9.5% from the terrible quarter a year ago, which had been the worst quarter in terms of revenues since Q1 2010! So it’s no big feat to beat last year’s fiasco quarter. At $2.87 billion in Q1 2017, revenues are sill 5.3% lower than they’d been in Q1 2015. This time, moribund coal shipments had increased.

Since March, there’s a new guy at the throttle. Hunter Harrison is known as a cost cutter. And that was the theme of the earnings announcement. The railroad said that it plans to cut costs further. It had already slashed its capital spending plans for 2017 by 18% to $2.2 billion. Now more cuts for 2017 are likely.

Wall Street loves that – without considering the broader ramifications: Cuts in capital spending turn into lower revenues for their suppliers. But CSX isn’t the only one.

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