For anyone who has endured the U.S. railroad system—surprisingly reminiscent of that in Spain in the 80s, only way more expensive—it can’t be shocking to find out that one of Warren Buffett’s favorite economic indicators comes from the Association of American Railroads (AAR). This could be partly because Buffet’s Berkshire Hathaway bought the railroad Santa Fe Burlington in 2009 for $26.3 billion (19 billion euro), but it is also because the U.S. train system is as inefficient at transporting people as it is successful at moving freight.
And the ARR’s U.S. Rail Traffic is heading north. The latest numbers show a 9.3% increase in U.S. rail traffic. The less volatile 12-week average for railroad traffic is up 5.7%, according to financial services firm Orcam. Railroad freight traffic is a very reliable indicator of strength in the U.S. because it is a completely private industry—the owners of the railroads decide who uses them and who does not. Thus, it is one of the best proxies for trade and economic activity, as shown by the fact that in the recession of 2008 and 2009 it plummeted at annual rates of 20 percent.
There is another indicator that is showing a considerable strength: the percentage of houses that are flipped (which is defined as buying a house and selling it within the next six months, which implies that the purchase has been made just for speculative reasons). According to data from RealtyTrac, flipped homes accounted for 4.6 percent of all U.S. single-family home sales in 2013, up from 4.2 percent in 2012 and 2.6 percent in 2011. So far, 21 percent of all properties flipped in 2014 were purchased out of foreclosure, compared to 27 percent in 2012 and 32 percent in 2011. That means that the U.S. housing market is recovering.
Freight trains and flipped houses are not ‘cool’ economic indicators. However, they tell much more about the United States than the unemployment rate or the GDP figures. With the above numbers, one must not be surprised that the Federal Reserve is slowly hardening its interest rates’ forecasts for 2015.