By Nick Carey
CHICAGO (Reuters) - Facing a freight recession caused by slumping commodity prices and industrial output, No. 1 U.S. railroad Union Pacific Corp (N:UNP) said Thursday hopes of strong economic growth have so far been undermined by a key missing ingredient - the American consumer.
"What's causing us some concern is it's hard to figure out where the consumer is at," Chief Executive Lance Fritz told Reuters by phone.
While Americans were buying automobiles and unemployment numbers looked good, he said labor participation "is lackluster and consumers just don't seem to be showing up to purchase goods and services."
Ever since oil prices began to decline in 2014, economists and corporate America have hoped this would translate into higher consumption.
"There was a widespread belief that consumers would turn the savings from low fuel into spending and we haven't seen that so much," Fritz said.
The chief executive spoke to Reuters after the Omaha, Nebraska-based railroad company reported a lower fourth-quarter profit amid declining freight volumes affecting coal, steel, industrial goods and agricultural products, that reflected a broad-based commodity slump. The one bright spot was automotive shipments, as consumer goods also took a dive.
Shares were down 3.5 percent at $71 in afternoon trading.
Just this week, Moody's Investors Service warned of "increasing risks of an industrial recession" for North American manufacturers.
Fritz said feedback from the railroad's customers "depends on what part of the economy they're competing in."
"Those that have an exposure to global trade and the strong dollar are a little pessimistic in terms of the steel industry and capacity utilization in U.S. plants," he said.
"The automobile makers are cautious but also somewhat optimistic, they've gone on a tear here for four or five years and consumers look like they're pretty bullish on automobiles."
Coal's decline has hurt North America's railroads, with shipments falling nearly 12 percent in 2015 as utilities switched to cheaper natural gas and as a sturdy U.S. dollar hurt coal exports.
Union Pacific expects coal to be down around 20 percent in the first quarter of this year, but beyond that, the outlook is more uncertain.
"It's going to be all about how quickly the electricity generators chew through their excess inventory," and what happens with the weather and natural gas prices, Fritz said.