Looks Like We're Holding Our Own

 | May 24, 2013 | 9:15 AM EDT
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If you ask me, we could do worse than 2% to 2.5% growth. That's the level of activity that Union Pacific (UNP) CEO Jack Koraleski thinks we can do in this country, and I believe that will result in a steady turn over time. Nothing rapid, but no slippage either. That pretty much jibes with the solid durable-goods numbers we just got Friday.

Why do I believe Koraleski has a bead on things? Because he's just about the biggest shipper of building materials, coal, oil, grain, chemicals and autos -- and that's pretty much everything that gives you a feel for what a nation can grow.

I was incredibly encouraged after speaking with Koraleski, because he is at the heart of the changing face of American industry due to the energy boom. Given the tight environmental noose on many pipeline developments, Union Pacific has stepped up by building new track everywhere and linking the wellhead to the refineries. That's a ton of jobs. I know from Frank Semple -- CEO of Markwest (MWE), a master limited partnership company -- that plenty of pipeline is still being laid, 18 projects worth multibillions just by Markwest alone. But the railcar imperative grows by the find -- and the runs from Texas (Eagle Ford) to Los Angeles, and from the Bakken to Louisiana, are really Union Pacific-dominated.

There's also a feverish building of chemical plants in the Southeast to take advantage of all of the natural gas and natural gas liquids being found, turning the materials into plastic and those oily materials. All are going Union Pacific's way.

Just the sheer volume of oil shipped is pretty amazing. Union Pacific moved more oil this quarter than it did all of 2011, and it is just beginning to ramp. If the Keystone pipeline doesn't get built, by the way, that oil will come via Union Pacific. If it does get built, this company will ship the pipe.

Autos isn't really an American story, unfortunately. The North American Free Trade Agreement (NAFTA) has given Mexico such an edge that I expect far fewer jobs to be generated from autos than what would otherwise have occurred at this stage of the cycle. However, Union Pacific is the shipper that controls Mexico -- through partnerships with Kansas City Southern (KSU) -- and that business is growing very quickly.

The housing business is percolating just fine, and lumber shipments keep increasing.

Only agriculture and coal are weak, and both might be hitting some sort of cyclical trough. It is true that plantings are not showing a robust ag year, and the downturn in ethanol is a headwind.

But coal inventories have been worked down big, and they are now in short supply. In fact, I think coal will turn up big if the weather gets warm and air conditioning starts running hard amid a bottom in natural gas. At these prices, those utilities that can shift are shifting. Don't forget that Union Pacific ships cleaner coal, the kind that newer coal plants can handle without running afoul of the Environmental Protection Agency.

All in all, if you sit down with Union Pacific, you get very encouraged that the U.S. is moving again. You know that things are on the right track, so to speak. You know that the energy boom is the single most important spur to growth this country has had in years and years, and that it remains an intense focus for growth.

Just so we're clear, though, this is all private sector. Nothing is being helped by Washington. Yet there's no doubt that if the government had supported this industry the way it supported solar, millions of jobs could be created in a relatively short period of time, perhaps as few as five years.

Doesn't matter. It's fossil fuel. Not going to happen.

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