Buffett Rail Deal Looks Pretty Smart

Image: Reuters

Last November, Warren Buffett's Berkshire Hathaway spent $26 billion to buy the shares of Burlington Northern Santa Fe railroad that it didn't already own. At the time, Buffett said, "It's an all-in wager on the economic future of the United States," adding that railroads are key to the U.S. economy and will benefit as recovery takes hold. "I love these bets."

It's 10 month later, and there are signs that the economic recovery of early this year is starting to slow. Yet buried in the debate about the direction of the economy—is it headed toward inflation or deflation, growth or stagnation—are some interesting statistics about the rail sector. It's expanding.

The Association of American Railroads said that seasonally adjusted traffic for July was 289,320 carloads per week, up 3.2 percent from June. It might not sound like much, but it was the strongest report since 2008, and it is growing faster than the economy. GDP figures for the second quarter are expected to be revised down to 1.4 percent.

If those gains hold up, the rail deal could turn out to be a winner for Buffett. And they could help resolve the growing debate about whether the U.S. economy is on the train to nowhere.