CHART OF THE DAY: This Is The Chart Warren Buffett Keeps Under His Pillow

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This must be one of Warren Buffett’s favourite charts right now.

The Purchasing Managers Index (PMI) is an economic indicator for the U.S. manufacturing sector, in blue below. It tends to be a leading indicator for future railroad shipments. This relationship makes sense since product orders generally lead to transportation demand via railroad and trucks.

Due to positive signs from manufacturing, the PMI has spiked hard recently. Thus it’s a fair bet that rail carloads, in red below, should eventually spike as well. We might not be back to the good old days, but the situation is likely to be better than where we’ve just been.

If this turns out true, it would be good news for the U.S. economy and U.S. manufacturing. It’d also make Warren Buffett look pretty smart, since he made his largest investment ever in the railroad Burlington Northern (BNI) not too long ago.

The author owns shares in BNI.

chart of the day, PMI vs. Next Month's U.S. Rail Carloadings Excluding Coal and Grain*

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