The country’s biggest railroad thinks the landing from surging inflation and higher interest rates could be harder than some economists expect.

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Canadian National Railway Co. said the flow of consumer goods across its network is slowing down to the point that executives now believe North America is in a “mild recession,” even though most forecasts predict Canada will avoid that outcome.

In a financial update on April 24, CN Rail reported signs of weakness in the consumer-driven segments of its business, including plastics, hard goods and lumber.

“Our current volumes reflect that we are in a mild recession,” chief executive Tracy Robinson told analysts on a conference call. “We’re uncertain about how deep, or how long it will go on. But what we’re modelling is negative North American industrial production for the full year.”

A year ago, with inflation at some of the highest levels in four decades, many economists thought a recession was all but certain, given how aggressively central banks were raising interest rates to get price increases under control. But with unemployment rates in Canada and the United States near record lows, it was starting to look like economic growth would hold up. The Bank of Canada earlier this month raised its forecast for growth this year to 1.4 per cent from an estimate of one per cent in January.

CN Rail volumes have dropped six per cent so far in April, “reflecting weakness in the economy,” said chief financial officer Ghislain Houle.

CN’s intermodal freight business, which focuses on shipping containers that often carry consumer products for retailers, fell to 512,000 carloads in the first quarter — down 13 per cent year over year.

Record revenue

Still, the railroad broke a record in the first quarter with revenue of $4.3 billion, up 16 per cent, largely due to a bumper grain crop across the Prairies last year that farmers continue to ship. CN’s revenue from grain and fertilizer rose 43 per cent to $861 million.

“Canadian grain was the biggest driver of growth in Q1,” chief marketing officer Doug MacDonald told analysts, adding that the coming grain harvest this fall is expected to be average.

CN booked net profit of $1.2 billion, or $1.82 per share — a record earnings-per-share for the first quarter, up 38 per cent year over year. In light of the performance, CN raised its outlook for annual EPS growth in 2023 to “the mid single digits,” up from previously announced forecasts of “low single digits.”

Royal Bank of Canada analyst Walter Spracklin called the performance “better than expected” in a note to clients.

CN also announced it will create an intermodal service connecting Canada, the United States and Mexico, in partnership with two other North American railways. The move comes after CN’s main competitor, Canadian Pacific Railway Co., won U.S. regulatory approval of its merger with Kansas City Southern to create what the company boasts will be “the first single-line railway connecting the U.S., Mexico and Canada.”

But in an announcement on April 25, t, will be the “fastest, most reliable” link between the three countries. The service will connect CN Rail’s origin points in Canada to Union Pacific Railroad’s route between Chicago and Texas and then to Mexico, through terminals operated by Grupo Mexico Transportes (GMXT) in Monterrey, Nuevo Leon, and Silao, Guanajuato.

“It doesn’t matter what my competition does,” MacDonald told analysts. “We think we’re actually going to have the fastest service.”

• Email: jedmiston@nationalpost.com | Twitter: jakeedmiston