OMAHA, Neb. - Union Pacific Corp. said Thursday the economy has stabilized but remains weak, depressing shipping volumes and profit at the nation's largest railroad.

The company said lower fuel costs, improved productivity and other cost-cutting measures weren't enough to head off a 26 percent decline in its third quarter profit.

The major freight railroads are considered gauges of the nation's economic health because the volume of cars, chemicals, crops, lumber and containers of imported goods they carry hints at the health of those industries.

Union Pacific chairman and CEO Jim Young said shipping volumes have stabilized at very low levels, and he doesn't expect the economy to improve significantly soon.

"I think until you see some positive news on employment, we're going to limp along here," Young said. "I don't think we're going to see positive news on employment for some time."

Randy Cousins, an analyst with BMO Capital Markets in Toronto, said none of the major railroads seem to agree how much or when the economy might improve.

Omaha-based Union Pacific said it earned $517 million, or $1.02 per share, in the third quarter, down from $703 million, or $1.38 per share, a year ago. Analysts surveyed by Thomson Reuters, on average, expected a profit of $1 per share.

Revenue fell 24 percent to $3.67 billion from $4.85 billion a year ago.

Union Pacific shares fell $2.24, or 3.6 percent, to $60.68 in afternoon trading.

Union Pacific's fuel costs fell 59 percent to $466 million, as the average price per gallon of diesel dropped to $1.87 from last year's $3.70 and the railroad burned 19 percent less fuel.

The railroad's average train speed across its 23-state network improved 16 percent to an average of 27.4 mph. That's one measure of the productivity gains Union Pacific achieved during the quarter while operating 32,400 miles of track from the Midwest to the West and Gulf coasts.

Union Pacific's compensation costs and headcount fell 11 percent.

Union Pacific said it still had 4,100 employees furloughed, and it has 50,000 railcars and 1,700 locomotives stored. All those figures are down slightly from July because Union Pacific's shipping volume did increase slightly with the seasonal increases in harvest and consumer goods demand, but Young said the economy hasn't shown much sign of improvement.

"In 2010, we don't expect a quick rebound and have positioned ourselves for a slow recovery," he said.

Union Pacific said its freight revenue again fell across all six of its main business segments, and the number of carloads it carried fell 15 percent.

The biggest drop in freight revenue came in the industrial-products sector, which fell 39 percent, to $557 million. Automotive revenue fell 30 percent, to $227 million, even as the government's Cash for Clunkers program increased vehicle sales.

Agricultural-shipping revenue fell 23 percent, intermodal revenue fell 22 percent, energy revenue fell 21 percent and chemicals revenue fell 16 percent.

Young said shipping volume may not increase much in 2010 because he expects a slow recovery from the recession.

"I think next year we're going to be hard-pressed to see a volume increase," Young said.

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