The US industrial economy rebound continued (If natural-gas pipeline scheduling is correct) for its 5th week (in spite of weakness in equities) as the Production Index (in terms of its 28-day moving average) pushed further above its May-28th bottom. In its dailies, scheduling of natural gas deliveries into industrial facilities again hit a multi-month high on Tuesday before tailing off late week in preparation for the July-4th holiday weekend.Seasonally, we also entered a "retooling" period (First 2 weeks of July) where what's left of the US Auto Industry (and supporting steel industry) slows down. The Production Index (above) should see past the aberration (as it is seasonally weighted to filter out such noise), however the raw daily data (posted on the IV CWEI site) will be skewed.
The Consumption Index remained well above year-ago levels and set a new 2009-high early in the week, before trailing off late week. Consumption is suggested by the gas-flows to be near but just below its Mid-September-2008 Pre-election peak... which occurred just before everything fell apart in late September.
The Inventory Index (If the other indexes are correct) has now given up all of its overhang, and will likely begin to carve out a large deficit to year-ago levels... reflecting perhaps the long-term damage done to some industries (especially auto) by the length and severity of the recession.
Overall, I continue to believe the industrial-recession ended at the May-28th Production-Index bottom, and anticipate a turning in the employment numbers in the month(s) ahead. With the implied inventory overhang now gone, and production lagging consumption by a wide margin, I believe the recovery has (to borrow a term from nuclear physics) reached its point of critical mass. As long as consumption holds at current levels, production should ramp up very quickly to meet it.
That is not to say that the economy is free of risk. Equities have been soft, and the recent steep ramp-up in the Production Index slowed this week, seemingly in tandem with weakness in equities markets (Though the Consumption Index continues to hold its ground), and if equities softness continues it could very well cause consumers to cut back spending by means of a drop in their ultimate money measure... the stock market.
There is also always the risk of news events (acts of war/terrorism, natural catastrophes, political events/blunders, etc) that could cause consumers to panic, leading to a "double-dip" type recession. Momentum, however, appears (at least for the time being) on the side of recovery, and until that momentum gets broken, I see the recovery continuing.
-Robry825
