Gas flows suggest a continuing strong rebound within the US industrial economy last week (If pipeline scheduling is correct), with upward revisions to previous estimates now becoming a daily pattern (as facilities have to adjust to the quick ramp-up in implied productive demand) and what's left of the US' original "Big Three" was supposed to emerge from their "retooling" cycle.In the dailies, scheduling of natural gas deliveries into industrial facilities started soft, then strengthened through the week on the heels of a strong rebound of the consumers ultimate money supply measure... the stock market.
On a sector-by-sector basis (see part "8" posts on the IV-CWEI site) the steel sector (which led the other groups to the downside with a 75% drop in scheduling) is now leading on the upside and has nearly doubled since its worst month ever (June). The auto sector (which also looked good good earlier this month), however absolutely rolled over and died in its dailies last week... and for the last few days has been its lowest ever. I am hoping that that has something to do with the retooling week being extended.
The Paperboard-based Consumption Index took off and set an all-time high last week... pushing well above its Mid-September-2008 pre-election peak... which occurred just before everything fell apart in late September.
I am increasingly suspecting (based upon Automotive gas-flow scheduling) that the Consumption index is somewhat overestimating the gains in consumption. The big handicap of the Consumption Index is (because it is derived from gas-flows into cardboard-box manufacturing) is it doesn't touch merchandise that isn't packed in cardboard boxes (like Automobiles). So with gas-flows suggesting softness in the Auto-Sector (Which the model does not represent) and strength in non-auto (Which the model does represent) the non-auto strength gets imputed into the whole of US consumption by the model.
Now this is not to say that the US economy isn't advancing (the gas-flows evidence numerous signs of a rapid ramp in the economy). It is, however, to say that the Consumption Index (and the Inventory Index that makes use of it) look too fast on the consumption ramp-up. (It is also to say that Robry's models need improvement!)
The Inventory Index (given the Consumption & Production Indexes) has now given up all of its overhang, and is extending its 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, and the ineptitude of the government/feds to address it.
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. There is 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
