Sunday Night Economic Assessment

A big week last week... The US industrial economy resumed its advance following its one-week pause the previous week (If pipeline scheduling is correct)... racking up its 12th advance in the last 13-weeks as the US continues to fight its way out of recession.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) now stands higher than at any time since January 14th (It bottomed May 28th), and at levels suggesting it has made up better than 50% of it's recessionary deficit. In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) the week was red-hot, starting off strong and gaining further strength as the week progressed.

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) continues to lead on the upside and has nearly tripled (up nearly 175%) since its worst month ever (June). The auto sector again continued to back-peddle (in spite of the much talked of "Cash for clunkers" activity).

Gas flows suggest that California has totally emerged from recession with its surge the last few weeks (at last years levels) while Michigan (Robrys home state) remains a terrible mess. There is a joke locally that the feds will be building a major new freeway linking Michigan with Texas... with 2 lanes going north... and 4 lanes going south!

The Paperboard-based Consumption Index also advanced nicely for the week (though still off from its all-time high of six weeks ago). The Consumption Index is now below year-ago levels (which benefited from a bit of political-convention euphoria... right before the bottom fell out of everything). In its dailies, it appeared strong all week.

Was last week the beginning of the final push up out of recession for the economy? Do we now quickly ramp production to restock for the Christmas-that-makes-up-for-last-Christmas (Christmas '08 was nothing but hum-bug in the gas flows)? Or are we going to repeat the "Great Fake-Out of 2008" (Gas flows looked great in early September, then collapsed into near-depression). Time will tell.

But 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 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

Sunday Night Economic Assessment

Following 11 straight weeks of advance, the US Industrial economy appeared to have stalled (at least temporarily) in its advance last week (If pipeline scheduling is correct), continuing a softening pattern (in recent weeks) in its previous-rapid ascent out of recession.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) eased for the first time in 12 weeks (since its May 28th bottom), though still at levels suggesting a better than 50% of it's recession-suggested deficit. In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) the week started off soft, but gained strength as the week progressed and closed out the week slightly stronger than the previous week, but below the first week of the featured 28-day average.

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) continues to lead on the upside and has more than doubled since its worst month ever (June). The auto sector (which also showed a nice pop for the 1st day of August) continued to back-peddle, in spite of the much talked of "Cash for clunkers" activity. Michigan (Robrys home state) remains out of the recession-recovery game.

My thoughts on "Cash for clunkers" is it will be found (when history is written) to have been a blunder. Week gas flows to the auto sector suggest opportunistic use of the program by folks that would probably have purchased new cars anyway, with their trade-ins being removed from the "fleet" of cars on the road to be scrapped.

Net effect of "Cash for clunkers" will probably be less cars on the road (less older "clunkers"), much less after-market demand for parts ("clunkers" require far more new parts per 1000 miles driven than newer cars), layoffs in the auto after-market industry (which is significant), higher prices on used cars (Less "clunker" supply = higher pricing), and more people in the lower-income strata that won't be able to afford to replace their "clunker" when it dies because of the higher pricing (Always the little guy that takes it on the chin... Always!).

Next "blunder hurdle" for the economy will be the expiration of extended unemployment benefits in key states. In a locked-up economy (as we now have) the only way to get idle production is to get spenders to spend, then keep them spending. Unemployment compensation can help to keep them spending. Allowing it to expire in mass will send us back into recession if not depression... and fast.

Third "blunder hurdle" will be health-care reform. If consumers get a whiff of any kind of a big tax increase (or insurance-premium increase) to pay for health-care reform... they will likely cut their spending to accommodate it... again sending the economy down hard. We need smart cost-cutting reform for now, not wild-eyed reform in the midst of a wild-eyed recession.

The Paperboard-based Consumption Index also pulled off just a bit more from its all-time high of five weeks ago, though still well above year-ago levels. In its dailies, it actually appeared strong for the week, though seasonal factors pulled it down just a tad.

I remain leery (based upon Automotive gas-flow scheduling) that the Consumption index is somewhat overestimating the gains in consumption. One 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 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

Sunday Night Economic Assessment

The US Industrial economy continued its advance out of recession last week (If pipeline scheduling is correct), though again at a somewhat slower pace than recent weeks.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) advanced for its 11th week in a row (since its May 28th bottom), and has now recovered better than 50% of it's recession-suggested deficit. In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) it was actually a second softer week, as opposed to the first two red-hot weeks of the featured 28-day average. Within this weekend's scheduling, early strength also gave way to softening mid and late week.

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) continues to lead on the upside and has more than doubled since its worst month ever (June). The auto sector (which also showed a nice pop for the 1st day of August) continued to back-peddle, in spite of the much talked of "Cash for clunkers" activity. Michigan (Robrys home state) remains out of the recession-recovery game.

The Paperboard-based Consumption Index also pulled off just a bit more from its all-time high four weeks ago, though still well above year-ago levels. In its dailies, the softening trend reversed sharply as the week ended.

California continues to strengthen big-time, perhaps due to the recent fall in the US dollar taking out imports. PG&E alone reported just today industrial natgas deliveries hit an estimated 1 BCF for the latest day, the first time that has happened since early October '08. A bit more of a pull-back in the dollar might accomplish the same for the interior states, igniting local industrial production at the expense of imports.

Theoretically, there has to be some point of equilibrium, where lowered exchange rates make imports less economical... to the point that trade balances out as higher-cost shuttered US industry gains advantage over importers and displaces them... pushing up inflation in the process. One could make a point that a strong dollar masks real inflation, and that the re-emergence of inflation is the cost of economic recovery. One could also ask the question, does the Federal Reserve hike interest rates to control inflation, or to hide it.

Eventually (if not now) the world is not going to permit such huge US trade deficits/imbalances. If that time is now, it might be a terrible time to be invested in transportation (Trucks & Rails). Those huge California imports keep a lot of folks busy moving freight thousands of miles to distribution hubs across the US. If local higher-cost industrial production ignites (shutting off import transport), it could be rough for transportation investments.

I remain leery (based upon Automotive gas-flow scheduling) that the Consumption index is somewhat overestimating the gains in consumption. One 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 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

Sunday Night Economic Assessment

The US Industrial economy once again extended its advance out of recession last week (If pipeline scheduling is correct), albeit at a somewhat slower pace than recent weeks.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) advanced for its 10th week in a row (since its May 28th bottom), and has now recovered better than 50% of it's recession-suggested deficit. In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) it was somewhat softer, edging off from two previous red-hot weeks of increases to scheduling. Within this weekend's scheduling, early (incomplete) data again looked strong.

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 more than doubled since its worst month ever (June). The auto sector (which also showed a nice pop for the 1st day of August) again started to back-peddle and Michigan (Robrys home state) remains a mess.

Interestingly, California has turned big time in the gas flows, perhaps due to the recent fall in the US dollar.

The Paperboard-based Consumption Index also pulled off just a bit more from its all-time high three weeks ago, though still well above year-ago levels.

I remain leary (based upon Automotive gas-flow scheduling) that the Consumption index is somewhat overestimating the gains in consumption. One 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 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

Sunday Night Economic Assessment

The US Industrial economy extended its rapid rise out of recession last week (If pipeline scheduling is correct), as gas-flow delivery scheduling on US pipelines continued to ramp.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) advanced for its 9th week in a row (since its May 28th bottom), and has now recovered better than 50% of it's recession-suggested deficit. In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) it was a second red-hot week-in-a-row..

The recent pattern of ongoing upward-revisions to previous estimates also bullishly continued (as facilities have to adjust to the quick ramp-up in implied productive demand).

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 more than doubled since its worst month ever (June). The auto sector (which also looked good good earlier this month), remained in the dog-house early in the week, though it too closed out the month (July) above the previous (June), and showed a nice pop for the 1st day of August, which we in Michigan (Robry's home state) desperately hope to continue.

The Paperboard-based Consumption Index pulled off a bit more from its all-time high two weeks ago, though still well above year-ago levels.

I remain leery (based upon Automotive gas-flow scheduling) that the Consumption index is somewhat overestimating the gains in consumption. One 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