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
