Monday, August 31, 2009

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