Monday, September 7, 2009

Sunday Night Economic Assessment

Another big week last week... The US industrial economy continued its advance (If pipeline scheduling is correct)... racking up its 13th advance in the last 14-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 10th (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 again 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 tripled (up 255%) since its worst month ever (June).

The early-September strength was very broad based, including the paper, chemical, refining, mining, metals, and even (finally) the auto sector.

The Paperboard-based Consumption conversely gave up a little ground, and remains below year-ago levels (which benefited from a bit of political-convention euphoria... right before the bottom fell out of everything).

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.