Monday, September 28, 2009

Sunday Night Economic Assessment

The US Industrial economy continues to advance (if pipeline scheduling is correct), amidst surging consumer spending.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) collected its 16th advance in 17 weeks, and now stands higher than at any time since December 1st, 2008 (It bottomed May 28th), and at levels suggesting it has made up better than 65% of it's recessionary deficit. In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) the week started strong, then moderated just a bit mid & 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 tripled (up 255%) since its worst month ever (June).

The September strength continues to be very broad based, including the paper, chemical, refining, mining, and metals sectors. The auto sector, which also started the month strong, is again back-peddling (an early-month-strength-late-month-weakness pattern that has repeated itself in recent months). Michigan (Robry's state) remains a mess.

The Paperboard-based Consumption Index surged all week, closing out the week at an all-time high. The Consumption Index remains well above the Production Index... supporting the recent momentum of recovery.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) remains well-below pre-recession levels, adding inventory-rebuilding as another support-mechanism near-term to the economy.

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, production lagging consumption by a wide margin, and inventory-estimates sharply down going into a stimulative Christmas season, I believe the recovery has (to borrow a term from nuclear physics) reached its point of critical mass, and the economy will continue to sharply accelerate until overheating forces the feds to kill it off (to limit inflation).

That is not to say that the economy (in the mean time) 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 and stop spending, leading to a "double-dip" type recession. Momentum, however, remains overwhelmingly on the side of recovery, and until something immense breaks that momentum...I expect the recovery to continue.




-Robry825