The US Industrial economy bounced back up in the latest week (if pipeline scheduling is correct), consumer spending continues to be robust, and inventories continued their recent trends of sharp contraction.The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) added its 19th advance in 21 weeks, holding near levels suggesting it has made up better than two-thirds 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 soft, then took off... setting a new high for 2009 on the last day (Friday) in the raw numbers.
On a sector-by-sector basis (as per the "Part 8" posts) the steel delivery natgas scheduling remains very firm (steel has been front-and-center in the recovery) and the Automotive group holds on to its mid-month increase... challenging its monthly "climb-early-then-die" habit.
The Paperboard-based Consumption Index softened just a tad in the week, though in its dailies it remained firm (seasonals pushed the index a tad lower). The Consumption Index remains solidly 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-recessionary levels and is dropping fast. Once inventory-rebuilding kicks in (assuming nothing tries to derail the economy), another meaningful surge in the industrial economy (and natgas demand) is unavoidable.
Equities have been rallying on the bullishness. A rising Production Index is bullish to stocks (more products being manufactured); consumption outrunning production is bullish (more products to be sold tomorrow than today); downward-trending Inventories are bullish (positive cash flow from inventory liquidation, debt-repayment, etc); and surging consumption combined with stagnating unemployment is bullish (rising profit margins).
Never thought I'd say this... If you see a really lousy unemployment report... Buy! (We are now in the speculative, political, and sometimes tongue-in-cheek part of this post.)
(Which brings us also back to last weeks rant on the recent congressional health-care debate.)
At the start of 2009, the recession was being fueled by a dejected consumer... Consumption collapsed as the US consumer segment panicked, lost all confidence, and slowed spending dramatically. Industry, caught off-guard, responded by cutting off production, closing plants, laying off workers, and in some cases went bankrupt... Further depressing consumption in a catch-22-style, downward spiral.
Today... 180 degree turn. The consumer segment (according to the gas flows) is robust, with the productive segment somewhat lagging but also gaining momentum fast in an attempt to catch up with consumers. Confidence looks strong in the consumption sector, improving in the productive sector.
In order to get real, honest-to-goodness growth (in national standard of living and wealth), you need high confidence in both the consumptive and productive sectors of society. It doesn't work if you get high confidence in just one alone... you have to get both.
If the productive segment of society gets pumped (manufacturing more goods), but consumers don't buy, you get only bloated inventories, falling margins, rising debt, read ink... and eventually a recession as the imbalance gets corrected.
Conversely, if the consumptive segment gets pumped (buying more goods), but the productive segment doesn't produce more products, you get only dwindling inventories, shortages, higher prices, higher inflation, higher interest rates... and eventually a recession as the imbalance gets corrected.
In order to get real, honest, sustainable growth, you have got to pump BOTH the productive and consumptive segments of society AT THE SAME TIME.
Double industrial production, double consumption, and you will double the US standard of living, double corporate earnings (or more), double equities, double the nations wealth, double governmental tax receipts (with no rise in taxes), and halve the proportional size of the national debt.
But if you ignore either the consumptive or the productive segments of society... you get nothing... Absolutely nothing.
Right now, in congress, there is an approx 60/40 split between the consumptive segment (which looks mostly to the Democrats for representation), and the productive segment (Which looks mostly to the Republicans). I believe the health-care debate to be the most important issue of the year, probably the next several years. I believe both segments of the US are watching closely, expecting the best ideas of both parties of representation to get worked into the ultimate result of health care reform.
Get it right, and a lot of people watching will see it, react, and society as a whole will be advanced. Get it wrong, and a whole lot of people will see that too... and react.
If representatives can compromise and write a good bill, a lot of good could happen, if they dig in their heals and insist on 100% "Their way or no way", a lot of bad could happen.
Worst thing would be for a bill to run into a Republican filibuster and fail, dejecting that 60% consumptive segment whom the Democrats represent, ruining consumer confidence and optimism, and rapidly tanking the recovery.
Next worse thing would be for a bill to overrun a Republican filibuster and succeed, dejecting that 40% productive segment whom the Republicans represent, prompting them to restrain on new ventures, new hiring, and new investments... but instead to pay-off debts, cut costs, and to other-wise "hunker-down", ... just in case.
Consider the Clinton Administration... The Democrats had the White House, the Senate, and the House. They tried an aggressive health-care reform plan too... and failed. Two years later dejected voters gave Congress to the Republicans, and President Clinton had to play defense for the remainder of his terms. People are watching today just as they watched then.
Consider the CWEI board. More on politics today than energy. They are watching too.
Again, the best thing the Dem's and Rep's could do... go into a closed room (with the camera's, lobbyists, and power-brokers left behind), give the Democrats 60% of what they want, the Republicans 40% of what they want (as per the 60/40 split in representation) and come out of the room to reassure both the productive class and consumptive class with a bill that would be supported by 70% of each party.
Let us all pray that the wiser heads will prevail over the foolish, that we get a bill that will be seen as constructive by all, and that we, as a nation, may move forward rather than back.
-Robry825
