Monday, November 2, 2009

Sunday Night Economic Assessment

The US Industrial economy pushed further ahead in the latest week (if pipeline scheduling is correct), while consumer spending remained strong.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) added its 20th advance in 22 weeks, and now stands higher than at any time since November 29th, 2008 (It bottomed May 28th). The index is has been holding at 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 was strong throughout and set a high for 2009 on Tuesday.

The basis for the Production Index (The "Part 8" Industrial Sampling) was slightly revised this week, due to re-weighting of its position within the broader scope of the EIA's monthly data.

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 thankfully (For Robry's home state of Michigan) holds on to its mid-month increase.

The Paperboard-based Consumption Index again softened just a tad in the week, though in its dailies it remained very firm (seasonals are pushing the index a tad lower). The Consumption Index remains nearly 40% above the Production Index, supporting the recent momentum of industrial recovery. A hint of an early, exceptionally strong Christmas shopping season is in the gas flows.

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. (The inventory measure had to be redrawn on the chart above at a 50% lower sensitivity starting this week). Once inventory-rebuilding kicks in (assuming nothing tries to derail the economy), another meaningful surge in the industrial economy (and natgas demand) is unavoidable.

Next hurdle continues (in my judgment) to be the health-care debate in congress. A whole lot of folks are watching this thing unfold, and I fear the reaction if congress blunders.

I am a "reinvent the wheel" type of person, and studying the economics side of the gas flows has changed my thinking dramatically the past couple of years. One thing I have learned recently, and come more and more convinced of, is the emotional aspects of people en mass. One current event, or one news report, can appear to change gas-flow patterns instantly. People pay attention to current events. People react. And in a state of heard-mentality people can rush forward in excitement... or in panic retreat.

If congress is seen to gamble away health-care reform on political posturing and ambitions, consumers may react harshly, and the economy stumble. If congress is seen to enact health-care reform that is harmful to business, then investors (and the whole of the productive side of society) may react harshly, and the economy stumble.

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.

Right now, more than ever, we need wisdom, carefulness, and prudence from our leadership.