The US Industrial economy eased last week (if pipeline scheduling is correct), consumer spending strengthened, and signs remain of a very strong 2009 Christmas-shopping season.The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) was declined from the prior weeks peak. The measure (at 106.3) remains just shy of 2008's September pre-plunge peak (108.1) and 2007's high of 110.2 (It bottomed May 28th at 86.7).
In its dailies (as evidenced by the "Part 7" industrial daily posts on the IV-CWEI site) the week actually appeared quite firm throughout, and was the 3rd strongest week of 2009. The overall Production index was down only because the strongest week of the year rolled off the back of its 28-day moving average. The 2nd strongest week of the year rolls off with next weeks report.
The Paperboard-based Consumption Index advanced slightly last week, breaking a string of six consecutive declines. Over the past several weeks, the Consumption index has fallen short of the ramp implied by seasonal factors, presumably because it attained that ramp prematurely weeks earlier when the Christmas shopping rush looks to have begun early.
The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continues to drop and remains well-below pre-recessionary levels.
With the 2009 Christmas shopping season about to draw to a close, all eyes have to be on consumer spending. With the production index lagging the consumption index for such a protracted period of time; With unemployment trends bucking the turn in the economy; With the inventories measure in such free-fall... signs abound in the gas flows of nervousness in the US business community.
At present, the recovery is locked in by enthused consumption. But what of the Christmas season? Is the 2009 Christmas rush going to carry into 2010? Or are consumers about to become tapped out after one big Christmas shopping party, with consumer spending ready to dive in January (with a nervous business community following in lock step)?
Continued quantitative easing, unemployment-benefit extensions, the slight up-tick in last weeks Consumption Index, and the December strength in automotive gas flows (which are not tied into the Christmas shopping rush) would seem to argue for a continuation of consumer spending strength.
Yet I am nervous... one has to worry of the foot-dragging on the business side. To get the economy really humming, you need enthusiasm on the part of both consumers and business. Otherwise, you have a one-armed man in a row-boat.
I can remember a time (when I first started investing in the late 70's) when we had 10% unemployment, 10% inflation, and 10% interest rates all at the same time. One-sided economies can be very cruel. I sincerely hope to see the likes of it never again!
-Robry825
