The US Industrial economy again advanced last week (if pipeline scheduling is correct) amidst brisk consumer spending, as the US economy transitions from a traditional period of strength (Nov/Dec Christmas shopping season) to a period of traditional weakness (Early January industrial retooling downtime).The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) once again gained ground in the latest week (3rd weekly gain in a row). The measure rose to 109.1 (from last weeks 108.2) but remains just short of 2007's all-time high of 110.2 (It bottomed May 28th 2009 at 86.7).
In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week reflected the traditional Christmas & New-Years holiday softness early and late, with a couple of unusually strong days mid-week.
The Paperboard-based Consumption gained ground as well last week (4th consecutive weekly advance), though it remains somewhat shy of its 2009 peak.
The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its seemingly never-ending drop, remaining well-below pre-recessionary levels.
The latest spike in industrial flows (in late December) is encouraging, as it undoubtedly reflects confidence in the post-Christmas new year. Also encouraging... steel-sector gas-flows (which have been front and center in the recovery) continued to edge higher in the face of upcoming retooling, and some of the economies poorest performers (such as the Auto and Lumber groups) have been doing quite well lately.
The present uptrend in consumer spending, the deficit of the Production Index to the Consumption Index, the deep and continuing decline of the Inventories Measure... all remain supportive of the newly-commenced fourth leg up for the economy, though the continuing lag in the Production vs Consumption Index continues to hint to a shallowness in the productive end of the US economy... which is a continuing drag on employment and job-creation.
Key to the US economy in the short term will continue to be the consumer... if consumer spending stalls, the productive side of the economy likely will follow into decline (Consumer-spending has been the leash that leads the dog of industrial production); if consumer spending continues strong, likely so will industrial production.
Of concern in the intermediate term will be the possibility of modest inflationary pressures as industrial production pushes towards (and overtakes) the old 2007 highs (in terms of the Production Index) and the strongest sectors of the US industrial economy push towards 100% capacity utilization.
-Robry825
