Monday, February 1, 2010

Sunday Night Economic Assessment

The US Industrial economy strengthened last week (if pipeline scheduling is correct), while brisk consumer spending eased just a bit more off of its late-2009 strength.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) advanced to its 3rd all-time high in four weeks, rising to 112.3 from the prior weeks 111.9. In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week started off moderately then strengthened sharply mid to late week.

The paperboard-based Consumption Index was off slightly (fourth soft week in a row), as the US public coped with a decline in their ultimate money supply measure.. the stock market. The measure declined to 129.5 from the previous weeks 130.9. In its dailies the week was soft early but showed signs of reversing it's 4-week decline.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued ever-lower, remaining well-below pre-recessionary levels.

Key to the US economy in the short term remains the consumer... if consumer spending can carry last weeks attempted bottom, a fifth up leg should be nearly upon us as the economy is already supported by the existing deficit of the Production Index to the Consumption Index, as well as the deep and continuing decline of the Inventories Measure.

Of concern in the intermediate term will be the possibility of modest inflationary pressures as industrial production pushes further above the old 2007 highs (in terms of the Production Index) and the strongest sectors of the US industrial economy push towards 100% capacity utilization.

Of great concern will continue to be business confidence. High unemployment in the face of record scheduling of natgas into US industrial facilities, the seemingly never-ending drag in the Production Index (to the Consumption Index), and the continual decline in the Inventories measure all are highly indicative of a "Circle the wagons" defensiveness in the business & investment end of US society.

So far, the champions of the consumer (the Democrats) appear to have done a good job at championing the consumer. They have also done a good job at locking out the champions of industry and investors (the Republicans) out of the inner workings of government (witness health care reform & climate negotiations). The gas flows highly reflect all this... as does the US economy.

If we are to get those industry & investment "wagons" rolling again it is going to take two rational political parties to do so. As the old saying goes... "A house divided against itself cannot stand".