The US Industrial economy strengthened last week (if pipeline scheduling is correct), consumer spending surged higher, and gas-flows surprised late-week and exhibited a very pronounced positive reaction to the Federal Reserves announced discount rate hike.The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke a string of two down weeks in a row, rising to 111.3 from the prior weeks 110.8. In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week started somewhat firm, softened mid week, then firmed on Friday.
The paperboard-based Consumption Index also rose (for its third week-in-a-row), rising to 140.4 from the previous weeks 132.5. In its dailies the week started soft early, firmed somewhat midweek, then took off on Friday.
The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) again continued it's never-ending story of down, down, down.
Overall, maintained firmness in consumer spending, the deficit of the Production Index to the Consumption Index, and the deep and continuing decline of the Inventories Measure... all continue to underpin the economy, though flows still exhibit a stagnant-look which is worrisome. 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.
A big surprise was the Federal Reserves Thursday-night discount rate hike. With unemployment hovering near 10% my own initial reaction was they had to be crazy, but in looking at the gas-flows I was wrong. It appeared as if the rate-hike challenged some of the economic bearishness, perhaps catching some off-guard on the notion that the Fed was doing a reversal and they were leaning the wrong way.
Now the gas-flows have long hinted (at least ever since I started studying their economic side) that recessions and recoveries are highly emotional beasts- rising and falling on heard-like behaviors of consumers, growing and receding on risk-appetites of industrial producers.
Question is (with unemployment near 10%) was the Fed's move a gambit on just that... a calculated, risky end-run around emotion? Or was the Fed simply being the Fed... starting the tightening process early on the perceived risks of over-expansion of money supply?
Another angle to the Fed's move is the gap between consumption and industrial production, and the void in the political leadership that seeks to represent and balance them. A lot of folks see the political climate in the US as outright hostile toward business and investment, and the gas flows strongly suggest that sector of society to be deeply entrenched and dug in against a liquidity-sapping onslaught... avoiding risk-taking activities such as new-hiring, expansion, etc. Could the Fed be looking at starting to counter imbalance by raising rates to redirect stimulus away from interest-payers (consumers) to interest-receivers (investors)?
Government would do well to address that void of political leadership. One good place to start would be the Presidents upcoming "Summit" on the dying health-care reform moves in congress (I know I keep harping on the health-care bill, but it has become the poster-child of political ineptness lately, and seeing friends and church-members in this wretched state of mine (Michigan) who are in miserable circumstances because `neither they nor their employers can afford $15,000 a year health insurance... it is high on my list).
I would love to see our President, in the midst of that health-care summit, take copies of those two house/senate bills, and rip them up in the presence of the congressional leadership! Tell them to start over, leave the power-brokers, lobbyists, and handlers out of negotiations... turn their backs on their mega-contributors, PAC's and special interests... turn their loyalties back to their voters... and produce a plan that is actually intelligent- containing the best ideas of both parties, and devoid of the self-seeking interests that have more-and-more come to dominate both parties.
Wouldn't it be nice to see a president who actually presides, for a change?
-Robry825
