Sunday Night Economic Assessment

The US Industrial economy advanced again last week (if pipeline scheduling is correct), as recently-strengthening consumer spending took a break.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) rose for its second week in a row, climbing to 116.8 (from last weeks 116.0). In its dailies the index opened the week strongly and maintained its firmness through to the weeks close.

The paperboard-based Consumption Index, conversely, broke a string of 3 up weeks in a row, settling to 135.0 (from last weeks 135.7). In its dailies the measure began the week soft but strengthened just a tad as the week progressed, holding slightly above-trend to the ramping production index... a credit to the consumer in a tenacious couple-week period where (until late week) it seemed a strongly-negative slew of news-media reports begged to stall consumption.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) is continuing its pattern of re-accelerating decline.


I am going to forgo the usual comment section this week, as an interesting news article found its way to my email last Thursday. The article contrasted quite nicely with remarks I made a week ago in last Sundays economic assessment, and I want to explore that further. Rather than comment on the economy, I want to explore this whole experiment of a gas-flow-derived economic model...

Consider (from the Production Index Paragraph) from last weeks "Sunday Night Economic Assessment" (Sunday, August 22nd) ...
............"The Production Index (In terms of its 28-day moving average
............ of gas-flow scheduling into US industrial facilities) broke a string
............ of four down-weeks and rose to 116.0 (from last weeks 115.0)."

And contrast it with the lead from last weeks AP-reported unemployment piece...
............"New jobless claims drop for first time in 4 weeks
............
............ AP
............ WASHINGTON – New requests for unemployment benefits fell
............ sharply last week, the first decline in a month and a hopeful sign
............ after a raft of negative economic reports.")
............
............(http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HR7PR80)


On the whole, not a bad performance!

Now this is not to say that the model is perfect- it has had a bit of "noise" in it from time to time, but overall I do believe the modeling captured the beginnings of the recession in the fall of 2008, reflected its bottom in May of 2009, its recovery in late 2009 through Q1 of 2010, and the recent weakness through early August.

The theory behind the model is that by measuring the quantity of natural-gas that is fed into an industrial facility (that uses natural gas in its manufacturing processes), one can estimate (quite closely) the production of that facility based upon its natural-gas usage. If natgas usage goes up 10%, facility production goes up 10%. If natgas usage goes up 100%, facility production doubles. If natgas usage stops, the facility is idle.

Collect lots of data for lots of factories all across the US, and you get US production... daily... in real time, with no waiting for monthly surveys, quarterly adjustments, etc. No delays means no surprises, which means you can react immediately (not long, long after the fact).

The potential for this type of analysis is enormous for a country. It can give companies time to react to slowdowns to cut inventories (and costs) to prevent being blind-sided by a slowdown no-one sees coming, and it can give governments time to react to impending recessions to save economies, save industries, save jobs, and save families which otherwise could be impacted by layoffs, business-failures, and other financial hardships.

And enough data is out there (about eight percent of US industry) to get enough of a sampling to do a fairly decent daily model.

Now 10 years ago, this was not so. All this came about fairly recently, opened up by the wisdom of the US Federal Energy Regulatory Commission (FERC), which accurately foresaw the benefits of opening up tightly-controlled pipeline information to the public. In a slow process, all of the nations interstate pipelines were gradually required to make more and more of their detailed flow information public.

The FERC's push was not without controversy... some resisted to the disclosure of "Customer-specific" corporate information on the grounds of privacy, and in the early days long lists of vaguely-worded locations made them difficult to decipher. But little by little clarity came out and to this day, about 8 percent of US industrial gas usage (as measured by government EIA data) is available daily from the "Informational Postings" of US interstate pipelines.

All that is about to change.

In November-2008, the FERC issued a major rule-making order (FERC Order 720), in which (by way of then-recent congressional legislation) it saw its authority opened up to intra-state pipelines (pipelines that do not cross borders) as well. After revisions and clarifications (FERC rules 720A and 720B) a host of local intrastate pipelines (and local distribution companies) are now just beginning to be required to post detailed information, which should (if this process can unfold) greatly increase the quantity and quality of data to the public.

At this early stage (as it was in the early stages for the interstate pipelines) the data is vague, and a currently high threshold (15,000 MMBtu/day to be reportable) and allowances for vaguely-named point-descriptions seem to be limiting the data's usefulness. However, if the FERC can progress (as it did for the interstate pipelines) the quality and quantity of this new data could greatly improve.

If these "Sunday Night Economic Assessment"s have value to you, if they are a help, please consider the following. You can add to this process, and the quality of these reports, by supporting the FERC in all its efforts, by just a simple email.

If you would, sometime this fall, go into the FERC's website, and drop off an email to them in thanks for their efforts, and to encourage them to expand upon "FERC Order 720" in the years to come with "Final-Cycle" or "Actual-Flow" data for all industrial natural gas transactions... to increase transparency for the benefits of the markets, and the benefit of the nation as a whole.



-Robry825

Sunday Night Economic Assessment

The US Industrial economy turned around and advanced last week (if pipeline scheduling is correct) as both industrial production and consumer spending gained, on the heals of last-weeks announced resumption of quantitative easing (purchasing of treasury debt) by the Federal Reserve.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke a string of four down-weeks and rose to 116.0 (from last weeks 115.0). In its dailies the index showed a pronnounced change early to mid-week, starting flat to the previous week but strengthening sharply as the week progressed and ended.

The paperboard-based Consumption Index added to the previous weeks surge (its 3rd up week in a row), rising to 135.7 (from last weeks 135.5), its highest level since March 10th. In its dailies the measure was red-hot at the very beginning of the week (on Saturday) but softened thereafter.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) is continuing its pattern of re-accelerating decline.

Last week appeared to be a good week for the economy, presumably as factories respond to increased consumer activity, accommodating it by increasing production scheduling. Last weeks fade in the consumption index is a concern and needs to push back up. On balance, the US economy looks to be underpinned by a thick cushion of excess of consumption over industrial production, and by recent gains in consumption. Deep divisions of optimism between the consumptive and productive ends of US society also remain evident in the disconnect between the gaining consumption index vs the declining production index, not to mention the ever-dwindling inventories measure.

It is very important that the Federal Reserve continue its newly-announced resumption of quantitative easing (it announced two weeks that it would resume quantitative easing... a move that, though very much late, was necessary to keep us out of depression). I have very deep concerns of the rationality of past Federal Reserve & Governmental monetary policies, and have deep concerns of the practicality of its monetary-measurement-systems. I see the US as a country pulled into a sewer of debt by continuing patterns of monetary outflows resulting in a situation where the US "Money Supply" is a gigantic short position (private sector plus public sector) covered by ridiculous methods of accounting (where dollar-assets are counted without deducting dollar-liabilities).

The future of the US economy remains with the consumer (as always), as US industrial production appears to remain very responsive to patterns in fluctuations of consumption. In its own way, this fact is a testament to the underlying (now-hidden) power of the US economic system. Many nations are constrained at the productive ends of their economies, not at the level of consumption. The US is abundant it wisdom and eagerness to produce. All that is needed is for its government to allow it to do so.


-Robry825

Sunday Night Economic Assessment

The US Industrial economy eased off again last week (if pipeline scheduling is correct) as industrial production slipped, while consumer spending surged on the heals of an announced resumption of quantitative easing (purchasing of treasury debt) by the Federal Reserve.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) dropped for its fourth straight week, declining to 115.0 (from last weeks 115.5), It's lowest level since May 5th. In its dailies the index started soft but ended the week with daily activity roughly in line with the prior week.

The paperboard-based Consumption Index surged robustly within the week (2nd up week in a row), soaring to 135.5 (from last weeks 128.0), its highest level since March 10th. In its dailies the measure started firm at the beginning of the week then built upon that momentum throughout the week.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of re-accelerating decline.

On balance, the US economy looks to be underpinned by a thick cushion of excess of consumption over industrial production, and by recent gains in consumption. Deep divisions of optimism between the consumptive and productive ends of US society also remain evident in the disconnect between the gaining consumption index vs the declining production index, not to mention the ever-dwindling inventories measure.

If the implied surge in consumer spending can hold, it should argue for the resumption of US economic growth as factories respond to increased consumer activity, accommodating it by increased production scheduling.

The Federal Reserve announced last week that it would resume quantitative easing, a move that (though very much late) is necessary to keep us out of depression. I have very deep concerns of the rationality of past Federal Reserve & Governmental monetary policies, and have deep concerns of the practicality of its monetary-measurement-systems. I see the US as a country pulled into a sewer of debt by continuing patterns of monetary outflows resulting in a situation where the US "Money Supply" is a gigantic short position (private sector plus public sector) covered by ridiculous methods of accounting (we count dollar-assets without deducting dollar-liabilities).

If businesses were allowed to value themselves the same way the Feds count money supply, the big banks that failed the last couple of years, and GM and Chrysler, would have been shown to be worth a fortune... right before the days that they all went bankrupt! No wonder they never audit the Federal Reserve!


-Robry825

Sunday Night Economic Assessment

The US Industrial economy retreated again last week (if pipeline scheduling is correct) as industrial production backtracked, while consumer spending turned and worked higher.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) dropped for its third straight week, declining to 115.5 (from last weeks 116.8). In its dailies the index was soft throughout the week. Automotive-related flows re-weakened last week (strongly bucking seasonals), an indication that the automotive sector is out in front of the recent industrial weakness. Also weak are the Chemical/Fertilize/Steel and Cement groups. I am also suspicious that commercial real estate construction is getting killed this month, judging by divergences in steel, automotive, cement, brick, and asphault groups.

California, however, appears to be rebounding (perhaps thanks to a weakening dollar).

The paperboard-based Consumption Index bucked its 1-week downtrend and advanced to 128.0 (from last weeks 126.8), its highest level since May 22nd. In its dailies the measure started flat then firmed midweek...

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of re-accelerating decline.

On balance, the US economy looks to be underpinned (for the moment) by a cushion excess of consumption over industrial production, and by recent gains in consumption. Deep divisions of optimism between the consumptive and productive ends of US society also remain evident in the disconnect between the gaining consumption index vs the declining production index.

But what of that seemingly never-ending decline in the inventories measure? (We are now into the speculative part of this weeks post). Three theories come to mind... 1) the models could be in error, possibly under-estimating urban industrial declines and/or over-estimating rural paperboard advances... 2) the models are reflecting extreme business-owner pessimism, keeping businesses afraid to hire on the chance a hostile government hands their heads to them in the months and years ahead... or more frighteningly... 3) the models are reflecting attrition, as investors are too afraid to start new businesses (and therefore acquire startup inventories) even while tens of thousands of older businesses close (and liquidate inventories) due to retirement of owners or bankruptcy.

Of those three possibilities, the first is a real stretch (though the inventories measure is the weakest of the three statistically) given the sharpness, steadiness and persistence of its decline.

The remaining two would be supported by the resistance of the unemployment rate to go down in the stiff gains of the industrial production index, and gains in profitability of existing industry and businesses (more consumer dollars into less hands = higher margins.

The last (attrition) would be supported by the presently-climbing high mall vacancy rates and declining commercial real-estate values, as well as the indications of extreme weakness in commercial construction (as noted above).

All-in-all, number three (attrition) followed by number two (pessimism) are the more likely and reasonable, but on the weight of the evidences, attrition seems the best logical fit, and (assuming I am right) makes employment gains very likely if at all possible, and (given the declines of the production index) I suspect unemployment will start ti surprise and tick higher in coming weeks should these present trends not reverse quickly.

As noted previously, we had a very close call on the economy three weeks ago as consumption had fallen (at that time) very close to production, risking a crossing which would have opened the door to a disastrous resumption of recession. That door appears thankfully to have re-closed in the short-term, thanks to the recent slight gains in implied consumption, but that door (in this present environment) must not, at all costs, be allowed to reopen. I suspect if it does, we go immediately into depression, not recession.

Politically, the gas-flow near-debacle three weeks ago seemed very closely aligned (in the gas-flows) with a Republican attempt to block unemployment extension (scaring the heck out of consumers- employed and unemployed alike), causing consumers to momentarily cut back "just in case", risking a collapse that would certainly fed upon itself and been nearly unstoppable. If Republicans had succeeded, we likely would be collapsing into depression right now.

Not to worry, though, as the Democrats are firmly in control of this blunder-bus of a government that continues to drunkenly weave its way down the road. Perhaps we need a new Coffee Party to go along with our new Tea Party so we can rid ourselves of our old Chardonnay and Beer parties!



-Robry825

Sunday Night Economic Assessment

The US Industrial economy backtracked last week (if pipeline scheduling is correct) as industrial production declined, while consumer spending also eased off a bit.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) declined for its second straight week, dropping to 116.8 (from last weeks 117.8). In its dailies the index showed some resilience... firming last weekend and holding above prior-week levels through Friday. Automotive-related gas-flow scheduling also finally began to ramp up, reflecting a likely end to the July retooling period (exhibited in years past as a pronounced slow-down the first two weeks of July)..

The paperboard-based Consumption Index backed off a tad from its previous weeks surge, easing to 126.8 (from last weeks 126.7). In its dailies the measure started firm then flattened vs the prior week..

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of decline, though starting to re-accelerate in its decline.

As noted previously, we had a very close call on the economy a couple weeks back as consumption had fallen (at that time) very close to production, risking a crossing which would have opened the door to a possible resumption of recession. That door appears thankfully to have re-closed in the short-term, thanks to the recent slight gains in implied consumption.

That near miss, however, betrays the fragility of the economy, as the productive end of the US economy appears to remain entrenched in defensiveness (understandable given a government strongly-perceived by it as anti-business/investor government these days), while the consumptive segment of the US economy wavers in its perceptions and confidences in the maintenance of its perceived pro-consumer government.

On balance, the US economy looks to be underpinned (for the moment) by a cushion excess of consumption over industrial production. We will see how that cushion holds as we progress into the fall congressional elections.



-Robry825