Monday, August 23, 2010

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.