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
