Monday, October 11, 2010

Sunday Night Economic Assessment

The US Industrial economy pushed ahead last week (if pipeline scheduling is correct), while the ongoing recent surge in consumer-spending slipped back slightly.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) gained for its second week-in-a-row, rising to 115.7 (from last weeks 114.5). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index started the week soft but gained as the week progressed.

The paperboard-based Consumption Index conversely declined (breaking its streak of three up weeks in a row), dipping to 139.9 (from last weeks 140.9). In its dailies the measure started the week strong and tailed off only slightly through Friday. Preliminary weekend scheduling (For Saturday and Sunday) looks very strong... if it holds up... and the Consumption Index maintains its huge gap to the Production Index.

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

Overall, the US industrial economy looks to continue to be strongly supported by an excess of consumption over production, a recent surge in consumption, and the ever-declining Inventories measure.

It does, however, appear likely to remain a jobless recovery (given the large comparative weakness of the production index to the consumption index, and the implied inventory declines... and the negative sentiment that implies within the business and investment communities). Negativism is unlikely to chase down new employees to chase after new-business when old-business is in doubt. Perhaps November will change all that. Perhaps not.

Sooner or later though, that negativism (if not reversed) is going to bite deep and hard. The US standard of living is supported by massive imports, which are in turn supported by massive foreign demand for dollars (Think about it... why would foreign parties "dump" goods into the US at a loss, if it weren't for the desire for dollars. The loss on "dumping" is the "commission" on the dollar transaction!). Like all things that vacillate, sooner or later that foreigner-driven dollar-bullishness will abate, as will the desire to "dump"... and the imports will end. When those massive imports do end, either US industry (and investment) will have to rapidly expand to pick up the slack, or the US standard of living contract sharply.