Monday, January 24, 2011

Sunday Night Economic Assessment

The US Industrial economy continued to slowly push ahead last week (if pipeline scheduling is correct), amidst continuing robust consumer spending.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) advanced for the third week in a row to a record 121.4 (from last weeks 121.2). In its dailies (See the "Part 7" posts on the Investor Village site) the index was again volatile throughout the week but softened late.

The Consumption Index also rose (for its second week in a row) to 144.2 (from last weeks 142.9, and just shy of its record 146.5 high). In its dailies the measure (contrary to the Production Index) softened early and firmed late-week.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued in its long-term decline.

Overall, the recovery appears strongly supported for the time being by buoyant consumer-spending, an uncharacteristically-large lead in the Consumption Index over the Production Index, and continuing declines in the Inventories measure.

Concerns still center mostly on the strength of the food group (a contra-indicator to consumption), suggesting a shallowness to the recovery in spite of its apparent breadth (suggested in the gas flows).

Another concern is the continual foot-dragging (in the business end of society) implied by the slowness in response of the Production Index, which I think (in spite of Novembers elections) belies continuing nervousness in the productive end of society (not good when you want businesses to hire to bring that 9%-ish unemployment rate down).

On the table (for that productive end of society) the past couple of weeks is the Republicans attempt for a repeal vote on the recent health care reform bill in the Senate (The US house, now dominated by newly-elected Republicans, already voted to repeal).

The whole process is fraught with risk at both ends. If the repeal-vote fails, it's another blow to business confidence. If they actually repeal, it's a potential larger blow to consumer-confidence. And if consumers get a whiff of higher medical expenses anywhere throughout the process and start to cut back other spending to accommodate it, 12% unemployment here we come.

It's an issue that I wish would go away for a while. Or perhaps even better... be shelved for a couple months so that cooler political heads could sort through the whole mess. President Obama and Republicans were able to put together a last minute compromise on taxes & unemployment late last year that (by the look of the gas-flows) kept Novembers "Micro-recession" from becoming real.

And with that frighteningly-strong food group (as mentioned above), small things (like brief market pull-backs) could potentially ignite consumer-fear quickly.

For the moment (all things considered) the economy remains (for the moment) underpinned by gas-flow-suggested fundamentals, and should (assuming none of these worries pop up) continue to slowly advance.