Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) backtracked last week, while consumer spending continued to retreat and the Federal Reserve sat on its hands.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke its three-week string of gains, backing off a notch to 120.0 (vs last weeks revised 120.2). In its raw dailies above, the measure was bland.

The Consumption Index extended its fall for a third week-in-a-row, slipping to 132.1 (from last weeks 139.6). In its dailies the measure was likewise bland (to production) except for Monday's comparison with the previous weeks anomaly.

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

Overall, gas-flows look like mush, with the economy dead-in-the-water, though employment (not business profitability) looks to be taking the hit at present.

Federal Reserve starting to look like it is becoming politically paralyzed... with some leading Republican-presidential-wannabes sending strong signals of stimulus-intolerance (Perry) or Federal-Reserve menevolence (Ron Paul), while the Democratic party (and president) 2012-hopes get eaten alive by the economy.

If so, the entire burden of monetary expansion falls to the US government... to expand the pseudo-money supply (by way of deficit spending) at the sole cost of inflating government debt, as the US dollar holds firm... and $2 billion-a-day of US liquidity continues to get siphoned from the US economy.

(Wild-speculation department... Perry campaign gets killed from within (by its own staffers), Romney from without (boredom), and Ron Paul takes the Republican Primaries and the Presidency in 2012. Possible Democratic "Hail-Mary"... Democrats accept the Republican balanced-budget amendment idea (it gets forced anyway in next few years) in return for token higher Republican Taxes, then fire the whole of the Federal Reserve board and ... ... ...) (That is, if the Federal Reserve is freezing up politically and unemployment retakes double digits.)



-Robry825

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) reclaimed a bit more ground last week, while consumer spending retreated. All models were revised as additional points were added to the respective samplings on which the modeling is based.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) rose for its third week in a row, gaining to 120.2 (vs last weeks revised 119.9). In its dailies, the measure lethargic, starting the week firm early-on but quickly softening as the week progressed.

The Consumption Index conversely fell for the second straight week, dipping to 139.6 (from last weeks 143.9). In its dailies the measure was choppy but overall soft as well.

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

Overall, its the same-ol'-same-ol'... with the economy dead-in-the-water... along with the Federal Reserve.

Bear market in stocks starting to look a bit overdone (in terms of the gas-flows)... this does not look like anything like an earnings-hit for the third quarter but if anything the opposite given the "reverse" nature of the slow-down (it is business-confidence that is being hit... along with investor-confidence... but not consumer spending so it will be bullish for earnings, not bearish).

What is being hit right now (big time) is employment... and over the last three weeks one can see a real split in the "Republican" side of the US economy (business vs investment community) with the business-side looking like it liked the centrist-budget compromise (gas-flow-scheduling increased to industry briefly following the announced budget-compromise three-weeks ago, while investors discouragingly dumped their investments and consumers appeared little-changed in their spending habits).

This recent three-way split has me rethinking my 2-Party Republican-vs-Democrat Gas-Flow Theories... Perhaps we actually have a three-party system with Democrats representing the consumer, Centrist-Republicans representing business, and Conservative-Tea-Party-Republicans representing investors.

If you think about it, the theory makes sense as the business community has to bridge the gap between consumer and investor... delivering quality and economy to consumers balanced with earnings to investors... compromising along the way to keep things balanced to make the business work, even while consumers and investors focus in on their own bargains or profits.

Of course, government (like business) would have to also balance the needs of all three of these three groups (consumer, business, & investment), which it is having great difficulty doing given the political-divide in Washington where folks think the problem is fiscal.

Raising taxes on investors will not encourage them to invest more on new businesses and new employment. And cutting spending to consumers will not encourage them to spend more to soak up excess industrial capacity. What we have at the root is monetary-policy failure, with fiscal-policy failure attempting to negate that monetary-policy-failure.

Think about it... we dropped interest rates to zero and bumped deficit-spending past a trillion-dollars-a-year to boost the economy... with nothing to show for it. It is not supposed to work that way.




-Robry825

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) gained last week, while consumer spending was flat and the Federal Reserve entertained itself... saying it would change nothing, but seeking to reassure everyone with the promise that it would do so for the next two years.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) climbed for its second week in a row, rising to 120.4 (vs last weeks 119.3). In its dailies, the measure was mostly firm over the prior week.

The Consumption Index followed two weeks of gains by going flat, settling at 146.5 (from last weeks 146.5). In its dailies the measure was very soft.

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

Overall, gas-flows are mush and the economy appears to remain dead-in-the-water... neither advancing nor retreating... while consumption, steel-plant scheduling, and food-group scheduling all look ominously bearish.

Economically-speaking, I assume the economy to be barely hanging on by its fingernails, in spite of massive governmental deficit spending to prop it up.

Over the last 12 months, over $538 Billion left the US through the continuing trade deficits (see link below for data). Over the past 2 years... $995 Billion. Over the past 4 years... $2.2 Trillion. Over the past 8... $4.9 Trillion. Over the past 16... $6.4 Trillion. That is goods & services imbalances only... not including interest payment on debt, foreign aid, or all those dollars good-natured Americans send to help the needy in other countries, etc.

Check my math (please) at http://www.census.gov/foreign-trade/statistics/historical/exhibit_history.prn to see for yourself.

Those billions of dollars are gone... now in possession of foreign central banks around the world, who (viewing the US dollar as the worlds reserve currency) stockpile dollars the way they used to stockpile gold. The whole of the US monetary base (as of July 2011) was only $2.68 Billion (see http://www.federalreserve.gov/releases/h3/hist/h3hist1.txt), leaving the US deeply in debt (14.8 Trillion Gross External Debt, as of 03/31/11, as per http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/debta311.html)

With the Federal Reserve holding down the Monitary Base in the face of these monitary outflows, that cash has to be recycled back into the US economy by means of borrowing and deficit spending (by the US Government) to get that cash back into consumers hands. In the process all forms of debt accumulates... from government debt, to consumer debt, business debt, student debt, credit-card debt, etc... with Federal-Reserve-pushed ultra-low interest rates to entice people to borrow more to extend the madness.

One has to wonder at the success of the Federal Reserve at controlling inflation. Does the Federal Reserve control inflation by means of money supply... or does the Federal Reserve control inflation by means of the costs of foreign goods? To me, much of economic theory surrounding the Federal Reserve seems antiquated... Born of the 1930's "Great Depression" (and before)... before which the US was (I am told) a net exporter, computers & the internet (and derived analysis) did not exist, and public information was scarce.

At some point (sooner-or-later) Federal Reserve Thinking (and economic thinking in general) is going to change radically (or growing economic pressures fill force change by means of the markets). I very much hope that thought and reason will dominate the change, not the brutality of the markets.

In the meantime, the economy awaits the next QE3'ish announcement, and the return of sanity to Government.




-Robry825

Monday Morning Economic Assessment

While investors and consumers fretted last week, the business sector got some feet as the US Industrial economy (if pipeline scheduling is correct) turned and advanced mildly, while consumption and the financial markets tumbled.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke its string of 8 consecutive weekly declines, gaining slightly to 119.3 (vs last weeks 119.0). In its dailies, the measure started soft over last weekend then firmed on Monday..

The Consumption Index rose for its second week in a row, climbing to 146.5 (from last weeks 145.5). In its dailies the measure started the week firm then softened Monday-on.

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

Pattern-changes last Monday revolved around both the changeover to a new calender-month, and the US governmental budget-compromise.

The much-dreaded US-credit-downgrade occurring on Friday, though talked up in the press and rattling the markets in Sunday-night pre-trade, appeared to cause no significant changes as of yet in preliminary weekend gas-flow scheduling... we will wait to see if that holds up following Monday-night & Tuesday-night actuals on the weekend estimates.

Overall, breaking of the recent pattern of receding industrial activity is a positive, though it is temporarily outweighed by weakness in consumption. Apart from the last 8 weeks, it has been consumption that leads the economy, and consumption peaked in March.

The US economic "ball" appears to remain in the Federal Reserves end of the court. Where are you, QE3?



-Robry825

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) continued to backtrack last week, while consumer spending rebounded midweek and a divided US government strained to find compromise on its budgetary focus.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) declined for its eighth week in a row, dropping to 119.0 (vs last weeks 119.5), and is at its lowest point now since 12/07/10. In its dailies, the measure had a rather bland look...starting the week (last Saturday) with just a tad of firmness then resoftening Tuesday on.

The Consumption Index reversed its prior two-week decline, gaining to 145.5 (from last weeks 143.4). In its dailies the measure started the week soft then firmed abruptly Wednesday on.

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

Overall, the recent pattern of receding industrial activity (with all of its implied stress on employment numbers) remains intact but needs to be broken in order to avoid recession. Last weeks attempt at a rebound in consumption needs to echo into the industrial numbers, and we very much need to see consumption take back its initiative and lead production higher. Consumers look to be (at least momentarily) optimistic and likely not the problem. It is the defensiveness within the business/investment side that is the problem.

Key to rebuilding confidence short-term will be a last-minute compromise on the impending "Econo-geddon" in a couple days. The compromise (though upwardly portrayed) is a necessary cave to the status quo... with the borrowing & deficit spending frontloaded and the cost-cutting backloaded... where it can eventually be killed. Accountability (by means of a balanced budget amendment) has been effectively avoided.

As noted previously, I believe deficit-spending and government borrowing to be hard-wired into government by means of the constant drain of liquidity out of the US (by means of trade deficits) that (by way of the absence of Federal Reserve Replacement) has to be recycled back into the US... by the US government first re-borrowing those funds then deficit-spending them back to consumers... who repeat the process of buying foreign goods.

The whole of the US national debt represents that continual recycling ("spooling") of the US money supply back into the US economy, and that spooling cannot be broken without either (A) Killing the economy, (B) Going Protectionist, or (C) the Federal Reserve index the money supply to the trade deficit by some means (such as quantitative easing QE3, QE4, QE5, etc).

Further complicating the picture, the Government And Federal Reserve account for quantitative easing as a loan (Government borrowing from the Federal Reserve).

As such, the "Cave to the status quo" was likely unavoidable, and hard-wired in (though one has to wonder how many in government know their strings are being pulled in ways they don't want to go). Watching government the last few weeks was like watching a box full of rats all disparately looking for a way out... when there is no way out).

That is not to say that there is not antagonism against the compromise. There is a lot... and it is uncertain if the center will survive the anger of the extremes and the compromise actually pass. Who knows... we may yet test the waters of "Econo-geddon".

Another possible downside... should the compromise pass, and foreign interests like what they think they see, they may rally the dollar... further pumping the trade deficit and ramping up that governmental borrow-and-spend "spooling" of the US money supply back into the US economy.



-Robry825