Sunday Night Economic Assessment

Last weeks sharp turn around in the Consumption Index continued this week, as the index (in the context of its 28-day moving average) extended itself to nearly reach year-ago levels. On a daily basis, paperboard-gas-flow scheduling (on which the index is based) softened early in the week, before strengthening again sharply on the Memorial Day weekend..


The production Index, however, bucked the trend and fell to its eighth recession low in as many weeks (though it continues showing a bit of strength in its dailies) as industrial natgas flow scheduling (though higher from previous days) could not make up for the extreme early-May weakness.


Within the production index last week (on a daily basis) many industry groups (with noteworthy exceptions of refining, automotive and steel) continued improvements in their dailies. Overall, I took it to be a second good week-in-a-row economically (if the data is correct), though everything-automotive is still suffering.


The new Inventory Index once again suggested (if both the Production and Consumption Indexes are right) that industry has been using the recent spurt in consumption to clear out inventory-clogged supply channels (as opposed to increasing production) and also suggests that half of the implied inventory overhang may have been worked off. I remain, however, leery that a rising dollar combined with lowered shipping costs might also provide an alternate explanation to the recent weakness in industrial & steel gas-flows. Waves of steel-imports have decimated the US steel industry in past periods of recessions and oil-price weakness. The same could be happening today.


Overall, the recovery to me looks to remain intact, though fragile. It may be that industrial production may have to remain soft (with little in the way of rehiring) until excess inventories are worked off. If consumption can hold, perhaps the fragility of the economy will end once inventories are down to acceptable levels, and rehiring produces stimulus of its own.


Equities are a concern. Markets appear to be drawing some resistance, and with little in the way of direct consumer-stimulus other than a rising stock market (oil has turned up and falling natgas won't matter much until heating season) the whole of the economy is probably dependent on equities.


Though the converse also applies... advancing markets probably embolden consumption, and equities holding the line probably buys time for consumption to eat through inventories enough to ignite production, which ignites hiring, then income, spending, sales, orders, production, etc... turning the economic gears progressively faster and faster.



-Robry825

Sunday Night Economic Assessment

After a string of 3 dismal economic weeks (judging from the gas flows) we had a sharp turn around in the Consumption Index last week, as the index (in the context of its 28-day moving average) rebounded from last weeks low. On a daily basis, paperboard-gas-flow scheduling (on which the index is based) jumped sharply, suggesting the 3-week lull (following the end of Easter/Spring Break) might have ended (we shall hope).


The production Index, however, bucked the trend and fell to its seventh recession low in as many weeks (though it too showed some pickup in its dailies) as industrial natgas flow scheduling (though higher from the previous two weeks) could not eclipse the stronger (Easter/Spring Break) flows that rolled off of its 28-day moving average.


Within the production index last week (on a daily basis) many industry groups (with noteworthy exceptions of refining, automotive and steel) had improvements in their dailies. Overall, I took it to be a fairly good week economically (if the data is correct), though everything-automotive is still in trouble.


The new Inventory Index again suggested (if both the Production and Consumption Indexes are right) that industry has been using the recent spurt in consumption to clear out inventory-clogged supply channels, as opposed to increasing production. I remain, however, leery that a rising dollar combined with lowered shipping costs might also provide an alternate explanation to the recent weakness in industrial & steel gas-flows. Waves of steel-imports have decimated the US steel industry in past periods of recessions and oil-price weakness. The same could be happening today.


Overall, I continue to see the recovery as intact, though fragile. It may be that industrial production may have to remain soft (with little in the way of rehiring) until excess inventories are worked off. If consumption can hold, perhaps the fragility of the economy will end once inventories are down to acceptable levels, and rehiring produces stimulus of its own.


Recessions are emotional animals. This one remains in the hands of the consumer... and his/her wallet



-Robry825

Sunday Night Economic Assessment

For the third week in a row, the Consumption Index continued to pull away from its April-20th peak, as scheduled natural gas flows into paperboard facilities (on which the index is based) continued their post-Easter softness. On a daily basis, paperboard-gas-flows looked like they were starting to turn positive, until Tuesday of last week (May 5th flows), when they fell apart.

The Production Index set its sixth recession-low in as many weeks, as industrial natgas flow scheduling for May was cut back sharply from April. There is a propensity within the industrial flows that changes to flows seem to like to happen around the first of the month (which I assume to mean that a lot of manufacturing production is adjusted up or down on a monthly basis by management) meaning that the weeks drop could be bearish for the remainder of May in regards to industrial production.

Much of the Year-over-year weakness in industrial gas-flows continues to come from the metals group in general (nearly 75%), and steel sector group in particular (See "Part 8" post on the Investor Village CWEI Board). Weakness in the steel group brings thoughts to my mind of the "Durable-goods" type of products, most of which heavily incorporate steel (think cars, washers, dryers, etc). That big-ticket durable-goods stuff has to be taking the absolute brunt of the recession right now.

The new Inventory Index again suggested (if both the Production and Consumption Indexes are right) that industry has been using the recent spurt in consumption to clear out inventory-clogged supply channels, as opposed to increasing production. I remain, however, leery that a rising dollar combined with lowered shipping costs might also provide an alternate explanation to the recent weakness in industrial & steel gas-flows. Waves of steel-imports have decimated the US steel industry in past periods of recessions and oil-price weakness. The same could be happening today.

Overall, the recovery still appears very much intact, though still fragile. If these indexes are all correct (Consumption, Production, and Inventory) they paint a picture of continued layoffs in industry, continued nervousness of consumers to stick out their debt-laden necks toward big-ticket purchases, and continued risk of an emotional, snowball-type effect should an unexpected "event" (i.e. General Motors following Chrysler into bankruptcy, stock markets rolling over) occur.

I remain concerned that the "stimulus" that is out there right now, is more from the markets (lower gas prices, home heating prices, etc), and could brutally be removed by the markets should something trip up. I would like to see more direct, secure stimulus aimed at the pure spender (payroll-tax holiday, minimum-wage hike with offseting business credit, etc).

My political belief is that President Obama and the Democrats were elected by their constituency to represent the "little guy" more-so than the "big guy that claims to represent the little guy". Right now that is not what I think I am seeing. The day to zero in on the "big folks" will come (when demand returns to take factories up to capacity and we need expansion-dollars to produce more), but that day is not today. Demand has to first be restored. Today needs to be the day of the "Little guy"... the men and women who work hard to feed their families in the face of need.



-Robry825

Sunday Night Economic Assessment

The Consumption Index continued to back off of its recent highs last week, settling just below year-ago levels, as scheduled natural gas flows into paperboard facilities (on which the index is based) continued to pull back sharply in the second business week following Easter/Spring Break. The recent actions of the Consumption Index would be indicative of a very good easter shopping-season (especially considering the economy), followed by a pause.

The Production Index set its fifth recession-low in as many weeks, though it was again off only slightly. Much of the Year-over-year weakness in industrial gas-flows (68%) comes from the steel sector group (See "Part 8" post on Investor Village CWEI Board), which is off better than 75% from year-ago levels. Nearly three-fourths (74%) of the YOY industrial weakness comes from the metals group (which includes steel).

The new Inventory Index continues to suggest (if both the Production and Consumption Indexes are right) that industry has been using the recent spurt in consumption to clear out inventory-clogged supply channels, as opposed to increasing production. I am, however, leery that a rising dollar combined with lowered shipping costs might also provide an alternate explanation to the recent weakness in industrial & steel gas-flows. Waves of steel-imports have decimated the US steel industry in past periods of recessions and oil-price weakness. The same could be happening today.

With the big Easter consumption-o-rama now behind us, one has to be wondering where consumers will take us. Are consumers simply regrouping for a couple of weeks, or did consumers do just one last big Easter (for the kids) before reigning in their spending (to take us deeper into the basements of recession)? Time will tell.

(Off topic) I am greatly concerned for the direction that Investor Village has began to move in its attempts to remove "abusive" posts from the IV CWEI board. While I am hoping that IV's actions are limited to angery/abusive posts (though I can't tell what they actually did remove because those posts are gone) the fear is that once the "Censor" geanie is let out of the bottle, you never know what it will do. Human nature, even when meant for good, can go wild.

Problem is, we have two basic groups on the board... One that wants a pure "Energy" board, and another that prefers an "Energy and Pollitics" board.

I have in the past been "invited" to move to a moderated board (both through IV and others), though I have been resistive. I very much prefer an open-forum type board (such as the way the IV CWEI board used to be) where posting is open to all... and the reader can use an "Ignore" type feature to limit the posts to those that he/she prefers to read (though I do wish that posters would go more for quality over quantity).

One feature for IV that I think would be very helpful (I emailed Blue about this last week) would be to make the "Ignore" lists potentially shareable... in such a way (if a board member wanted to take on the task) that that member could make his/her own "Ignore" list shareable... where others could import that ignore list into their own account settings.

Through such a feature, the board could grow (through sugh "Ignore"-based filtering) to whatever the individual reader wanted it to be... A energy board, a politics & energy board, or whatever... based upon that readers own needs and preferences.

-Robry825

Sunday Night Economic Assessment

The Consumption Index eased back off in the latest week, as scheduled natural gas flows into paperboard facilities (on which the index is based) pulled back sharply in the first business week following Easter/Spring Break. That brought the 28-day moving average (see chart) down somewhat, though still above year-ago levels.

The Production Index set its fourth recession-low in as many weeks, though it was off only slightly. Much of the Year-over-year weakness in industrial gas-flows (68%) comes from the steel sector group (See "Part 8" post on Investor Village CWEI Board), which is off better than 75% from year-ago levels. Nearly three-fourths (74%) of the YOY industrial weakness comes from the metals group (which includes steel).

The new Inventory Index suggested (if both the Production and Consumption Indexes are right) that industry has been using the recent spurt in consumption to clear out inventory-clogged supply channels, as opposed to increasing production. I am, however, leery that a rising dollar combined with lowered shipping costs might also provide an alternate explanation to the recent weakness in industrial & steel gas-flows. Waves of steel-imports have decimated the US steel industry in past periods of recessions and oil-price weakness. The same could be happening today.

Of greatest concern will be consumption. Gut feeling is the recent uptick in consumption was fueled more from "Free-Market-Based Stimulus" (falling gasoline & home-heating costs, falling commodities pricing, rising stock-market valuations, etc) than government stimulus.

That "Free-Market-Based Stimulus" could reverse (Markets will be brutal when they have to be). The energy markets could re-tighten at any time (Natgas fundamentals are hinting at the beginning of that right now on last weeks dailies... though Mondays weeklies and the EIA will have to confirm) and OPEC is apt to be getting antsy. The stock market could roll-over on emotional whim at any time. A couple of dry months could spike food & agriculture.

Providing vast sums of money to banks (so that they can lend more to already-tapped-out consumers) and vast sums of money for infrastructure (so states can repave with 12 inches of concrete rather than 4 inches of Asphalt) might make for happy bankers and lower road repair-costs ten years from now. But is that really going to re-invigorate the consumer to go out and spend more, so that stores can order more, so that factories can produce more, so that employees can be rehired?

Believe me, as a trader I can make a lot of bucks off of 12 inch concrete, but it will not make my kids a more economically-secure country. As a Christian, I would prefer to take the more economically secure country. It will make for happier kids, neighbors and friends.

I would really like to see something more direct... perhaps a payroll tax "holiday" aimed at the lower to lower-middle class (where the most spending bang-for-the-buck is to be had. At least on a short-term (and immediate basis). We are doing too-much tinkering in here... not enough genuine problem-solving.



-Robry825

Sunday Night Economic Assessment

Am playing around with another indicator, adding it into the mix with tonights report. This came about from a PM from one of our wiser board members, that thought that a measure of business inventories could be seen in the difference between the Production Index and the Consumption Index.

The theory here is that the difference between production and consumption is "banked" in inventories, and that a measure of business inventories can be gleaned by adding up successive weeks of production and consumption, much the way that a measure of ones bank account might be gleaned (with no knowledge of its beginning balance) by adding up successive weeks of deposits and withdrawals over time.

This should (in theory) have a shot at working fairly well because the "Production" and "Consumption" are both equally weighted (to eachother), and both seasonally adjusted... meaning the new business "Inventories" estimate should reflect the accuracy of the matching of the other two models, and should also naturally inherit the seasonal-adjusted nature of the Production and Consumption models as well.

The paperboard-based Consumption Index (in the latest week) continues to say the recession (in terms of consumers) is over, as it continues to extended its recovery above year-ago levels, as stock markets continued to recover. The Consumption Index is now approaching its national-election-convention highs, when America's Republicans and Democrats both put on their respective rose-colored glasses to view their futures under their respective parties candidates (and spent accordingly). Too bad the conventions couldn't have gone on for an extra year or two... it would have been prosperity for everyone!

The Production Index, as it has done for the previous three weeks, balked at the trend and slid to a new recession low.

The new business "Inventories" modeling gives a possible explanation for the discrepancy between increasing consumption and decreasing consumption... bloated business inventories. Following the close of last summers national political conventions, consumption collapsed at a faster rate than production, suggesting an accumulation of "unconsumed production" in business inventories. This excess of inventories would match well the stories that have been told both on the CWEI board and in the press, and may have to be worked off before the Production Index can come back to life.

Next week should also prove interesting... we are in the lull of Easter week, when some industrial facilities are down. Will be interesting to see if the Industrial gas flows on the CWEI board start to snap back as the new week progresses.



Need to keep those spenders spending...

-Robry825

Sunday Night Economic Assessment

The paperboard-based Consumption Index says the recession (in terms of consumers) is over, as it has now extended its recovery to just above year-ago levels, as stock markets continued to recover.

The Production Index, as it has done for the previous two weeks, balked at the trend and slid to a new recession low. We now have a serious discrepancy between these two indexes to consider.

Within the Production index (which is based upon pipeline-scheduled natural gas flows into many key industrial plants across the US), steel-plant flows are the main culprit... collapsing 75 % from year-ago levels, and off sharply from month-ago levels as well. Whether the problem is simply temporary plant shut-downs (we are now into the Easter holiday week) or something more serious for the steels (ie a wave of foreign dumping) remains to be seen.

The suggested weakness of the Industrial Index is well-supported by both electrical-generation flows (which are influenced by industrial activity) and the EIA's weekly storage reports (roughly a third of US gas-flows are for industry). The magnitude of the steel-plant weakness in the gas-flows is now adding probably 3-4 BCF per week to EIA-reported injections, and I would not touch a steel-stock as 1st-quarter earnings roll out (unless closely connected to concrete roadway construction, in which case it might be time to back up the truck).

Within the Consumption Index, I very much like the dynamics of the day-to-day scheduling (though I very much wish there were more paperboard plants reported by the pipelines), and I want to believe them to be accurate as well.

Seasonally, it is the norm for cardboard plants to draw more gas-flows in March than April (In preparation for Easter & Spring-break sales), then tail off starting in April. But April this year has remained strong, perhaps indicative of a strong Easter period for the retailers (as opposed to Christmas... which the gas-flows correctly represented as a disaster).

What I don't like is the divergence between the Production Index and the Consumption Index. Something looks off. But is it simply Easter-related industrial shut-downs, or a hint of something more serious? Right now (in this weekends model runs) I am unsure. And given that the upcoming week is Easter week, next weekends runs may be similarly inconclusive.

The consumer, though, appears to be doing OK.



-Robry825