The US Industrial economy turned and edged up last week (if pipeline scheduling is correct), amidst retreating consumer spending.
The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke its string of three weekly declines in a row, gaining to 117.9 (from last weeks 117.2). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index had a very good week, starting firm and working higher midweek to a record high on Wednesday before the Thanksgiving-weekend shutdowns.
The Consumption Index (on the other hand) continued its sharp decline (5th off-week in a row), falling to 120.8 (from last weeks 127.3). In its dailies the measure started the week soft and ended very weak, to levels not seen since September 2009.
The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) on a positive note has slowed its decline marketdly on the narrowing of the gap between consumption and production, and may be looking to put in its first weekly advance in nearly two years next week.
Technically (and probably emotionally) the recovery (as last week) remains intact with the consumption index barely above the production index, although risk to the US economy appears very high for the moment, with the post-election loss of inertia (especially to consumption).
However, on the dailies the consumption index is now solidly below the production index, and unless consumption can turn quickly (like this week) we are going to get a crossing of the two indexes and whatever we have left of our economic inirtia will be lost.
Furthermore, as the consumption index dailies came off sharply right after the election, we are probably looking at a really ugly suprise once the "Official" Retail Sales numbers come out for November, which (if everything goes wrong) could bread a lot of negatism in the press (which in itself could hammer the recently-surging markets and further build that negativism)... causing consumers to stop in their tracks... and bringing the hole economy back down into recession. With unemployment at 9 1/2% plus, the last thing one wants to see is slowing consumption.
One hope is the optimism on the business/investment side. With the inventories measure so low, there is (if the inventories measure is correct) ample room for inventory-build. And if businesses get confident enough (they got a good push from the November elections) they could (in theory) get to the point where they decide to run up inventories and go out and compete for market-share, which could help to underpin the economy for a short time to give consumers a chance to regain their bravery.
Still, this whole thing looks scary to me, and I am very uncomfortable at the thought of an index crossing by means of plunging consumption. Risk remains to look extremely high to the economy and the markets right now. We really, really, do need to see those volatile consumption-dailies turn back up... and quickly.
Pending negatives that certainly bear on optimism also include the expiration of the "Bush" tax-cuts (Consumers spend less on consumption so they can spend more on tax payments), and potentially-expiring extended unemployment-compensation benefits(Consumers spend less on consumption because they have less income).
Now, if Democrats and Republicans can come together and make a trade (Bush-Tax-Cut-Extensions for Unemployment-extensions). And if we can get a good spin out of the press somehow on the dismal retail sales report to come (Retail sales were down only because of abnormally high sales in 2009, but were higher than other years?). And if Santa can give everybody cash this year (Instead of all those trinkets that end up thrown in the closit or tossed the day after). And if the Good-Tooth farry raises her rates to $500-per-tooth in 2011, And if...
Aw, forget it !!!
-Robry825
