The US Industrial economy advanced again last week (if pipeline scheduling is correct), amidst very weak consumer spending.The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) gained for the seventh time in the last eight weeks to 123.9 (vs last weeks revised 123.3). It was the second weekly record-high in a row for the index. In its dailies (raw, non-seasonally adjusted flows) the first three days of the week were slightly soft, then strengthened sharply Wednesday through the weeks end.
The Consumption Index broke lower for the first time in four weeks, dropping to 143.7 (from last weeks 148.5). In its dailies the measure was very soft throughout the entire week.
The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) again continued in its long-term decline.
On a little brighter note...Food Group scheduling (see "Part 8" posts on the Investor Village site) is somewhat backing away from its late-April / early-May strength (The Food group has a contra-relationship with consumption, and gains to the measure historically have tended to coincide with weakness in consumer spending). Seasonally however the softness is minimal, and the May-2011 monthly average bearishly at record high levels.
In looking at the economic-implied turns of the past three weeks, it appears most likely an Osama-Bin-Lauden reaction... with the May-1st jump in consumption coinciding with the May-1st news announcement of the taking out of Bin Lauden... and lasting exactly ten days.
The economic recovery remains supported (for the moment) by increases to the consumption index, the lead of consumption over production (in the 28-day indexes), and continuing declines in the inventories measure.
Concern remains however, over the recent weakening in cunsomption-index dailies (the seasonally-adjusted dailies of the consumption index the past three days have been well below the production index).
Concern also remains on the upcoming end of the Fed's second round of quantitative easing (My preference would be to see to see at least a meek "QE-3"... perhaps 1/2 of QE-2), as well as the continuing threat of government saber-rattling leading to ineptitude within the present split government.
With unemployment hovering near 9%, should the Federal Reserve not announce a QE-3, and consumers react and take us back into recession, that 9% unemployment could become 13% to 14% very quickly.
With foreign-trade-imbalances draining the US portion of the US money supply (we give our money to them for their goods, then the US government borrows it back and deficit-spends... to replentish the US citizens portion of the US money supply) we are stuck in a quagmire... with Trade-deficits, government-deficit-spending, and increasing-national-debt hardwired into the economy.
Simply put (as I see it) unless there is some break in fundamentals (Strong-dollar leading to trade-deficit leading to government-borrowing & deficit-spending leading to further trade-deficits) the present political status quoe of increased government debt and rampent deficit-spending is unreversible... no matter what the politicians do... as economic-softness will force their hand (either deficit-spend, or go into recession once the consumer is again out of cash).
-Robry825
