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
