Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) gained more ground last week, even as consumer spending stalled and eased off a notch.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) had its third up-week in a row, rising to 119.7 (vs last weeks revised 118.8). In its raw dailies (above), the measure was mostly flat and followed quite closely the previous weeks numbers.

The Consumption Index, conversely, broke its string of five weekly gains, dropping to 137.5 (from last weeks revised 137.6). In its raw dailies the measure had a flat, somewhat lackluster look.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index), continues to re-accelerate downwards.

As with last week, food-group scheduling continues to underpin consumption, even as consumption stalls... a sign that consumer confidence, though up, may be more confidence in "the other guy" than self. Steel group receipts (reflective of durable goods) continue to look lousy.

Overall, until steel improves, everything is questionable and Federal-Reserve policy makes it doubtful. My thinking remains that nothing less that a QE-3 will do, and the economy heads south within the next few weeks without the Federal Reserve.


(Political wild-speculation department... my thoughts from a couple months past...)
"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.)"

The thoughts on the Perry and Romney campaigns look to right so far, although Ron Paul has yet to emerge. Instead, Herman Cain has come to the top, which I think makes sense given the deep troubles within the gas flows (am thinking all of America is going to be in a real mood to "Roll the Dice") and extremism on taxes (Herman Cain) and a bunch of other stuff (Ron Paul) will actually be liked once the thick of the Republican Primaries and 2012 Elections commence.

(This very much reminds me of the late-1970's malaise when Ronald Reagan was elected, and that little old "Voodoo economics" tag by then-candidate George Bush probably helped to cement Reagan's eventual election by an electorate that then was ready to "Roll the dice" too.)

But will it be Herman Cain or Ron Paul? Tougher question than Perry vs Romney vs Paul, and investing will be a lot different under Herman Cain than under Ron Paul. I am still thinking Ron Paul, but a lot tougher call.

On the Democratic side, nobody should (rationally) want to run against the president (without infuriating a lot of folks and being made to look an out right traitor), although in the end (by looking at the gas flows) the President is toast in the 2012 elections. One would think the Federal Reserve is Republican and trying to undermine the economy to destroy the Democrats in 2012 (judging by the Federal Reserves ending of the Quantitative Easing programs as the primaries approach and the economy slides), and no doubt there is knowledge of all of this at the White house.

So on the Democratic side, one has to risk ones investments outlook to an extreme move on Federal Reserve oversight by the Executive Branch, and I think it more than likely than not that the Federal Reserve gets "Shook up" by the 2012 elections (more likely by the end of 2011) unless the Federal Reserve does something really, really bold quickly before the economy really, really tanks.



-Robry825

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) advanced again smartly last week, while consumer spending added to its recent string of gains.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) rose for its second week in a row, climbing to 118.9 (vs last weeks 117.7). In its raw dailies (above), the measure was impressive...looking firm throughout the entire week.

The Consumption Index also gained (for its fifth week-in-a-row), lifting to 137.6 (from last weeks revised 135.5). In its raw dailies the measure was slightly softer than the previous week, though the overall measure reflected stronger gains as a much-softer week fell off the end of its 4-week moving average.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index), again continues its re-acceleration to the downside as the spread between consumption and production continues to widen.

Within the gas-flows, there remains support for the consumptive upturn (of the past 5 weeks), however, steel-group scheduling continues a grave concern (durable-goods still look a mess), and without some further external stimulus (Federal Reserve QE-3, foreign binge-buying of US equities, etc) long-term extensions of the present short-term trends look questionable.

Saw a bumper sticker the other day, something to the effect of ... "Care About Jobs... Stop Buying Foreign !". Now Michigan (Robry's home state) is big on automotive production (the Detroit area known as the "Motor City"), and folks up here are really suffering unemployment in this economy... even as imports of all types (including automotive) soar.

Now that bumper sticker has (more or less) been around Michigan for decades (can remember them in the 70's), and it evokes tensions between employment and consumption... with employment (especially the big auto-unions) pushing for trade-protection (to defend industry and jobs) even as consumers prefer the choice that imports give them on style and price.

But that bumper sticker, for the first time, really struck me... as I (for the first time) saw a third element in it that I am sure those two sides miss completely.

That third element relates to neither employment or consumption. It has nothing to do with neither union or consumer. It is neither Democratic nor Republican. That element is an assumption that is insidious (and if I might say as a Christian, pure evil) that (in its truth) tears at the heart of the economy and the nation.

The third element of that simple little"Care About Jobs... Stop Buying Foreign" bumper sticker is an implied, forced, like-it-or-not choice... that we must choose between a foreign-built car, or a US-built car (and by extension the US must choose between foreign goods and US-produced goods)... meaning that we are NOT allowed both.

That is, there is someone (or some thing) that puts a cap on the free market, rationing supply to demand. Literally... Buy a car from India, Detroit must make and sell one car less. Buy a car from Detroit, India must send one car less. Build an automotive plant in China dedicated solely to US consumption, and one automotive plant in the US must be shut down!

The trouble is... I see reality in that "Care About Jobs... Stop Buying Foreign" bumper sticker. I see a Federal Reserve, in its blind ambitions to defend against non-existing inflation, restraining the US economy to the point of forcing that choice.

And if that is true (that production of goods are capped), then... (1) the production of ALL goods is capped (including goods made in the US),... (2) the US standard-of-living is capped,... (3) the US economy is capped, and... (4) US employment is capped.

(I believe it to be true.)

Unfortunately, it appears to me at present, that the US is all but blind to this economic-capping, and that the US population is lowering itself to a "Democrat vs Republican" fight over each-others slices of a rapidly-shrinking economic-pie, rather than to join together to defend the whole of that economic-pie.

I think that the nature of the shrinking of that "economic pie" is well evident in the growth of the US National Debt, the growth of the US Gross External Debt, the growth of US consumer-debt of all types, the ultra-low interest rates (courtesy of the US Federal Reserve) to keep the borrowing growing, and the growing ownership of US equities and industry by foreign interests.

When will the US wake up to this? Time will tell.



-Robry825

Monday Morning Economic Assessment

The summer micro-recession appears over as industrial natural-gas scheduling finally ignited last week on the heals of three-straight weekly gains to the consumption index.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke its string of seven down-weeks in a row and took off, rising to 117.7 (vs last weeks 116.4), after reaching its lowest point since October-2010 the week before. In its raw dailies (above), the measure firmed early, surged Tuesday, and finished the week strong.

The Consumption Index also climbed (for its fourth week-in-a-row), gaining to 135.5 (from last weeks revised 134.5). In its raw dailies the measure was choppy though generally firm, with a one-day surge on Tuesday coinciding with the surge in the Production Index.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index), continues to re-accelerate to the downside as the spread between consumption and production widens.

Also of note... the "polarity" (phase) of the economy shifted back from negative to positive (even as the economy shifted from contraction to expansion), meaning that the leadership within the economy is assumed to have changed back to consumption (as is normal in both upturns and downturns), and away from the strange patterns throughout the summer downturn of industrial production leading consumption.

Within the gas-flows, there remains good support for the consumptive upturn (of the past 4 weeks) in food-group scheduling, which remains well-off of their bearish-looking strength of the summer.

Steel-group scheduling, however, remained flat for the week... an indication that the emerging uptrend has yet to hit the durable-goods sector.

Outlook for 3rd-quarter equity earnings remains positive as consumption never broke down below production (as it did three years ago when the deep recession appeared unanticipated in the gas flows), and 4th-quarter earnings outlook remains positive as well given the quarter-beginning economic strength within the gas-flows.

For the longer-term... Federal Reserve policy remains repressive to the economy, maintaining and encouraging strong liquidity flows out of the US and into foreign interests (by way of the enormous trade deficits siphoning liquidity out of the US, where that liquidity is not subsequently replaced by the Federal Reserve), so substantial economic gains will be difficult probably once past the Christmas-shopping rush (if not before).



-Robry825

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) backed off one more notch last week, while consumer spending again pressed upward.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) had its seventh down-week in a row, backing off a notch to 116.4 (vs last weeks 116.5), and at its lowest point since October 16th, 2010. The measure put in a low of 116.2 on Thursday, before turning up Friday and Saturday. In its raw dailies (above), the measure was soft early before flattening late.

The Consumption Index gained for its third week-in-a-row, rising to 134.5 (from last weeks revised 129.1). In its raw dailies the measure started soft (to the previous week) but benefited from weaker numbers falling off the back of its 28-day moving average.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index), is now re-accelerating to the downside as the spread between consumption to production has increased.

The quarters-beginning (spoken of in last weeks comments) failed to see a response in the Production Index to the recent rally in consumption, reaffirming the strange nature of the present "Micro-recession", as the Production Index thus far continues to resist (rather than follow) the consumer. We very much need to see both Fridays upturn in the Production Index (and the three-week-old rally in the Consumption Index) continue... to re-establish normalcy back into the economy.

Absent that, we will have what is best described as a "negative-polarity" recession (to borrow a phrase from electronics), or a "negative recession"... which would (if it continues to follow its patterns of the last few months) be a monster quite different from the beasts of the last recessions (and I assume the great depression), with theoretical surges in unemployment, corporate profitability, and inflation all at the same time... leading initially to massive transfers of wealth out of the lower & middle class and into the hands of the upper-class, then ultimately out of the upper-class and out of the country by way of panic-driven taxation (upper-class to consumers to foreign interests) where ownership of US industry follows the ownership of US money-supply out of the country (via export drains) and the US goes third-world.

Unfortunately, all this remains to look like a "Federal-Reserve-Problem" and not a "Government-Problem", and any attempt by government to "fix" the problem (aside from either reforming or replacing Federal Reserve policies) probably will serve only to "enable" Federal-Reserve oversight of the continual drain of wealth out of the US.



-Robry825

Monday Morning Economic Assessment

The US Industrial economy (if pipeline scheduling is correct) continued to backtrack last week, while consumer spending continued to rise.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) declined for its sixth straight week, easing to 116.5 (vs last weeks 116.8), and at its lowest point since November 22nd, 2010. In its raw dailies (above), the measure was soft throughout the week.

The Consumption Index, on the other hand, continued to build on its gains of the past two weeks and accelerated... rising to 129.1 (from last weeks revised 124.3). In its raw dailies the measure was strong throughout the week.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index), long in decline, continues its attempt to flatten out as consumption trends have been falling faster that production.

Last weeks noted "sliver of hope" has blossomed quite nicely (in the gas flows) into a respectable attempt at recovery, with good support building in the food-group, which finally completed a decent month in September... breaking a long string of bearish record-breaking months

We now look to the Production index for signs of conformation as the new quarter begins. (Major changes to the Production Index like to occur on monthly or quarterly changeovers... presumably as industrial production scheduling gets adjusted to prior months/quarters actuals.)

We very much need to see the unfolding consumer-gains both (A) continue, (B) spread into the production index, and (C) spread into steel-group scheduling (as per the "Part 8" posts on InvestorVillage CWEI board) to abort recession.

The US consumer has had to overcome a mountain of negativism in press, government, and finance (declining equities) th achieve what it has so far, and industry will have to overcome its own negativism and allow consumption to lead once again (as consumption has led the economy in prior years).

If consumption can keep it going a couple more weeks, I think it will get a boost from a turn in equities as investors should like what they see in 3rd quarter earnings (Production has held below consumption on industrial negativity, which in the past has lead to good quarterly-earnings results... so I look for rising stock markets as the fourth-quarter unfolds).

The longer-term-downside-risk remains, however, with the Federal Reserve remaining on the sidelines as trade-deficits continue to hemorrhage liquidity and build US debt. While the economy can gain on a bounce, serious longer-term economic (and employment) gains remain to look unlikely... without Fed accommodation.



-Robry825