Sunday Night Economic Assessment

The US Industrial economy eased off again last week (if pipeline scheduling is correct) as industrial production slipped, while consumer spending surged on the heals of an announced resumption of quantitative easing (purchasing of treasury debt) by the Federal Reserve.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) dropped for its fourth straight week, declining to 115.0 (from last weeks 115.5), It's lowest level since May 5th. In its dailies the index started soft but ended the week with daily activity roughly in line with the prior week.

The paperboard-based Consumption Index surged robustly within the week (2nd up week in a row), soaring to 135.5 (from last weeks 128.0), its highest level since March 10th. In its dailies the measure started firm at the beginning of the week then built upon that momentum throughout the week.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of re-accelerating decline.

On balance, the US economy looks to be underpinned by a thick cushion of excess of consumption over industrial production, and by recent gains in consumption. Deep divisions of optimism between the consumptive and productive ends of US society also remain evident in the disconnect between the gaining consumption index vs the declining production index, not to mention the ever-dwindling inventories measure.

If the implied surge in consumer spending can hold, it should argue for the resumption of US economic growth as factories respond to increased consumer activity, accommodating it by increased production scheduling.

The Federal Reserve announced last week that it would resume quantitative easing, a move that (though very much late) is necessary to keep us out of depression. I have very deep concerns of the rationality of past Federal Reserve & Governmental monetary policies, and have deep concerns of the practicality of its monetary-measurement-systems. I see the US as a country pulled into a sewer of debt by continuing patterns of monetary outflows resulting in a situation where the US "Money Supply" is a gigantic short position (private sector plus public sector) covered by ridiculous methods of accounting (we count dollar-assets without deducting dollar-liabilities).

If businesses were allowed to value themselves the same way the Feds count money supply, the big banks that failed the last couple of years, and GM and Chrysler, would have been shown to be worth a fortune... right before the days that they all went bankrupt! No wonder they never audit the Federal Reserve!


-Robry825

Sunday Night Economic Assessment

The US Industrial economy retreated again last week (if pipeline scheduling is correct) as industrial production backtracked, while consumer spending turned and worked higher.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) dropped for its third straight week, declining to 115.5 (from last weeks 116.8). In its dailies the index was soft throughout the week. Automotive-related flows re-weakened last week (strongly bucking seasonals), an indication that the automotive sector is out in front of the recent industrial weakness. Also weak are the Chemical/Fertilize/Steel and Cement groups. I am also suspicious that commercial real estate construction is getting killed this month, judging by divergences in steel, automotive, cement, brick, and asphault groups.

California, however, appears to be rebounding (perhaps thanks to a weakening dollar).

The paperboard-based Consumption Index bucked its 1-week downtrend and advanced to 128.0 (from last weeks 126.8), its highest level since May 22nd. In its dailies the measure started flat then firmed midweek...

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of re-accelerating decline.

On balance, the US economy looks to be underpinned (for the moment) by a cushion excess of consumption over industrial production, and by recent gains in consumption. Deep divisions of optimism between the consumptive and productive ends of US society also remain evident in the disconnect between the gaining consumption index vs the declining production index.

But what of that seemingly never-ending decline in the inventories measure? (We are now into the speculative part of this weeks post). Three theories come to mind... 1) the models could be in error, possibly under-estimating urban industrial declines and/or over-estimating rural paperboard advances... 2) the models are reflecting extreme business-owner pessimism, keeping businesses afraid to hire on the chance a hostile government hands their heads to them in the months and years ahead... or more frighteningly... 3) the models are reflecting attrition, as investors are too afraid to start new businesses (and therefore acquire startup inventories) even while tens of thousands of older businesses close (and liquidate inventories) due to retirement of owners or bankruptcy.

Of those three possibilities, the first is a real stretch (though the inventories measure is the weakest of the three statistically) given the sharpness, steadiness and persistence of its decline.

The remaining two would be supported by the resistance of the unemployment rate to go down in the stiff gains of the industrial production index, and gains in profitability of existing industry and businesses (more consumer dollars into less hands = higher margins.

The last (attrition) would be supported by the presently-climbing high mall vacancy rates and declining commercial real-estate values, as well as the indications of extreme weakness in commercial construction (as noted above).

All-in-all, number three (attrition) followed by number two (pessimism) are the more likely and reasonable, but on the weight of the evidences, attrition seems the best logical fit, and (assuming I am right) makes employment gains very likely if at all possible, and (given the declines of the production index) I suspect unemployment will start ti surprise and tick higher in coming weeks should these present trends not reverse quickly.

As noted previously, we had a very close call on the economy three weeks ago as consumption had fallen (at that time) very close to production, risking a crossing which would have opened the door to a disastrous resumption of recession. That door appears thankfully to have re-closed in the short-term, thanks to the recent slight gains in implied consumption, but that door (in this present environment) must not, at all costs, be allowed to reopen. I suspect if it does, we go immediately into depression, not recession.

Politically, the gas-flow near-debacle three weeks ago seemed very closely aligned (in the gas-flows) with a Republican attempt to block unemployment extension (scaring the heck out of consumers- employed and unemployed alike), causing consumers to momentarily cut back "just in case", risking a collapse that would certainly fed upon itself and been nearly unstoppable. If Republicans had succeeded, we likely would be collapsing into depression right now.

Not to worry, though, as the Democrats are firmly in control of this blunder-bus of a government that continues to drunkenly weave its way down the road. Perhaps we need a new Coffee Party to go along with our new Tea Party so we can rid ourselves of our old Chardonnay and Beer parties!



-Robry825

Sunday Night Economic Assessment

The US Industrial economy backtracked last week (if pipeline scheduling is correct) as industrial production declined, while consumer spending also eased off a bit.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) declined for its second straight week, dropping to 116.8 (from last weeks 117.8). In its dailies the index showed some resilience... firming last weekend and holding above prior-week levels through Friday. Automotive-related gas-flow scheduling also finally began to ramp up, reflecting a likely end to the July retooling period (exhibited in years past as a pronounced slow-down the first two weeks of July)..

The paperboard-based Consumption Index backed off a tad from its previous weeks surge, easing to 126.8 (from last weeks 126.7). In its dailies the measure started firm then flattened vs the prior week..

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of decline, though starting to re-accelerate in its decline.

As noted previously, we had a very close call on the economy a couple weeks back as consumption had fallen (at that time) very close to production, risking a crossing which would have opened the door to a possible resumption of recession. That door appears thankfully to have re-closed in the short-term, thanks to the recent slight gains in implied consumption.

That near miss, however, betrays the fragility of the economy, as the productive end of the US economy appears to remain entrenched in defensiveness (understandable given a government strongly-perceived by it as anti-business/investor government these days), while the consumptive segment of the US economy wavers in its perceptions and confidences in the maintenance of its perceived pro-consumer government.

On balance, the US economy looks to be underpinned (for the moment) by a cushion excess of consumption over industrial production. We will see how that cushion holds as we progress into the fall congressional elections.



-Robry825

Sunday Night Economic Assessment

The US Industrial economy took a breather last week (if pipeline scheduling is correct) as industrial production declined, while consumer spending thankfully went the other way and surged higher.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke a string of three up-weeks in a row, falling to 117.8 (from last weeks 118.7). In its dailies the week was very week throughout, and appeared as if still in an extension of the July retooling period (which in years past has exhibited an end mid-month) as automotive natgas scheduling has yet to turn up. California, interestingly, had a very strong looking week.

The paperboard-based Consumption Index conversely surged to 126.7 (from last weeks 123.4). In its dailies the measure was firm throughout and especially into the weekend.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of decelerating decline.

As noted in last Sundays economic assessment, this past week was an important week as consumption (at that time) was falling very close to production, risking a crossing which would have opened the door to a possibility of resumption of recession. We needed very badly to see a turn in the Consumption Index (and we got it).

We also got another close call on the economy (by way of the threatened curtailment of extended unemployment benefits) which was narrowly avoided Thursday when a bill finally cleared a congressional log-jam and was signed into law by the President. The move to cut unemployment threatened to push consumer spending below production, setting off a chain reaction of reduced spending... leading to production cuts... leading to layoffs... leading to reduced income... leading to reduced spending... and on and on and on.

On balance, the US economy looks to be more firmly underpinned than last week as its cushion (the ongoing excess of consumption over industrial production) got pumped by this weeks surge in (gas-flow) implied consumer spending.



-Robry825

Sunday Night Economic Assessment

The US Industrial economy inched ahead last week (if pipeline scheduling is correct) as industrial production advanced slightly, while consumer spending meandered higher.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) gained for its third week in a row, advancing slightly to 118.7 (from last weeks 118.5). In its dailies the week was soft throughout, though not out of line with seasonal expectations (we are at the end of the traditional July retooling period).

The paperboard-based Consumption Index broke a string of three down-weeks in a row and decided to turn higher, gaining to 123.4 (from last weeks 122.8). In its dailies the measure started week but firmed late into the weekend.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of decelerating decline.

On balance, the economic advance (from the perspective of gas flows) looks to be meekly continuing, though its cushion (the ongoing excess of consumption over industrial production) remains thin and well off of the healthy look it had in previous months.

Next week is an important one for watching, as we should be getting a spurt Monday-on from the exit of the Seasonal retooling period. We really need for this to hit, and especially to hit consumer spending (to pump up the cushion between consumption and industrial production).



-Robry825

Sunday Night Economic Assessment

The US Industrial economy advanced again last week (if pipeline scheduling is correct) as industrial production pushed higher, while consumer spending shook off its Pre-July-4th spurt and continued to soften.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) rose for the second week in a row, climbing to 118.5 (from last weeks 117.7). In its dailies the week started strong (especially given the July 4th holiday) but weakened as the week progressed into the seasonal July retooling period.

The paperboard-based Consumption Index slipped for its third week in a row, dropping to 122.8 (from last weeks 123.9). In its dailies the measure started very strong but quickly weakened as the week unfolded.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) again declined, though the momentum within its decline continues to slow.

There are mixed signals behind July's strength... The weakness in implied consumer spending casts worry, yet the Food Sector (see "Part 8" post on the Investor Village CWEI Board) is bullishly continuing its decent from its April 2010 peak (The Food-Sector sampling has been a good contra-indicator throughout the recession... and is suggestive of continued improvements in consumer self-confidence).

On balance, the economic advance (from the perspective of gas flows) looks to be meekly continuing though its cushion (the ongoing excess of consumption over industrial production) is being eaten away.




-Robry825

Sunday Night Economic Assessment

Finally an up week for the US Industrial economy (if pipeline scheduling is correct), as industrial production turned and worked higher, while consumer spending (though declining for the week) showed signs of a rebound late.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke its string of four down weeks and advanced to 117.7 (from last weeks 117.4). In its dailies the week started modestly then strengthened as the week progressed.

The paperboard-based Consumption Index dipped for its second week in a row, dropping to 123.9 (from last weeks 124.1). In its dailies the measure started soft but firmed throughout the week, and looked very strong in this weekends preliminary scheduling (should that scheduling hold).

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) once again declined, though the momentum within its decline has definately slowed.

Last week was a very important week and was to be watched closely as it marked both the beginning of a new month and the beginning of a new quarter. Big changes within the gas flows tend to like to happen at such transitory points between months or quarters, as factories & retailers adjust to changing trends in orders and inventories in their scheduling of production and purchases for the upcoming new month or quarter.

Last week did not disappoint, as good things seemed to occur within the dailies of both the Consumption Index and Production Index. We will hope it is not some aberration related to the July 4th holiday weekend as the support underpinning the recovery (the indicated excess of consumption over production) has deteriorated sharply in recent weeks... threatening recovery.

With high levels of stress within the business & investing sector of US society (implied by the ongoing lag of production to consumption and the decline of the inventories measure) the burden of recovery continues to be laid fully (as always) on the consumer.



-Robry825