Sunday Night Economic Assessment

The US Industrial advanced last week (if pipeline scheduling is correct), while consumer-spending added to its recent surge.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) finally broke its string of four down-weeks in a row, and inched higher to 114.5 (from last weeks 114.2). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index started the week a bit on the firm side, then sharpened nicely through Thursday (to close out the month of October) before softening on Friday.

The paperboard-based Consumption Index also inched ahead (third up week in a row), rising to 140.9 (from last weeks 139.5). In its dailies the measure started the week flat to slightly firm but accelerated nicely through to the end of the week.

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

Overall, the US industrial economy looks to continue to be firmly underpinned by an excess of consumption over production, a recent surge in consumption, and the ever-declining Inventories measure.

Continuing concerns continue to be the dismal mood of the business/Investment side of the US citizenry (and its whithering effect on capitol/formation and new business starts), massive monetary outflows from the US (believed driven by demand from foreign sources for US dollars), and poor US monetary, fiscal, and political posturing.




-Robry825

Sunday Night Economic Assessment

The US Industrial economy eased again last week (if pipeline scheduling is correct), while consumer-spending inched ahead a little more.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) declined again (its 4rd down week in a row), dropping to 114.2 (from last weeks 115.2). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index started the week soft, then firmed just a bit late-week. September (vs its seasonals) continues to look soft, especially in contrast to the month of August.

The steel sector looked quite strong last week (in spite of flat automotive scheduling). Steel lead both the recession and recovery over the past couple years, and climbing steel scheduling is quite a welcome sign for the possibility of a stronger November.

The paperboard-based Consumption Index gained a little more ground (second up weeks in a row), rising to 139.5 (from last weeks 139.2). In its dailies the measure started the week very strong through Tuesday, then declined sharply through Saturday before turning up somewhat Sunday (as if something spooked the public Tuesday night?).

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

Overall, the US industrial economy (in spite of the last 3 weeks) looks to continue to be firmly underpinned by an excess of consumption over production, a recent surge in consumption, and the ever-declining Inventories measure.

Continuing concerns continue to be the dismal mood of the business/Investment side of the US citizenry (and its whithering effect on capitol/formation and new business starts), massive monetary outflows from the US (believed driven by demand from foreign sources for US dollars), and poor US monetary, fiscal, and political posturing.




-Robry825

Sunday Night Economic Assessment

The US Industrial economy gave back a little more ground last week (if pipeline scheduling is correct), while consumer-spending rose aggressively.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) backtracked (its 3rd down week in a row), dropping to 115.2 (from last weeks 116.2). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index started the week firm, then softened a bit late-week. September (vs its seasonals) continues to look soft, especially in contrast to the month of August.

The paperboard-based Consumption Index conversely turned around and gained ground (breaking a string of three down weeks in a row), rising to 139.2 (from last weeks 134.0). In its dailies the measure looked strong.

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

Overall, the US industrial economy (in spite of the last 3 weeks) looks to continue to be firmly underpinned by an excess of consumption over production, a recent surge in consumption, and the ever-declining Inventories measure.

Continuing concerns continue to be the dismal mood of the business/Investment side of the US citizenry (and its whithering effect on capitol/formation and new business starts), massive monetary outflows from the US (believed driven by demand from foreign sources for US dollars), and poor US monetary, fiscal, and political posturing.




-Robry825

Sunday Night Economic Assessment

The US Industrial economy backtracked slightly again last week (if pipeline scheduling is correct), as both industrial production and consumer-spending eased.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) declined for its 2nd week in a row, dropping to 116.2 (from last weeks 116.7). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index started the week soft, then firmed midweek. In spite of the firming in the dailies, we are starting the month of September on the weak side, especially in contrast to August.

The paperboard-based Consumption Index also gave a little more ground (its 3rd down- week in a row), settling to 134.0 (from last weeks 134.2). In its dailies the measure looked strong (maintaining the prior weeks surge), though the "official" 28-day average (shown in the chart) could not reflect the strength as an equally strong week rolled off the back end of it's 4-week moving average.

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

Overall, the US industrial economy looks to continue to be underpinned by an excess of consumption over production, a recent surge in consumption, and the ever-declining Inventories measure.

Continuing concerns continue to be the dismal mood of the business/Investment side of the US citizenry (and its whithering effect on capitol/formation and new business starts), massive monetary outflows from the US (believed driven by demand from foreign sources for US dollars), and poor US monetary, fiscal, and political posturing.




-Robry825

Sunday Night Economic Assessment

The US Industrial economy retreated last week (if pipeline scheduling is correct), as both industrial production edged down while earlier-reinvigorated consumer-spending is taking a two-week summer vacation

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke its short string of 2 up weeks in a row and slipped back a notch to 116.7 (from last weeks 116.8). In its dailies (See the "Part 7" posts on the InvestorVillage site) the index opened the week strongly and maintained its firmness through midweek... then stair-stepped down on September 1st, presumably on factory adjustments to production scheduling.

There is a propensity for the Production Index to stair-step up or down on the day a calender-month changes, and we saw a real good example of that last week. Industrial gas deliveries were modeled at 26.40, 26.31, 26.02, and 26.40 for the first four days of the week (which were also the last days of August). Then, for the last three days of the week (the first three days of September) Industrial gas deliveries were modeled at 25.19, 25.39, and 25.42. That works out to about a 4% drop in natural-gas inputs, which would imply a 4% cut in planned manufacturing of goods at these industrial facilities.

Now there is a wrinkle to all this... there could be distortions in the pipeline data itself (Holidays can produce such distortions, as can sudden fluctuations in climate (as we are having now as the natural-gas industry is just now leaving its summer-demand season and entering its fall shoulder-season). But September (at least in its first few days) looks weak.

Now seasonally, we tend to like to get a bump-up at the start of September (once seasonal-distortions surrounding Labor-day are factored out) so we should be going the other way. Even in 2008 (when the bottom fell out of industrial natgas deliveries) we got a bump up in early September (though things absolutely fell apart a few weeks later when the Economy rolled over). So we will hope the early September weakness is either a pipeline-distortion or something funny (unseasonal) regarding Labor-Day-Weekend scheduling.

Getting to the paperboard-based Consumption Index, it also backtracked (its 2nd down- week in a row), settling to 134.2 (from last weeks 135.0). In its dailies, however, the measure (though beginning the week soft) surged strongly as the week progressed, seemingly climbing with the stock market and suggesting the good press of the last week or so is encouraging consumers.

The Consumption Index is much more volatile than the Production Index, and has appeared in the past to reflect much more highly upon emotion as it tends to surge or crash in reflection to the "goodness" (or "badness") in the news of each day. Thus, as the highly-emotional Consumption Index tends to lead the more subdued Industrial Index, and the news of the day tends to lead consumption, the "mood" of the media can be the prime driver of an economy at times (probably one reason why authoritarian countries tend to try and control it). The past few weeks it seems we have had a manic-depressive media... speaking in the tone it believes its readers/watchers/listeners want to hear... back and forth between good and bad. Makes for a lousy economy.

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

Overall, the US industrial economy looks to continue to be underpinned by an excess of consumption over production, a recent surge in consumption, and the ever-declining Inventories measure.

Continuing concerns continue to be the dismal mood of the business/Investment side of the US citizenry (and its whithering effect on capitol/formation and new business starts), massive monetary outflows from the US (believed driven by demand from foreign sources for US dollars), and poor US monetary, fiscal, and political posturing.

-Robry825

Sunday Night Economic Assessment

The US Industrial economy advanced again last week (if pipeline scheduling is correct), as recently-strengthening consumer spending took a break.

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 116.8 (from last weeks 116.0). In its dailies the index opened the week strongly and maintained its firmness through to the weeks close.

The paperboard-based Consumption Index, conversely, broke a string of 3 up weeks in a row, settling to 135.0 (from last weeks 135.7). In its dailies the measure began the week soft but strengthened just a tad as the week progressed, holding slightly above-trend to the ramping production index... a credit to the consumer in a tenacious couple-week period where (until late week) it seemed a strongly-negative slew of news-media reports begged to stall consumption.

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


I am going to forgo the usual comment section this week, as an interesting news article found its way to my email last Thursday. The article contrasted quite nicely with remarks I made a week ago in last Sundays economic assessment, and I want to explore that further. Rather than comment on the economy, I want to explore this whole experiment of a gas-flow-derived economic model...

Consider (from the Production Index Paragraph) from last weeks "Sunday Night Economic Assessment" (Sunday, August 22nd) ...
............"The Production Index (In terms of its 28-day moving average
............ of gas-flow scheduling into US industrial facilities) broke a string
............ of four down-weeks and rose to 116.0 (from last weeks 115.0)."

And contrast it with the lead from last weeks AP-reported unemployment piece...
............"New jobless claims drop for first time in 4 weeks
............
............ AP
............ WASHINGTON – New requests for unemployment benefits fell
............ sharply last week, the first decline in a month and a hopeful sign
............ after a raft of negative economic reports.")
............
............(http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HR7PR80)


On the whole, not a bad performance!

Now this is not to say that the model is perfect- it has had a bit of "noise" in it from time to time, but overall I do believe the modeling captured the beginnings of the recession in the fall of 2008, reflected its bottom in May of 2009, its recovery in late 2009 through Q1 of 2010, and the recent weakness through early August.

The theory behind the model is that by measuring the quantity of natural-gas that is fed into an industrial facility (that uses natural gas in its manufacturing processes), one can estimate (quite closely) the production of that facility based upon its natural-gas usage. If natgas usage goes up 10%, facility production goes up 10%. If natgas usage goes up 100%, facility production doubles. If natgas usage stops, the facility is idle.

Collect lots of data for lots of factories all across the US, and you get US production... daily... in real time, with no waiting for monthly surveys, quarterly adjustments, etc. No delays means no surprises, which means you can react immediately (not long, long after the fact).

The potential for this type of analysis is enormous for a country. It can give companies time to react to slowdowns to cut inventories (and costs) to prevent being blind-sided by a slowdown no-one sees coming, and it can give governments time to react to impending recessions to save economies, save industries, save jobs, and save families which otherwise could be impacted by layoffs, business-failures, and other financial hardships.

And enough data is out there (about eight percent of US industry) to get enough of a sampling to do a fairly decent daily model.

Now 10 years ago, this was not so. All this came about fairly recently, opened up by the wisdom of the US Federal Energy Regulatory Commission (FERC), which accurately foresaw the benefits of opening up tightly-controlled pipeline information to the public. In a slow process, all of the nations interstate pipelines were gradually required to make more and more of their detailed flow information public.

The FERC's push was not without controversy... some resisted to the disclosure of "Customer-specific" corporate information on the grounds of privacy, and in the early days long lists of vaguely-worded locations made them difficult to decipher. But little by little clarity came out and to this day, about 8 percent of US industrial gas usage (as measured by government EIA data) is available daily from the "Informational Postings" of US interstate pipelines.

All that is about to change.

In November-2008, the FERC issued a major rule-making order (FERC Order 720), in which (by way of then-recent congressional legislation) it saw its authority opened up to intra-state pipelines (pipelines that do not cross borders) as well. After revisions and clarifications (FERC rules 720A and 720B) a host of local intrastate pipelines (and local distribution companies) are now just beginning to be required to post detailed information, which should (if this process can unfold) greatly increase the quantity and quality of data to the public.

At this early stage (as it was in the early stages for the interstate pipelines) the data is vague, and a currently high threshold (15,000 MMBtu/day to be reportable) and allowances for vaguely-named point-descriptions seem to be limiting the data's usefulness. However, if the FERC can progress (as it did for the interstate pipelines) the quality and quantity of this new data could greatly improve.

If these "Sunday Night Economic Assessment"s have value to you, if they are a help, please consider the following. You can add to this process, and the quality of these reports, by supporting the FERC in all its efforts, by just a simple email.

If you would, sometime this fall, go into the FERC's website, and drop off an email to them in thanks for their efforts, and to encourage them to expand upon "FERC Order 720" in the years to come with "Final-Cycle" or "Actual-Flow" data for all industrial natural gas transactions... to increase transparency for the benefits of the markets, and the benefit of the nation as a whole.



-Robry825

Sunday Night Economic Assessment

The US Industrial economy turned around and advanced last week (if pipeline scheduling is correct) as both industrial production and consumer spending gained, on the heals of last-weeks 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) broke a string of four down-weeks and rose to 116.0 (from last weeks 115.0). In its dailies the index showed a pronnounced change early to mid-week, starting flat to the previous week but strengthening sharply as the week progressed and ended.

The paperboard-based Consumption Index added to the previous weeks surge (its 3rd up week in a row), rising to 135.7 (from last weeks 135.5), its highest level since March 10th. In its dailies the measure was red-hot at the very beginning of the week (on Saturday) but softened thereafter.

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

Last week appeared to be a good week for the economy, presumably as factories respond to increased consumer activity, accommodating it by increasing production scheduling. Last weeks fade in the consumption index is a concern and needs to push back up. 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.

It is very important that the Federal Reserve continue its newly-announced resumption of quantitative easing (it announced two weeks that it would resume quantitative easing... a move that, though very much late, was 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 (where dollar-assets are counted without deducting dollar-liabilities).

The future of the US economy remains with the consumer (as always), as US industrial production appears to remain very responsive to patterns in fluctuations of consumption. In its own way, this fact is a testament to the underlying (now-hidden) power of the US economic system. Many nations are constrained at the productive ends of their economies, not at the level of consumption. The US is abundant it wisdom and eagerness to produce. All that is needed is for its government to allow it to do so.


-Robry825