The Ceridian-UCLA Pulse of Commerce Index™ (PCI) which is based on diesel consumption fell 0.2% seasonally adjusted. Econintersect’s review of the unadjusted data believes the contraction was greater – being almost 0.5% month-over-month.
According to the economists at the UCLA Anderson School of Economics:
Although the decline in the July PCI isn’t good news, last month’s observation still applies: “Over the past year the U.S. economy has been in “she loves me, she loves me not” mode. Bad news has been alternating with good, leaving investors and forecasters nervous and unable to identify sustainable trends. June’s 1.0 percent increase in the PCI could be the start of a positive trend, but a one month spike does not make a trend, particularly in light of the many false starts experienced over the last year. Until there is enough data to declare a new trend, expect more of the same, somewhat disappointing result — persistent, wobbly uncertain growth.”
Similarly, one slightly negative month does not reveal a new trend, particularly in view of the four positive and eight negative monthly PCI results over the past year and the minimal 1 percent year-over-year growth performance posted this month. The second half of 2011 has started on a down note, but is a continuation of the wobbly economic performance that has persisted since the inventory restocking period ended a year ago. Wobbly, uncertain, slow growth is likely to continue for the rest of this year as the economy seeks but does not find a catalyst. Another dip appears unlikely, however, as the traditional sources of recessions — homes and cars —are not currently positioned to produce a downturn. Furthermore, with the yield on the 10-Year Treasury under 3 percent, belt-tightening is not likely to be dictated by the global bond market.
The PCI continues to provide an excellent signal with regard to GDP growth. In last month’s press release we wrote, “The most recent PCI result further reinforces our long-held cautious outlook for below consensus growth in GDP, suggesting that second quarter GDP growth will be 1.8 percent, similar to the tepid performance reported for Q1.” The U.S. government’s subsequent preliminary estimate of GDP growth for the second quarter was 1.3%. Not bad!
The transport network in the USA is almost exclusively fueled by diesel – and diesel consumption makes a good proxy for forward economic activity (as transport occurs one to two months before consumption).
The PCI is modeled using Ceridian’s diesel distribution network to forecast economic growth – primarily Industrial Production and GDP. Econintersect extracts the unadjusted (not modeled) diesel index for its economic model. Graphically, the unadjusted data has a slightly different feel.
Therefore, Econintersect has a slightly different view of the data – the downward trend lines are not broken – yet the rate of change on the 3 month moving average has improved because the terrible April data is no longer in the mix.
What analysts look for are pivot points in the data. Unfortunately, the data is noisy as demonstrated by the following table of year-over-year growth rates in 2011:
There is no clear sign that the “less good” trend line has been broken with July being the second worst month this year. One could argue, that this index is saying that demand for diesel may be stabilizing – and the “less good” data may be coming to an end.
July 2011 Rail Counts Show Slowing Economy In Months to Come by Steven Hansen
Container Traffic Continues Growth in May 2011 by Steven Hansen
Trucking Tonnage Up in June 2011 by GEI News