The Ceridian-UCLA Pulse of Commerce Index™ (PCI), which is based on diesel consumption and designed to mimic GDP, has declined 1.4% in August 2011. Econintersect uses the PCI raw data to help forecast Main Street economy. The projection is a bottoming process for the slowdown (a potential end to less good data).
Both the authors of Pulse of Commerce Index and Econintersect see diesel consumption as an important economic pulse point. Both use the data in different ways, apply different methodologies to analyze the data, and offer slightly different conclusions
According to the economists at the UCLA Anderson School of Economics:
Based on the July and August data, the PCI will likely decline in the third quarter and suggests GDP growth of zero to 1.0 percent. While many may interpret this as evidence of an impending recession, we experienced similarly sluggish PCI and GDP growth in the aftermath of the 2001 recession, highlighted in the figure below with an ellipse. During that time, the economy didn’t really get moving until a wave of new home ownership rose. Best therefore to consider a slow-growth alternative to a recession — stumbling forward, waiting to get the energy to run again, but not falling down. This could go on for some time.
Weakness in the PCI over the previous months called for a 0.0 percent change in the July Industrial Production — the initial release of 0.9 percent was stronger, although subject to revisions. The August PCI weakness suggests a 0.26 percent decline in Industrial Production when it’s released on September 15.
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 yet broken – but the August 2011 unadjusted index 2.5% YoY improvement is above the average improvement of 2.0% for 2011.
What analysts look for are pivot points in the data. Backward revisions in the data also throw wrenches into the works – there was a huge backward adjustment in the July 2011 data. Unfortunately, the data is noisy as demonstrated by the following table of year-over-year growth rates in 2011:
Jul revised from 1.72% to -1.08%
The three month moving average of year-over-year diesel consumption change ticked up this month – but one month is not a trend. However, with noisy data, it is always best to follow averaged data.
But, in any event, the good news is the data does not yet indicate a recession – the bad news is that if the data is so bad you have to consider a recession is possible. Bottom line is that there really is no good news.