Ceridian reports PCI Declines for Second Consecutive Month in September

The Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management, adjusted for season and for monthly workdays, fell 0.5% in September after falling 1.0% in August.

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers, and consumers, fell .5 percent in September after falling 1.0 percent in August, which is the first time the index has experienced a consecutive monthly decline since January 2009. Furthermore, August and September 2010 together produced the worst combined two-month decline since the recessionary months of January and February 2009.

The decline indicates four consecutive months of limited to no increases in over the road movement of produce, raw materials, goods-in-process and finished goods since the PCI peaked in May 2010. Moreover, the PCI forecasts GDP growth in the third quarter of 2010 at an anemic 0.7 percent to 1.7 percent, below the PCI’s previous 1.5 to 2.5 percent estimate reported last month (which at the time approximated the consensus economic view). The PCI forecast of the Federal Reserve’s monthly Industrial Production (IP) index (to be released later this month) also signals IP growth for September to be very close to zero with an even odds chance for a negative number.

“The PCI tells us that inventory is stalled on the nation’s thoroughfares. The good months of growth are now seemingly in our rear view mirror,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “Our economy’s loss in traction is alarming and for the ‘Cassandras of the double-dip,’ may foretell a coming decline in GDP and spike in unemployment. However, with residential investment, consumer durables, business spending, and other component indicators already at or near record lows relative to GDP, it remains unlikely that we will experience an outright decline into recession.”

Pulse of Commerce (PCI) Chief Economist Ed Leamer and Ceridian’s Craig Manson say economy has stalled citing second consecutive monthly drop in indexed activity; economy lacks momentum as PCI-based forecasts for Q3 GDP and Sept. IP near new lows.

October PCI Report

There are more charts and analysis in the Ceridian-UCLA Pulse of Commerce Index™ October PDF

September Decline Means Minimal Third Quarter GDP Growth.

The Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management, adjusted for season and for monthly workdays, fell 0.5% in September after falling 1.0% in August, which was the first time we have experienced a consecutive monthly decline since January 2009. August and September together this year have produced the worst combined two-month decline since the recessionary months of December 2009 and January 2010.

The PCI began 2010 strongly with growth of the first quarter compared with the fourth quarter of 2009 equal to 9.7% at an annualized rate. But the second quarter growth compared with the first was 6.2% annualized, and now the third quarter is only 2.1% above the second. In other words throughout the year, growth of the PCI has moved inexorably less and less, edging toward zero.

Last month, with two of the three months of the quarter recorded, we reported that “the PCI is currently consistent with a GDP growth number for the current quarter in the disappointing range of 1.5-2.5%, which approximates well the current consensus view of the economy.” Now that the full quarter of PCI data is available, our PCI-based GDP forecast for growth in the 3rd quarter of 2010 has sunk to an anemic range 0.7% to 1.7%.

The declines in the PCI in the last two months suggest that the industrial production growth for September will be very close to zero, with even odds of a negative number.

Year-over-year growth in the PCI has continued to fall since May’s exceptional number of 9.0% — 8.6% in June, 8.0% in July, 6.0% in August and now 5.8% in September. With the three-to-one relationship between the PCI and GDP growth in recessions and recoveries, that 6% figure translates into 2% GDP growth, far below what is needed for a healthy job market.


But most importantly there is an ominous bending of the PCI at the end of the series with the third quarter returns now fully in.

The graph includes a trend line labeled “Full Employment GDP”. We seem to be slipping farther from that trend as the recovery grinds to a halt.

There are many additional charts and data analysis in the report. Inquiring minds will want to give it a closer look.

Recovery Grinds to a Halt

This recovery is on its last legs, assuming you believe there was a recovery and not a mirage caused by unsustainable stimulus. Even if there is no double-dip, GDP of 2% is the stall rate, consistent with no job growth.

As weak as the 3rd quarter looks, indications are that the 4th quarter will be worse. I still expect new highs in the unemployment rate.

Mike “Mish” Shedlock
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