The Ceridian shipping index measures real-time trends in diesel fuel usage and correlates well “over time” with Industrial Production. Month-to-month analysis is subject to much error. For Example, Ceridian’s economist was looking for a weak Christmas season following its “Recovery Time Out” report last October.
That report was negated by a December forecast suggestive of a strong recovery. In turn, the strong recovery forecast has been negated by weak January and February numbers. Today’s report reflects February numbers.
Please consider February PCI Continues to Signal Slow Growth
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 1.5 percent during the month of February. Coupled with the 0.3 percent loss from January, this latest data eliminates the strong gain (1.8 percent) experienced in December 2010. However, February marks the fifteenth straight month of year over year growth indicating that economic recovery, while fragile, remains underway.
“The PCI performance in the first two months of this year suggests weakness in some parts of the economy,” states Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “Nevertheless, our outlook for 2011 is for continued economic recovery – we expect GDP to grow at the historically “normal” rate of 3 percent, accompanied by a persistent level of high unemployment.”
Over time, the PCI has shown a strong correlation with the government’s Industrial Production (IP) figures. For January, the PCI forecast of modest growth (.3 percent) was more positive than the Fed’s initial reported estimate of negative 0.6 percent. For February 2011, the PCI estimates that IP will experience a slight decline of 0.02 percent when it is reported on March 17. Similarly, relative weakness in the PCI over the first two months of this year suggests that GDP for the first quarter will come in below consensus, near the lower end of the range of current forecasts that range between 2 percent and 5.5 percent. For the year, the index continues to suggest GDP growth sufficient to drive continued modest growth in employment but not back to the peak levels attained in late 2007.
“February’s spike in diesel fuel prices to well over $3 a gallon likely did not drive the weakness in the PCI this month,” explained Craig Manson, senior vice president and index expert for Ceridian. “However, if the trend persists, higher prices will likely have an impact in the coming months as consumers are robbed of spending power. As a leading indicator for the goods producing segment of the economy, the PCI is sensitive to this dynamic and should provide early indications of direction and magnitude as higher fuel prices impact the broader economy.”
Seasonally Adjusted Ceridian Index
The above chart suggests an inventory replenishment overshoot culminating with a strong Christmas season. Now we are back to below trend growth for the last couple months.
Over the past two months, forecasters have been marking up their expectations for 2011 and 2012. The 51 Wall Street Journal forecasters’ predictions for 2011 Q1 GDP growth range between 2% and 5.5%, with 90% of the estimates targeting growth in the first quarter at 2.9% or higher. Weakness in the PCI over the first two months of this year suggests that GDP for the first quarter will come in below consensus, near the lower end of the range of current WSJ forecasts. For the year, the index continues to suggest GDP growth to be in the “normal” historical range of about 3%, which will likely drive continued modest growth in employment but not back to the peak levels attained in late 2007.
I am entertaining and have been for some time, the idea that recent hiring may be nearing a crest. Employers, especially retailers were light on employees and ramped up in fourth quarter of 2010. At the beginning of the year they did not lay off as many as normally expected boosting seasonally adjusted hiring.
Now it remains to be seen how long that recent hiring lasts. Bear in mind it takes about 125,000 jobs a month just to keep the unemployment rate flat, all things being equal. Yet all things are not equal, the participation rate had been falling like a rock. Without millions dropping out of the labor force, the unemployment rate would be close to 12%, not the reported 8.9%.
I expect to see the unemployment rate rise if discouraged workers start seeking jobs and perhaps even if they don’t.
Mike “Mish” Shedlock
Click Here To Scroll Thru My Recent Post List