New Economic Indicator Turns Lower

Feb.12.10 | About: Industrial Select (XLI)

A new concurrent economic indicator, the Ceridian-UCLA Pulse of Commerce Index - PCI - plunged in January. This indicator is based on diesel fuel consumption used for over-the-highway transport of goods. From the press release on the Ceridian Index website:

Results from a major new econometric report - the Ceridian-UCLA Pulse of Commerce Index™ by UCLA Anderson School of Management - show the U.S. economy fell in January after a significant increase in December, with the index falling at an annualized rate of 36.8 percent. The more reliable three-month moving average for January managed to show a 3.3 percent gain at an annualized rate following the exceptional annualized rate of 14.6 percent in the previous month.

The more stable three-month moving average was up at a small 3.3% annual rate, due largely to large gains in November and December.

This graph also is from the Ceridian Index web site, where you can exercise the interactive features:

Click to enlarge

Hit the link above to exercise the interactive features of the graphic. The PCI correlates closely with - and recently appears to lead - the Federal Reserve's Industrial Production Index. The release date for the PCI is several days ahead of the IPI.

The data can be accessed from the Ceridian web site. Using that data, the following graph has been developed showing the volatile monthly numbers and the three-month moving average over the history of the data base:

Click to enlarge

I have some problems reconciling some Ceridian statements with the data. This is summarized in the following table:

I do not have full confidence in my understanding of the PCI until I can get my calculations to agree with the press releases. However, I'll still try to offer three conclusions:

1. The rise in December may have been artificially large Christmas shipping delayed by the uncertainty in immediately preceding months. This would have set up January for the large decline.

2. The February number may be depressed by repeatedly bad winter weather. In that case, unless weather continues to be a problem, March may show an unusually large gain as shipments play catch-up.

3. With all these factors considered, we may not know what this index is telling us until April.

Hat tip to Calculated Risk.

Disclosure: No stocks mentioned.