There are deep positive economic rumblings. One indicator Econintersect uses to gauge future economic growth – diesel usage, is at historical highs for the month of December. This data is contained within the Ceridian-UCLA Pulse of Commerce Index™ (PCI). The headlines from the December 2010 press release follow.
The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, surged 2.4 percent in December and pushed the PCI above its previous 2010 peak established in May. This performance, combined with November’s 0.4 percent increase, was enough to offset three previous consecutive months of decline.
“The latest PCI data further evidences the positive economic sentiment felt since the start of the New Year,” explained Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “However, we have not entirely escaped the summer doldrums as the three-month moving average is still below its July 2010 level.”
On a year-over-year basis, the PCI increased 4.1 percent in December, in line with the November and October year-over-year comparisons. Importantly, growth in December comes on top of a very strong year-ago performance, whereas the previous eleven months of year-over-year growth in 2010 were up against relatively weak prior year comparisons. It should be noted, however, that the 4.1 percent growth figure is only slightly higher than the 3 percent growth characteristic of a normal economy.
Early indications also show that December retail sales performance played out as stated in the PCI’s November announcement:
“The holiday sales season will likely be better than last year, but potentially disappointing versus current expectations in the marketplace.” Much of the December PCI increase is attributable to the fact that the week between Christmas and New Years was stronger than usual. Even though December overall was three percent below the previous December peak month in 2007, diesel fuel purchases in the inter-holiday week exceeded 2007 levels.
“This is partly a consequence of Christmas and New Years falling on weekends, but also likely reflects inventory replenishment driven by a combination of consumption and restocking as the country’s mood elevated regarding growth in 2011,” said Craig Manson, senior vice president and index expert for Ceridian. “This heightened activity in the retail space is confirmed by the performance of Ceridian’s Stored Value Solutions business (a leading global provider of gift card solutions to large retailers) where card activations grew in the mid-single digits during the month.”
As a note, the economists at UCLA are trying to build a forecasting tool for Industrial Production and GDP – so their methodologies to produce this index are geared to meet this end.
Econintersect, on the other hand, extracts the base data to forecast real economic growth. Diesel usage is a remarkable economic pulse point as freight in the USA almost exclusively is moved with diesel as its source of propulsion.
Both the published index and the raw unadjusted fuel use data has been fairly noisy in recent months. Most of the noise has been removed in the published index through its averaging methodology. Unfortunately, when you average data, which has significant monthly variation, the sensitivity is lost to what the data is trying to say.
Diesel consumption in December 2010 exceeded all December levels going back to the beginning of data in this index in 1999. This is consistent with December 2010 wholesale sales, which also were at historical December highs. Also there is the controversial ADP historically high jobs growth for December.
Taking a devil’s advocate approach, these may be spurious events. There are no three month trend lines in play. It is not possible to spin any of these items in a negative light, which in itself is a positive statement.