Wildebeest's  Instablog

Chicago Fed National Activity Index was released last week. A description of the index and its 85 indicators is available here. The Chicago Fed split the 85 indicators into four categories: Production & Income, Employment, Unemployment, & Hours, Personal Consumption & Housing, and Sales, Orders, & Inventories. A 3 month moving average is their preferred way of viewing the data:



We see there has been a sharp recovery in the index since the crash, the 3 month moving average, the CFNAI-MA3, increased now to –0.77, which optimists, market pumpers, and the media tend to view as confirmation we have pulled out of recession. However to interpret the data we should surely follow the criteria set by the Chicago Fed itself, after all it is their index, they know how to interpret it. To interpret the data in the context of the business cycle the Chicago Fed say "A CFNAI-MA3 value above +0.20 following a period of economic contraction indicates a significant likelihood that a recession has ended." So we have a way to go before this index indicates a likelihood that we are out of recession.

The reason we are not coming out of recession, using the Chicago Fed criteria, is that personal consumption and housing is dragging on the economy. Here is a chart of the 3 month moving average of that category:



Whoooah. It is heading back down.




Disclosure: no positions

Below is a chart of global crude steel production as of the end of November. China decreased steel output last month. A "one off" or a new trend?



Of most interest (to me) is what this means for iron ore and met coal prices in 2010 if this recovery in steel production is sustainable. Iron ore producers would need a contract price rise near 50% to make up for the hit they took with the 2009 contracts (down ~ 30% from the previous year). If you own BHP Billiton, Rio Tinto or Vale you should follow these steel production output numbers.


Disclosure: Long BHP

BHP are rumored to be considering exiting the nickel business. The key aspect of this rumored decision seems to be this paragraph of the article:

The sale of the nickel assets would be in keeping with BHP's internal assessment that the emergence of a nickel pig-iron industry in China in 2007 and 2008 in response to record nickel prices means that future nickel prices are capped at no more than $US12 a pound, compared with $US7.80 a pound at present.

Full article here:

www.theage.com.au/business/market-talk-of-bhp-nickel-exit-20091221-la4n.html






Disclosure: Long BHP