Tag Archives: index

Economics Index Falls 0.9 Percent in May

MINNEAPOLIS and LOS ANGELES, June 8, 2011 /PRNewswire/ — The Ceridian-UCLA Pulse of Commerce Index™ (PCI), issued today by the UCLA Anderson School of Management and Ceridian Corporation fell 0.9 percent on a seasonally and workday adjusted basis in May, after falling 0.5 percent in April.

“The index has now declined in four of the first five months of 2011, and in eight of the past twelve months,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “The PCI makes it clear that the high-growth recovery lasted only four quarters from 2009Q3 to 2010Q2. Since then the PCI and the economy have been idling, not powering forward. We are going to have to get the recovery going again to make a material dent in the chronic jobless problem.”

“On a year over year basis, the PCI was flat in May. This was disappointing in that it ended a string of seventeen straight months of year over year improvement in the index,” Leamer continued. “One small glimmer of good news is that May of last year was the strongest month of 2010, and this month’s result nearly cleared that hurdle. Nevertheless, the PCI showed no growth, and this is another indication that the economy is stuck in neutral.”

According to the economists at the National Bureau of Economic Research (NBER), the recession officially ended in June of 2009, which coincides exactly with the trough of the PCI. The PCI further indicates that the recession was followed by a recovery period from June of 2009 through July of 2010 where the PCI grew at an annualized rate of 10 percent. This growth was driven primarily by inventory restocking, and unfortunately was not accompanied by a resurgence in home sales nor employment gains. Since that time, the economy has been idling and struggling to grow. The PCI slid a bit in the second half of 2010 as the force of inventory restocking inevitably receded, and since then has been on a wobbly, less-than 3 percent growth trend. This has resulted in less-than normal GDP growth with unusually high variability.

“Over time, the PCI has proven to be a leading and amplified indicator of both Industrial Production and GDP,” explained Craig Manson, senior vice president and Index expert for Ceridian. “The May result further reinforces our long-held cautious outlook for below consensus growth in GDP, and suggests that second quarter GDP growth will be less than 2 percent. Similarly, the PCI is anticipating Industrial Production to show modest growth of 0.05 percent for May when the number is released by the Government on June 15, 2011.”

 

Manufacturing Up as Factories Stop Cutting Inventories

As an almost total surprise, the Institute for Supply Management’s factory index(NAPMPMI:IND) rose to its highest level in three years.   The 55.7 level indicates stronger growth in manufacturing than any economists had predicted.  Most were looking for between 50 and 55.

The index is based on a survey of manufacturing executives.  Taken by itself, this index seems incredibly positive, but several questions arise when seeing such “growth”.  Unemployment is still edging up, expected to go to 9.9%-10.1% in this Friday’s numbers.  Consumer spending was just reported to have dropped by it’s largest margin in 9 months.  So if there are fewer consumers, and the consumers that do have money are spending much less of it, why would factory output go up?

Obviously, the index is a highly-subjective non-economic indicator of factory output so it’s difficult to know for sure if manufacturers are increasing production or simply slowing the rate at which they reduce their output.  If we assume that factories are truly making more goods, and we know fewer goods are being purchased, the only reasonable driver for this is inventory levels.

For several months, manufacturers have been idling factories and filling orders mainly from stockpiles in order to cut costs.  It would appear that by looking at the inventory index (now at 46.9%), manufacturers have stopped slashing their inventories and are now moving into a mode of sustaining their new lower levels of stock.  This would be more indicative of a sector of the economy that is not improving, but rather has adjusted itself to the new economic norm.

When hearing good or bad economic news, understanding the factors that cause the news is often more-important than the news itself.