Pulse of Commerce Index Suggests Flow of Goods has Stalled

| October 13, 2010

The Pulse of Commerce Index (PCI), which is a relatively new index that tracks the flow of goods to factories, retailers and consumers in real-time, suggests that consumption has been weakening during the past several months.

“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 .5 percent in September after falling 1.0 percent in August, which is the first time the index has experienced a consecutive monthly decline since January 2009. Furthermore, August and September 2010 together produced the worst combined two-month decline since the recessionary months of January and February 2009.

The decline indicates four consecutive months of limited to no increases in over the road movement of produce, raw materials, goods-in-process and finished goods since the PCI peaked in May 2010. Moreover, the PCI forecasts GDP growth in the third quarter of 2010 at an anemic 0.7 percent to 1.7 percent, below the PCI’s previous 1.5 to 2.5 percent estimate reported last month (which at the time approximated the consensus economic view). The PCI forecast of the Federal Reserve’s monthly Industrial Production (IP) index (to be released later this month) also signals IP growth for September to be very close to zero with an even odds chance for a negative number.

‘The PCI tells us that inventory is stalled on the nation’s thoroughfares. The good months of growth are now seemingly in our rear view mirror,’ said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. ‘Our economy’s loss in traction is alarming and for the Cassandras of the double-dip may foretell a coming decline in GDP and spike in unemployment. However, with residential investment, consumer durables, business spending, and other component indicators already at or near record lows relative to GDP, it remains unlikely that we will experience an outright decline into recession.'”

As shown on the following graph from Calculated Risk, the uptrend from the middle of 2009 has failed to move up to a meaningful new high for several months and additional weakness during subsequent months would suggest the development of a reversal.

The PCI data align relatively well with the ongoing contraction in the Growth Index tracked by the Consumer Metrics Institute, providing further evidence that consumption is weakening as we head into the end of the year.

Category: Commentary, Market Update

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