Ceridian-UCLA Pulse of Commerce Index is up 1.1 percent in October after three months of declines
November 11, 2011 - LM Editorial
While the economy is still not in a full-fledged recovery, the situation may not be as dire as it was a month ago, according to the most recent edition of the Ceridian-UCLA Pulse of Commerce Index (PCI).
After three straight months of declines, the PCI increased by 1.1 percent in October. September, August, and July were down 1 percent, 1.2 percent, and 0.2 percent, respectively. This was only the third time in the past 8 months the PCI has been in positive territory, and it has been down in ten of the last 16 months. According to the report, the PCI is still at a lower level than it was throughout most of the first half of 2011, but October’s growth helped provide a respite from speculation regarding a possible double-dip recession.
The PCI, according to Ceridian and UCLA, is based on an analysis of real-time diesel fuel consumption data from over-the-road trucking and is tracked by Ceridian, a provider of electronic and stored value card payment services. The PCI data is accumulated by analyzing Ceridian’s electronic card payment data that captures the location and volume of diesel fuel being purchased by trucking companies. It is based on real-time diesel fuel purchases using a Ceridian card by over the road truckers at more than 7,000 locations across the United States.
The PCI also closely tracks the Federal Reserve’s Industrial Production data as well as GDP growth. For October, it is calling for industrial production to be up 0.12 percent. The Fed’s number is slated for release on November 16.
On a year-over-year basis, the PCI is up 1.3 percent compared to October 2010. This fared better than the 0.2 percent decrease in September.
“With all the talk about a double-dip a month ago, another negative [PCI] month would have some people throwing in the towel,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “In the last month, there have been a few releases, including GDP growth, and ongoing employment levels, which have helped to lessen the double-dip risk on the part of most analysts.”
Even with these positive signs, Leamer said the October growth number is good in that it is only relative to a weak base in September, which was down a full percentage point from August and has been recovered in October. But the 1.2 percent decline in August has yet to be recovered.
And he explained that since the middle of July there has been an ongoing downward trend that has not disappeared.
“There are two hypotheses here as I see it,” said Leamer. “One is that the [inventory] restocking cycle has changed, where companies are reluctant to make commitments until they are really sure and would rather risk stock outages than have the problem of stock overages, with low sales prices in the event that there is too much stock. One view is that companies could have a great deal of pricing power if the demand is there, and another possibility is that evidence of consumer demand becomes clear within the next few weeks and trucks will be up and rolling for a strong November and first couple weeks of December, which has happened the last two years.”
That situation suggests that the economy has been misled by the September and October numbers because restocking has been delayed in recent years, which Leamer said could be the new inventory cycle.
What’s more, Leamer said that in the third quarter U.S. GDP release, inventory subtracted a full percentage point off of GDP growth, which either lays the foundation for a turnaround in inventory for the fourth quarter, which could make it a good quarter in that it would require more trucks on the road in a tight timeframe or it could be symptomatic of another inventory adjustment, which would only occur if sales remain weak.
“It is really a long-term relationship between sales and inventories,” he said. “Delaying restocking could become a permanent change by businesses in order to avoid overstocks and keeping items at an understocked level until it is clear they need the product.”