Ceridian-UCLA Pulse of Commerce Index is up in November for second straight month
December 13, 2011 - LM Editorial
With the economy showing some slight signs of growth, the Ceridian-UCLA Pulse of Commerce Index (PCI) was up for the second straight month in November, with a 0.1 percent gain on the heels of October’s 1.1 percent rise.
Even with these recent increases, the PCI has seen growth in only 4 of the last 9 months and has been down in ten of the last 17 months. And over the last three months—compared to the previous three—it declined at an annual rate of 4.8 percent. November’s PCI was up 0.9 percent annually, down from October’s 1.3 percent increase.
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 November, it is calling for industrial production to be up 0.006 percent. The Fed’s number is slated for release on December 13.
“We are still seeing trucking activity that is symptomatic of a growing economy but not a robustly-growing economy,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “There is a lot of talk about fourth quarter GDP coming in above 3 percent, and we don’t see the trucking activity that would support that kind of growth. That trucking activity is essential in order to support supply chain inventories that are essential to economic growth. Something has to give here.
What’s more, Leamer said that today’s release on November retail sales from the Department of Commerce showing a 0.2 percent gain was weak and reflects a weak inventory build-up in October.
This situation, he explained, shows a disconnect between real retail sales that had been growing rapidly and trucking activity that had not been growing in a similar fashion. And this disconnect needs to correct itself, whether it be in the form of trucking activity surging in November into early December or in weakness in real retail sales, which he said is happening at the moment.
“The third quarter GDP number [of 2 percent] was substantially held down by a negative contribution of inventories by 1.5 percent,” said Leamer. “That is a big volatile component. We cannot have that number and expect anything close to 3 percent for GDP.”
Other factors for sluggish GDP growth are cautious consumer spending and frugal state and local governments that are being forced to make cutbacks. These are both things which are unlikely to change said Leamer, whom added a resurgent housing market could have the potential to change things in a meaningful way.
If that were to happen, he said it could serve as a critical next stage, with new housing (per house) equates to 17 truckloads of freight on average.
And anecdotal evidence suggests that manufacturing output is driving economic growth more so than retail sales, even though retail sales represent about 70 percent of economic activity.
“The difference between retail sales and industrial production is really exports, and exports are starting to weaken, with problems in Europe and China,” said Leamer. “It does not seem likely that the export sector is going to drive the economy forward. But it still comes back to domestic retail and domestic housing sales that are going to be driving the economy forward in the next year or two, with industrial production being influenced by success on those fronts. Manufacturing has been relatively strong, but that is a bounce back from a rather deep hole. We have been expecting industrial production to be weaker than it has been and to be weak in November as well.”