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UCLA Pulse: Diesel Index Falls, Signals Weak Growth

Wednesday, 08 Jun 2011 12:16 PM

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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 0.9 percent on a seasonally and workday adjusted basis in May, after sliding 0.5 percent in April.

The Ceridian-UCLA Pulse of Commerce Index, issued Wednesday by the UCLA Anderson School of Management and Ceridian Corp., is based on real-time diesel-fuel consumption data for over-the-road trucking and serves as an indicator of the state and possible future direction of the U.S. economy.

By tracking the volume and location of fuel being purchased, the index closely monitors the over the road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers.

“The index has now declined in four of the first five months of 2011, and in eight of the past 12 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,” he said.

“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 2009 through July 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.”

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