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Friday, March 16, 2012


Industrial production for February was flat. This is more notable than it would seem becaLinkuse for once, utilities did not fall and subtract from the total index. Utilities stuck. My theory after looking at the Treasuries seems right - construction rose, but less than I was expecting at 1.1%. In December it was 3%, and I had been expecting more like 2%. Construction tends to shut down late December and not pick up again, so January's -0.1% did not concern me.

So I need to factor in a bit less from construction than I had hoped in 2012. Here we come to the end of the big weather effect. There'll be a little in March but not much, and after that it falls way off. On the other YoYs should be a bit more positive because of the April-on 2011 effects of the Japanese tragedy.

CPI - The big contribution was gas, of course. It looks like gas may be chipping into other spending. Who'd a thunk? Even with a monthly pop of 0.4 the headline stayed the same at 2.9% - that's because high inflation periods are dropping out. But the effect on consumers hasn't:

If you are in the grocery business, you probably noticed that.

Trucking - ATA Tonnage fell in January but it had soared in December, so we wait for another couple of months. Rail continues to weaken a bit - this week's combined tonnage miles is now -0.5% cumulative compared to last year. MV shipments are up nearly 20% YoY - you'd expect that trend to continue for months even if monthly sales of autos weaken because of last year's supply line impacts.

Nonetheless, theories that the economy is soaring seem poorly supported. It's growing. Perhaps it is slowly shifting more toward manufacturing. If you look at the rail link and scroll down a page you will get the Canadian stats. Quite a difference.

Crude oil consumption is still down YoY - by 5.2%. Trucking is seeing some conversions to NG, and of course moderate temps in the NE district that uses the most heating oil this year push down distillates. However, at the end of the December season, despite those factors distillate four-week was still up 3.9% YoY, so this week's -7% probably does have something to tell us about the next couple truck tonnage reports. The four week and accumulated gas YoY's are almost the same at -7.2% and -7%. Last year the distillate 4 week arcs did roughly track the short-term troughs and peaks. You probably want to mentally add 1-1.5% to the numbers this year for longer term economic comparisons, but following the ups and downs over the year will still tell us something. Over the last four months it's probably more like +2.5% adjustment due to the added heating oil effect. That's a seat-of-the-pants guess.

However, I will say that flat IP plus those distillate numbers plus those rail numbers induce a level of real caution in my statistical core. Autos will continue to do decently most this year, but any big pump is probably mostly gone - what I saw in the rail figures a few weeks ago is borne out by the IP report:
Within manufacturing, the output of durable goods increased 0.4 percent in February and was 8.5 percent above its year-earlier level. Output gains of more than 1 percent were recorded in February for nonmetallic mineral products; fabricated metal products; aerospace and miscellaneous transportation equipment; and electrical equipment, appliances, and components. Production declined in February for primary metals, machinery, and motor vehicles and parts; each of these indexes had risen briskly in January.
And no, the temporary halt in Chevy Volt production does not account for this. Probably it's GM which has outrun the market a bit on trucks. This was a very small relative move down; auto production is still sharply up. If you look at this bit of detail from the IP report, you see that the auto arc last year strongly corresponded with the general economic arc. As long as we don't drop that much, we should carry through. That's why I'm paying so much attention to inventories! Still, as long as sales look like this we should be in no trouble. The prices of used cars have begun to drop with so many trade-ins:

I would be a lot happier if this thing would fall a bit, though. It gives me headaches.

Every month it seems as if I look at this data in another way, trying to convince myself that this is not a problem. This month's attempt concentrates on automobile component:

Autos ought to be the best inventory build prospect this year, considering fuel prices.

Still, I just don't find this all that reassuring.

The Yellow line is the sales to shipment ratio.

When I look at the financing side, I see that a growing amount of demand is being supported with "bad" financing deals. One of the reasons that everyone can afford to do this is the high resale value of running used vehicles. That sends me back to CPI, and as I look at the drop in prices for used cars, it induces extremely sober contemplation.

So if I seem to be discounting genuinely good news a bit too much, it's because I always am looking long and trying to figure out if trends can continue. MV builds always help you coming out of a recession, and because the drop in auto sales was so huge in this recent period, you would expect much greater builds. But everything says this may be reaching a natural slowing point.

This is why I am still generally favorable on Treasuries. German Bunds are dropping for about the same reasons as Treasuries, but toward the end of the year you might do very well on Treasuries, and since I believe the Fed is fixing the long rate, and since I believe the Fed has the means to continue to do so, my theory is buy the longs on the price dips. Only if you know what you are doing of course, and if you can stand the risk.

Because of growing US production I would be okay with that yellow line at the 2.3 level right now. At 1.8, NO.

Since I have to concede that construction isn't as much of a positive factor as I had hoped, and since purchase money mortgages aren't going to be much stimulated by rate moves from here, the relative risk of that yellow line is growing rapidly.

If you are in the grocery business, you probably noticed that.

Every week I get flyers from Safeway, Albertsons, and QFC.

It has been awhile since a sale enticed me into one of their stores.

I'm having that strange feeling of deja vu, only without the recession bars (at least so far). Go figure.
I'm not sure the resale value of used cars will drop as much as you might think. At the current state of the art, 55mpg CAFE takes a lot of the utility out of a fleet.

The next few model years are not going to be classics, I don't think, and since the older cars are quite durable...

I hear you.

I have no great desire to resell an electric car in the future. Why don't more people factor this in?

The authors of Glass's Guide, the motor trade "bible" are as worried as me about the high initial cost of electric cars, coupled with the colossal additional cost of removing out-of-warranty, dead or dying batteries, then replacing them with new ones.

Older cars are certainly more durable than that. I'm driving a 16 year old Camry for instance. I think it still has at least another decade in it. There's only about 80k miles on it right now.

Here's an added bonus for me as natural born procrastinator. If enough other Americans were enticed into buying electric cars then I wouldn't need to. Gas prices might not even rise.

Hey, mabye that's the plan. The president's car is an armor plated fuel hog. Maybe he's feeling guilty, lol.

The vehicle fuel consumption is about 8 miles per US gallon (29 L/100 km; 9.6 mpg-imp).
My spam box had a new car promotion a first for my spam e-mail folder along with various penis enlargement products, maybe a sign of the times!
Ron - self-esteem is priceless! Ans self-esteem for males....

The car dealer activity is picking up steam.
I agree with the questionable value proposition of plug-in vehicles.

I get 60+ mpg from a "regular" Prius in spring/summer. A plug in would get this up to 90, but that extra 30 isn't free, I'd have to pay for that electricity. OK, I understand a lot of people may be re-charging at work for free, but I would not expect that deal to last longer than a couple more years. Already we're seeing some states increasing the taxation on these vehicles because they don't use enough of the taxed fuel.

The bad thing about the plug-in is that the electric miles are kind of a free-ride situation. If more than a few people (the figure I've heard is 10% of utility customers) utilize that feature, it would be more than the grid is built to handle. What's worse, this capacity issue is fractal--if more than 10% of the people on your local transformer (about 1 small city block) do it, you get low line conditions.

We could build out to handle this, but utilities are heavily regulated, and the whole system is rigged for slow, steady growth along with GDP. This means it's difficult to raise a lot of capital for a rapid build-out of fixed investment unless they can get a rate increase from the state utility boards to pay for a large bond issue. That means every NIMBY or BANANA with a lawyer gets a veto.

Hybrid cars potentially have their place, but the whole plug-in thing is a crock from the get-go.
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