We’ve been hit with quite a few charts ‘rolling over’ these days, whereby growth rates or indices which represent growth have turned downwards after spiking since the crisis. One of the more prominent examples has been the falling ECRI leading indicator, where even the authors of the indicator had to come out and explain why this wasn’t a double dip signal, since many observers were proclaiming it so.
Well today another leading indicator is rolling over. It’s the Pulse of Commerce Index (PCI), which basically tracks fuel consumption across the U.S. faster than many of the other leading indicator data sets can come out. Thus it gives a bit of a jump ahead of the U.S. industrial production number, at least according to its authors.
Yet due to the sharp drop, the authors of this PCI index have pre-emptively come out to explain why the decline of this index doesn’t mean a ‘double dip’ (ie., a decline in absolute economic activity) is ahead:
The Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management tumbled 1.9 per cent in June after its impressive 3.1 per cent gain in May. Coming in the midst of other disappointing economic reports, the PCI’s drop seemingly reinforces the fear that the economy is on the brink of a double-dip recession, but further analysis tells a different story, according to PCI Chief Economist Edward Leamer.
“While June’s number is substantially down, erasing two-thirds of May’s great gain, the daily and weekly activity on which the monthly PCI is based does not suggest that the economy is heading over a cliff,” said Leamer. “Part of the apparent strength of May and weakness in June is the result of the Memorial Day holiday occurring on the last day of May, allowing the negative Memorial Day effect which is usually confined to May to leak into June. More importantly, the June weakness was confined to the first two weeks, and by the second half of June, we were seeing strong growth again.”
The PCI data also indicates strong year-over-year and quarter-over-quarter growth, even though the month-to-month comparison is worrisome. The annualized number for June climbed 8.6 per cent, the seventh consecutive month of positive year-over-year results.
“The PCI has not been showing the sustained negative numbers characteristic of a double-dip recession,” Leamer said.
Basically, many economic indices, such as the PCI here, or the ECRI mentioned previously, measure growth. Thus when they turn downwards, it can be simply because growth is slowing (which was well expected given how sharply economic growth had rebounded post-crisis), rather than coming to a halt.
Keep an eye on the declines if they keep happening, but also keep in mind that tons of growth indicators were supposed to decline as we enter the second half of 2010, unless we were expecting U.S. GDP growth to keep accelerating all year to an unbelievable 6-10% GDP annual growth rate.
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