More contradictory metrics are emerging on the U.S. economy, as the latest Pulse of Commerce Index (PCI) fell 1.7% in January after dropping 0.4% in December last year – a negative indicator at odds with the significant uptick in employment figures released last month by the Dept. of Labor.
“It seems difficult to square the behavior of the PCI with the evident improvement in a number of economic indicators, most notably the increase in payroll jobs and the decrease in initial claims for unemployment,” said Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and director of the UCLA Anderson Forecast.
“The PCI also seems out-of-sync with industrial production and with real retail sales, which continue to grow in a healthy manner while the PCI is stalled out,” he added.
For example, U.S. economic activity in the non-manufacturing sector grew in January for the 25th consecutive month, according to the Institute for Supply Management’s (ISM’s) Non-Manufacturing Index (NMI), which registered 56.8% in January, 3.8 percentage points higher than the seasonally adjusted 53% registered in December.
“Business is stable, though there is concern about cost pressures and the sustainability of the recent spike in activity,” noted Anthony Nieves, chairman of the ISM’s NMI survey committee.
The ISM’s Purchasing Managers Index (PMI) is also up, registering 54.1% in January – an increase of one percentage point from December, indicating expansion in the manufacturing sector for the 30th consecutive month. In particular, ISM’s New Orders Index increased 2.8 percentage points from December last year to 57.6% in January, reflecting the 33rd consecutive month of growth in new orders.
“Manufacturing is starting out the year on a positive note, with new orders, production and employment all growing in January,” added Bradley Holcomb, chairman of ISM’s manufacturing business survey committee.
Including the ISM’s figures with the payroll jobs increase of 243,000 in January creates in the words of Nigel Gault, an analyst with consulting firm IHS Global Insight, an “upbeat message” about the U.S. economy.
“They suggest a virtuous circle may be forming, whereby employment and consumer spending move up together,” Gault noted in a recent brief earlier this month. “In combination with better news from Europe, recession fears are easing still further, and growth prospects for 2012 are improving.”
However, UCLA’s Leamer pointed out that January’s data places the PCI 2.2% below year-ago levels with essentially no growth in the year-and-a-half since the summer of 2010.
He believes, though, that the year-over-year changes in the PCI make it look very accurate as its three-month moving average peaked at 8% in July 2010 and has fallen steadily to essentially zero percent in January. Yet he stressed that the negative downswing in the PCI could also, however, be indicative of a “lull” before a soon-to-arrive burst of renewed economic activity as well.
“The PCI year-over-year peak in 2010 and the deterioration throughout 2011 have correctly anticipated the same movement of industrial production, total business real inventories, and real retail sales,” he said. “The weakness in the PCI is suggesting either further weakness in these indicators or a big gain in trucking in February, March and April.”
