"We feel our index, along with a monthly detailed report, will give our customers, government leaders and other businesses meaningful insight into what's happening in the U.S. economy. This insight is invaluable as businesses, manufacturers, retailers and municipalities determine strategy, plan for growth, or prepare for economic changes." –Greg Macfarlane, executive vice president and chief financial officer for Ceridian Corp.
Here’s an interesting concept – using real-time diesel fuel consumption data by over-the-road truckers gleaned from over 7,000 locations across the country to help track the future direction of the U.S. economy.
The theory is that by tracking the volume and location of fuel being purchased creates an index that monitors over-the-road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers – thus showing whether U.S. economic activity is growing or shrinking. It's a relatively simple concept that even a mathematical neophyte like me can understand!
Though given a somewhat clunky name – the Ceridian-UCLA Pulse of Commerce Index or “PCI” – it nonetheless seems to present an opportunity to really “see” what the U.S. economy is actually doing in real time.
The PCI is based on real-time diesel fuel purchases using Ceridian Corp.'s fuel card by over-the-road truckers at across the U.S. in combination with analysis from economists at the UCLA Anderson School of Management and consulting firm Charles River Associates. Via Ceridian's electronic card payment services, the company said it can track and analyze the volume of fuel being used by truckers on a yearly, monthly, weekly and daily basis. Each transaction acts as a sensor for data, with each card swipe adding to the data set for the index.
Ceridian said the PCI will be issued monthly and is designed to closely mirror the Federal Reserve's Industrial Production Index with one key difference – the PCI is issued days before that Fed’s index is released. National PCI data on a monthly basis starting in 1999 will be available, along with regional breakdowns based on the nine U.S. Census regions, at the website www.ceridianindex.com.
So … what is the PCI saying about the economy now?
The month-to-month fuel data showed the U.S. economy slipping in January to an annualized rate of 36.8% after a significant increase in December. However, the more reliable three-month moving average for January show a 3.3% gain at an annualized rate following an exceptional annualized rate of 14.6% in December last year. What does that all mean?
"Though the January 2010 number is disappointing, the index is 3.6% above its January 2009 level and is similar to year-over-year pre-recession values," said Edward Leamer, director of the UCLA Anderson Forecast and chief economist; the guy in charge of the PCI. "Also, the three-month moving average is 2.3% above the previous year's value, which is the first time that there has been a year-over-year increase since April 2008, 21 very difficult months ago."
Yet the latest PCI numbers suggest caution about celebrating the recently announced 5.7% growth in gross domestic product [GDP] in the fourth quarter last year, Leamer noted. Although the 7.3% growth rate in the fourth quarter of 2009 for the PCI was strong, at that rate the index won't exceed the 2007 second quarter peak until the third quarter of 2011, he stressed.
"Things are going to have to look a lot better in February and March to turn this worry into optimism about the power of the recovery," he said. "Stay tuned: We expect this showing in January indicated by the PCI will also be seen in the Industrial Production number when it is released later this month."
Leamer noted that the high December number for the index may have reflected delayed purchasing and shipments for the holiday season since the index did not see the usual holiday restocking uptick in October 2009.
The PCI’s regional breakdown, based on the nine U.S. Census regions, is also mixed. The East South Central region was the only area enjoying better growth than the previous month, climbing from -1.8% in December to 0.3% in January. While five other regions continued to experience growth in the movement of goods, the pace of growth had dropped from the high December values.
"The majority of the regions may still have experienced growth, but we're not seeing the consistent, positive momentum generally considered necessary to significantly improve the labor market," UCLA’s Leamer noted. "The index numbers for the remaining coastal regions actually dipped into negative territory. All signs continue to point to a weak economic recovery, too slow to drive down the unemployment rate."
"Goods have to be transported for an economy to grow, so it will be important to monitor this index to see if the economy is really on the move," added Craig Manson, a senior vice president with Ceridian and one of its index experts.
That is oh-so-true, so we’ll have to see if the movement of goods starts to pick up in the months ahead.