(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, Sept 27 According to the Wikileaks
diplomatic cables, China's powerful Vice-Premier Li Keqiang told
the American ambassador he paid little attention to official
data on industrial production and GDP -- preferring to focus on
railroad cargo volumes, power consumption and bank loans as more
reliable metrics for growth.
Unlike China's notoriously unreliable data, the United
States spends more than $100 million a year on data collection
and analysis by the Bureau of the Economic Analysis and the
Census Bureau, and has the most comprehensive, timely and
accurate macro data among the advanced economies.
But even for the United States, headline indicators like GDP
and industrial production are compiled from a host of estimates,
surveys and other micro indicators. The process is slow,
sensitive to assumptions, and the data is subject to large
revisions as more concrete numbers become available.
So micro indicators on rail freight, power consumption and
loan growth can still provide invaluable real-time intelligence
about the economy's health -- supplementing and anticipating
headline numbers. Micro and macro indicators are complements. In
fact, for many decades, the Fed's widely quoted industrial
production numbers were partly inferred from electricity
Using Li Keqiang's three indicators, it is clear the U.S.
economy stalled in the first half of the year and remains
moribund at present.
The rebound in rail freight volumes reported in 2010 and the
first three months of 2011 has stopped. Volumes are no higher
than a year ago, according to the weekly carload data released
by the Association of American Railroads (Chart 1).
Power consumption has stagnated this summer after rebounding
from its recession low in 2010 and early 2011, according to
weekly generation data from the Edison Electric Institute (Chart
Only loan growth shows signs of a continuing recovery. The
volume of commercial and industrial (C&I) credit extended by
banks hit $1.3 trillion by the middle of September, up 8 percent
compared with the same period in 2010 ($1.205 trillion),
according to the Federal Reserve.
But it was still 5 percent below the level in 2009 ($1.369
trillion) and down 15 percent on the pre-crisis level in 2008
($1.524 trillion) (Chart 3).
Li's three indicators show an economy still trapped in the
slough of despond it entered back in April, with few signs of
MORE TROUBLE AHEAD
The timing of the continued slump in consumer and business
confidence and activity over late summer is especially
unfortunate because it will likely dampen advance orders for
consumer items placed ahead of the end of year shopping and
Given the time taken to ship goods from China or produce
them at domestic factories, summer is the prime period for
pre-holiday orders. And autumn is normally the peak congestion
period on U.S. railroads, as consumer products compete with the
harvest for track space. So far this year, however, the railroad
tracks show no more activity than 12 months ago.
It is almost an exact re-run of the summer slowdown in 2010.
In that case, faltering confidence over the summer depressed
orders. When consumer sales turned out stronger than expected at
the end of the year, the overshoot was met by a run down in
inventories throughout the supply chain.
But it provided only a tepid boost to growth in the first
few months of 2011. Manufacturers, distributors and retailers
remained cautious and engaged in only limited restocking,
shrinking operating inventory margins further.
The ratio of inventories to sales shrank to just 1.25-1.27:1
between January and March 2011, compared with 1.27-1.29:1 in
2010, and 1.28-1.31:1 in 2007, the last year before the
recession, according to the U.S. Census Bureau's survey of
manufacturing and distribution (Chart 4).
If businesses and households had kept spending, and
manufacturers and distributors restocked, the tight inventory
ratio at the start of the year could have spurred a very sharp
rebound in growth. But rising energy and food prices, a stalling
economy, and slumping confidence, snuffed the recovery out
before it began.
Officials at the Federal Reserve must be hoping for better
luck this time around. But the signs are not auspicious. It is
less than two months before the start of the holiday season and
the consumer and business "feel good" factor remains absent.
Unless the Fed's Operation Twist can somehow produce a
durable bounce in investor and more importantly business and
household confidence, which seems unlikely at present,
Vice-Premier Li's metrics point to a very subdued outlook in the
next few months.
(Editing by James Jukwey)