Mike Shedlock

Inquiring minds are digging into the Ceridian-UCLA Pulse of Commerce Fuel Index for December 2011 report released today.

The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation, rose 0.2 percent in December following the 0.1 percent increase in November and the 1.1 percent increase in October. Unfortunately, the combined effect of the three consecutive positive months was not enough to offset the weakness of trucking last summer and the PCI in December 2011 is 1.2 percent below its June 2011 level and 0.7 percent below its level a year ago in December 2010.

With all three months of the fourth quarter now available, we are able to make an informed assessment of the likely rate of growth of fourth quarter GDP. The fourth quarter PCI was up over the third quarter; but only by 0.5 percent at an annualized rate. The good news here is that this positive 0.5 percent growth of rate for the PCI in the fourth quarter was much better than the third quarter, which suffered a decline at an annualized rate of 4.2 percent.

The PCI annualized rate of growth of 0.5 percent in the fourth quarter is consistent with an estimated GDP growth of 2 percent or less. Although Wall Street economists have jacked up their “backcasts” for fourth quarter GDP growth to 3 percent or higher, the fundamentals as indicated by the fourth-quarter PCI are not so favorable.

Many of these Wall Street economists are basing their improved forecasts on expectations regarding a healthy contribution of inventories to GDP growth. The PCI does not support this view. The PCI measures inventories destined for factories, stores and homes, and the third quarter decline in the PCI correctly anticipated the large negative contribution of inventories to GDP growth. The BEA estimate of the inventory contribution to GDP growth for the third quarter has been varying around -1.5 percent as the data are revised, and is currently at -1.4 percent. That is almost as large as the estimated GDP growth of 1.8 percent. Absent that inventory negative, the rate of growth would have been 2.2 percent.

The fourth quarter PCI of plus 0.5 percent suggests only a modest positive contribution of inventories in the fourth quarter, which implies a GDP forecast that is not as optimistic as many Wall Street economists believe.

However, with real retail sales growing more rapidly than the PCI over the last two quarters, the first half of 2012 may be an inventory-rebuilding period, allowing inventories to make a substantial contribution to GDP growth. This would be very supportive of the recent improvement in the labor market, which may finally be entering a positivefeedback loop during which more jobs help create even more jobs.
Here is a video with Chief PCI® economist, Ed Leamer, on the December results.

3-Month Ceridian Index Moving Average



click on chart for sharper image


Ceridian fuel usage is diesel fuel for truckers. For Gasoline usage and petroleum usage in general, please see Year-Over-Year Gasoline and Petroleum Usage Charts; Shares Decline as Chevron Warns of Weaker 4th Quarter Earnings.

Ceridian Index vs. Retail Sales



That divergence between trucking fuel usage and retail sales is about to resolve to the downside for retail sales.

For details, please see Retail Sales Up Scant .1% in December, Core Retail Sales Decline; Chart of Retail Sales Adjusted for Population Growth and Inflation

Phased In Oil Shock

Under pretense of looking for other sources of oil, EU Iran Oil Embargo Over Nuclear Work Said Likely to Be Delayed Six Months

A European Union embargo on imports of Iranian (OPCRIRAN) oil will probably be delayed for six months to let countries such as Greece, Italy and Spain find alternative supplies, two EU officials with knowledge of the talks said.

The embargo, which would need to be accepted by the 27- nation bloc’s foreign ministers on Jan. 23, is also likely to include an exemption for Italy, so crude can be sold to pay off debts to Rome-based Eni SpA (ENI), Italy’s largest oil company, according to the officials, who declined to be identified because the talks are private.

A ban on petrochemical products would start sooner, about three months after EU ministers agree to the measure, one official said yesterday. Once a decision is made, member states would be barred from concluding new oil contracts with Iran or renewing those that are due to expire, while existing deals will be terminated within six months, according to a second diplomat today. Long-term contracts constitute the bulk of Europe’s purchases of Iranian oil.

Phasing in the European embargo would satisfy the concern of nations most dependent on Iranian crude, including Italy, Greece and Spain, the first EU official said. Those three nations accounted for 68.5 percent of EU imports from Iran in 2010, according to European Commission data.

As Europe weighs its embargo, President Barack Obama’s administration has sent teams worldwide to consult with countries on managing the supply and demand of oil, according to an administration official who briefed reporters in Washington.

OPEC’s other members would be able to make up for a drop in Iranian oil supply if the EU agrees to an embargo, said Chakib Khelil, the group’s former president. Even so, prices may temporarily rally to as high as $200 a barrel on news of any such blockade, he said today in London.

“It should be possible to replace, at least, the European consumption of Iranian oil,” Khelil said in an interview with Mark Barton on Bloomberg Television’s “On the Move.”

Obama's Arrogance Coupled With Economic Idiocy

Anone who thinks president Obama can manage the supply and demand of oil is a fool. Sending teams worldwide in an attempt to do that is not only the height of arrogance, it is economic idiocy

Phased In Oil Shock

Iran is OPEC's second largest oil producer. Bloomberg estimates that Iran pumped 3.58 million barrels of crude a day last month.

The idea that Iran's oil supply can easily be replaced is pure nonsense.

Phasing in an embargo is the same as phasing in higher prices smack in the midst of an already guaranteed monster European recession.

Given that US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon" this move by the US and Europe is not only economic suicide, it is an illegal act of war as well.

Can China Benefit From Obama's Move?

Superficially, the only possible beneficiary to Obama's and the EU's economic warfare is China.

For details, please see China Snubs Geithner on Iran Oil; China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols; Retired Admiral Warns "US Policy Benefits the Chinese"

However, it's important to understand that Chinese "benefit" is an illusion, in isolation.

In aggregate, oil-dependent countries including China cannot conceivably benefit from an oil shock or higher oil prices because global trade will collapse. OPEC exporters may temporarily  benefit from higher prices but the expense will be falling usage and a strengthening worldwide recession

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.
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