Pulse of Commerce Index: A 0.2% Increase in December

The latest Ceridian-UCLA Pulse of Commerce Index (PCI), a measure of the economy based on diesel fuel consumption, is now available.

The published report highlights the 0.2% increase in December with some interesting speculation on the apparent disconnect between the PCI and economists' forecasts for Q4 GDP.

Here is an excerpt from the report followed by a pair of charts to illustrate the behavior of this indicator, the second of which adjusts for population growth.

"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.

Although December's news is positive, 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. In the past three months, compared to the prior three months, the PCI increased at an annualized rate of 0.5 percent. On a year-over-year basis, the PCI was down 0.7 percent in December compared to the 0.9 percent year-over-year increase in the prior month." (PDF full report) .

The first chart shows the PCI index unadjusted and seasonally adjusted. As we can readily observe, the index had been trending up since end of the Great Recession, but it has yet to achieve the highs of the immediate pre-recession months and now appears stalled. In fact, we're tracking at approximately the same range as December 2005.

In the chart below the 3-month moving average of the PCI is shown with the dotted blue line. The solid line is the same moving average of the data series adjusted for population growth based on the Bureau of Economic Analysis mid-month population data, which is available from the St. Louis Federal Reserve here. The current level of the population-adjusted metric is equivalent to the level of February 2004.

PCI and Retail Sales

The most interesting part of the latest commentary is the discussion of PCI versus Q4 GDP.

"Many Wall Street economists have jacked up their 'backcasts' for fourth quarter GDP growth to 3 percent but the PCI does not support this view," said Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and Director of the UCLA Anderson Forecast. "The PCI measures inventories destined for factories, stores and homes, and the decline in the PCI in the third quarter correctly anticipated the large negative contribution of inventories to GDP growth." With all three months of the fourth quarter now available, the PCI suggests fourth quarter GDP growth of 2.0 percent or less.

"With real retail sales growing more rapidly than the PCI over the last two quarters, however, the first half of 2012 may be an inventory-rebuilding period, allowing inventories to make a substantial contribution to GDP growth," said Leamer.

The Ceridian Index will be especially interesting to watch over the next couple of months.

Note from dshort: See also the analysis incorporated in Lance Roberts' commentary: Industrial Production May Be About To Weaken.