From trainloads of trash to diesel fill-ups by truckers, lesser-known economic data could be pointing to a stronger-than-expected recovery
U.S. economists and markets are almost hard-wired to respond in knee-jerk fashion to the latest numbers issuing forth from the U.S. Commerce Dept., the Bureau of Labor Statistics, and other government agencies, as well as established industry organizations such as the Institute for Supply Management. By recent measures, the U.S. economy isn't rebounding as quickly as some had hoped. But there's a wealth of lesser-known metrics that offer a more nuanced view of the economy—and in some cases, these hidden indicators reflect greater confidence that the recovery is on track and sustainable in the long run.
One of the more intriguing shadow metrics is the Pulse of Commerce Index, or PCI, a joint project of Ceridian Corp., a consumer services outfit, and the Anderson School of Management at the University of California at Los Angeles. The index climbed 3.1 percent in May from April, the largest monthly increase since February 1999. The PCI uses a very specific industrial measure to represent the overall strength of the broader U.S. economy: diesel fuel sales at roughly 7,000 truck stops across the country. If you think of the interstate highways crisscrossing the country as the arteries of the U.S. manufacturing economy, "the goods flowing in those arteries are the lifeblood of the system," says Ed Leamer, chief economist for the Ceridian-UCLA PCI. "This is the supply chain in operation."
And unlike lagging government data, the PCI reflects real-time info recorded instantaneously by sensors at each of those 7,000 truck stops. The pop in the May PCI calls for a big boost in industrial production, and given the historic relationship between the PCI and real growth in gross domestic product, the May PCI implies GDP will grow 3 percent to 5 percent in the second quarter, ahead of the normal 3 percent pace, according to the June 10 PCI report.
Real-time or not, the PCI is just as subject to uneven movements as any other economic indicator.
Leamer says the June PCI will almost certainly be below the May level since inventory restocking by manufacturers, which has had a major influence on PCI, can't continue to contribute to economic growth to the extent it has over the past three quarters.
Service-Sector Measures
Train shipments of waste and scrap materials have been increasing at the fastest pace in 16 years and have a higher correlation with economic growth than coal or copper, data compiled by Bloomberg News show.
Most economic measures tracked by investors—both mainstream and of the shadow variety—tend to focus more on the manufacturing sector, whose importance has been eclipsed by a growing, and now dominant, service economy over the past decades. The Institute for Supply Management's nonmanufacturing index is a notable exception. The component indexes within the NMI offer some telling clues about the broader economy. The data in the employment component of the survey "really do tell us where employment is going," says Richard DeKaser, president of Woodley Park Research in Washington, D.C., and chair of the National Association of Business Economics' Outlook Survey Committee. Nonmanufacturing employment has been rising fairly steadily since January while prices and new orders for nonmanufacturing were down in May from April, according to the ISM release on June 3.
DeKaser sees a strong correlation between electricity usage and the service economy. The commercial segment of the electric output data that the Edison Electric Institute releases weekly represents certain aspects of the service sector, such as office and retail space, he says. "When you're filling up office buildings, and office buildings are working overtime—and the same for retail stores—that's a good proxy for those sectors." Total electric output for the week ended June 5 was up 10.8 percent from the same week in 2009 and was basically unchanged from the prior week but up nearly 12 percent from two weeks earlier.
