Below is a chart of global crude steel production as of the end of November. China decreased steel output last month. A “one off” or a new trend?

Of most interest (to me) is what this means for iron ore and met coal prices in 2010 if this recovery in steel production is sustainable. Iron ore producers would need a contract price rise near 50% to make up for the hit they took with the 2009 contracts (down ~ 30% from the previous year). If you own BHP Billiton, Rio Tinto or Vale you should follow these steel production output numbers.

China · minerals · production · steel

Chicago Fed National Activity Index was released last week. A description of the index and its 85 indicators is available here. The Chicago Fed split the 85 indicators into four categories: Production & Income, Employment, Unemployment, & Hours, Personal Consumption & Housing, and Sales, Orders, & Inventories. A 3 month moving average is their preferred way of viewing the data:

We see there has been a sharp recovery in the index since the crash, the 3 month moving average, the CFNAI-MA3, increased now to –0.77, which optimists, market pumpers, and the media tend to view as confirmation we have pulled out of recession. However to interpret the data we should surely follow the criteria set by the Chicago Fed itself, after all it is their index, they know how to interpret it. To interpret the data in the context of the business cycle the Chicago Fed say “A CFNAI-MA3 value above +0.20 following a period of economic contraction indicates a significant likelihood that a recession has ended.” So we have a way to go before this index indicates a likelihood that we are out of recession.

The reason we are not coming out of recession, using the CFMAI criteria, is the personal consumption and housing category. Here is a chart of the 3 month moving average of that category:

Whoooah. It is heading back down.

CFNAI · Consumption · Housing

The U.S. Census Bureau released the Advance Monthly Retail Trade and Food Services Survey late last week and on the face of it it seems like good news. By that I mean good news that IS good, whereas “less bad” has often been taken as being good in recent times. Seasonally adjusted retail sales were up 1.3% from the previous month and 1.9% year-on-year. Of course this is a survey of retail sales, with a reported error margin of ±0.5%, not a tally of actual data. So how reliable is it?

At the risk of sounding like I wear a tin-foil hat, should we believe government surveys? I figured that the best way to satisfy myself that this survey gives a credible picture of main street was to compare the survey data with states sales tax receipts. To do this I downloaded all the data via Mathematica and used Mathematica to analyze the data and make the plots shown below.

Quarterly sales tax data reported by the states is collected by the US Census bureau and can be found here. Historical survey data is available here.

The first step in making the comparison was to convert the monthly survey data into quarterly data. The next chart plots total quarterly sales taxes and quarterly retails sales survey data. Note that I’ve included items such as motor fuel sales taxes, and taxes on alcohol and tobacco, in the total sales tax number.

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retail sales

At first glance the contraction in the trade deficit for October looks positive. I’m generally wary of seasonally adjusted data — not because seasonal effects don’t exist but because I prefer to see the raw data and the algorithm used to do the smoothing. Non seasonally adjusted data for the trade in goods is available here.

A seasonal plot of the trade deficit, derived from 22 years of data, is shown in the next chart.

From that chart we see that October is typically a larger deficit month. That should mean that a reduction in the month-on-month deficit in October 09 is good news. However October (along with March) is typically the biggest month for exports, and October is the biggest month for imports. While exports of goods grew 9.7% in October, compared to an average October growth of 7.4% from 1987-2008, imports were up 3.9% rather than the 8% seen on average from 87-08. Does that signal weak consumer demand? That interpretation seems consistent with what we know about retail sales and rail freight movements.

Outbound and inbound container movements from the ports of Los Angeles, Long Beach and New York/New Jersey are shown next. Note the clear seasonal pattern in the inbound container data.

The outbound container data, while oscillating a bit, seems fairly flat.

Is this data positive? At best we need to see how the data tracks between now and the end of Q1 2010 but to me it looks more indicative of an L shaped recovery than an indication of a V shaped rebound that many are wishing for.

(Mathematica was used for all retrieving, processing, and presenting of data in this article)

US trade

Total carloads and intermodal rail freight data are plotted in the two charts below as 4 week moving averages. The improvement we’re seeing needs to be viewed in the context of a trending increases in freight that occurs throughout the year through to October. The data certainly lacks the characteristics of a V shaped rebound. At this stage L shaped looks like a better letter to describe the economic path.

rail freight