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Industrial Index Signals Recovery
Monday, 03 August 2009 00:00

JoC-ECRI index turns green for the first time this year, signaling budding manufacturing confidence

For all the debate over “green shoots” and “brown shoots,” it is increasingly clear that a global industrial recovery is taking root and is starting to fertilize economic recovery worldwide. But many of the patches remain barren.

The growth rate of the index of global industrial prices compiled by The Journal of Commerce and the Economic Cycle Research Institute moved into positive territory for the week ending July 24—the first time in almost a year. The move above the negative line signals an improvement in global demand for raw materials used in industrial production.

The index, which is based on the daily prices of 18 raw materials, ended the week 3.3 percentage points above the week before and was 4.5 percent above the index average over the previous 52 weeks. A week earlier, the IPI was down more than 5 percent.

“That’s a pretty dramatic recovery when you consider that we were at minus-69.3 percent on Dec. 19,” said Lakshman Achuthan, managing director of ECRI, the New York-based economic forecasting firm that compiles and tracks a number of leading indicators for economic activity around the world. “That’s over a 70 percent move, which is a lot,” he said. “That’s very consistent with the restarting of global industrial activity. In some cases, that’s associated with an outright upturn in the business cycle of some economies.”

Achuthan said ECRI’s leading indicators across-the-board are signaling a recovery.

“This is literally a textbook recovery. The likelihood that over a dozen leading indicators for the U.S. are missing something is extremely low, so we are very emphatic that the beginning of the recovery is at hand,” he said.

For most of the industrial world, however, that may mean it is only the beginning of a recovery. Carriers and their customers are watching closely for any signs that the broad indexes are translating into greater shipping demand.

“We’re seeing the volumes slowly creep up, but collectively for both imports and exports, we’re still far off from where we all need to be or want to be,” said Abed Medawar, president of Somerset Marine, a nonvessel- operating common carrier based in Hilisborough, N.J. “Exports to all over the world are well ahead of where we were at the beginning of the year, but imports remain well below the level where we’d like to be.”

The signs of recovery come because companies have drawn down inventories so low that they had no choice but to restock. “The free fall in economic activity is behind us,’ said Nariman Behravesh, chief economist of IHS Global Insight, a Lexington, Mass.-based economic forecasting firm. “The big question is: How much of this is related to the end-of-the-inventory cycle? Does that mean we have a sustained recovery in place, or does it mean we have a temporary bounce?”

He said the answer to this question would have the strongest ramifications in Asia’s export economies, particularly China.

The upturn in the business cycle so far is occurring in the U.S., U.K. and Asia. “The industrial upturn is now being joined by a broader economic recovery in those areas, but in continental Europe and Japan, the recovery is not yet in clear sight,” Achuthan said.

The issue now for companies such as ocean container lines and truckers is “whether they can last until the recovery starts hitting their business,” he said. Even in economies that have not started to recover, such as Europe and Japan, an industrial recovery is under way. “The export-oriented sectors may fare better than the broader economies because they are impacted sooner by an upturn in global trade. “We do see a global industrial cycle because we are all sourcing from each other,” Achuthan said. “Therefore, it’s becoming less common to see a strong upturn or downturn in manufacturing in one area that doesn’t impact manufacturing in another area.”

Achuthan sees the recovery coming in the production of machinery, equipment and commodities that go into manufacturing, which is “earlier in the pipeline” than the production of consumer goods.

When industrial activity restarts, the first place it happens is at the beginning of the supply chain, such as raw materials and components for manufacturing. “Then it will start to filter through into an actual car, for example,” he said. “As the recession draws to a close, cars will start breaking down, the fear of job losses will start to ease, credit will be easier to get, and car sales will come back.”

In the U.S., the economic recovery has started even without the spending of most of the $787 billion in the economic stimulus enacted by Congress.

“The business cycle wants to recover because of pent-up demand and lower prices, and a little bit of confidence. The stimulus still has to fall on top of that. The bulk of the stimulus will reinforce the recovery that will begin this summer,” Achuthan said. “That’s what the Industrial Price Index is showing.”

The IPI, which exceeded 132 a year ago, has fluctuated in the low 80s since June 5, and after two weeks of downticks, the index moved up to a 2009 high of 86.1637 for the week ending July 24, a level not seen since late October.

The JoC-ECRI Industrial Price Index was created in 1985 by Geoffrey H. Moore, the renowned economist who pioneered the study of business cycles at the National Bureau of Economic Research, where a committee of economists that he established is still the official judge of when the U.S. economy goes into and out of a recession.

The index is based on the prices of 18 industrial commodities that are tracked by the index that is compiled every weekday by The Journal of Commerce and ECRI.

The index is based on what ECRI economists call the “bullwhip effect,” which describes how small shifts in the growth of consumer demand are amplified through the supply chain into big swings in price at the wholesale level.

Journal of Commerce, 8/3/2009

 
Group aligns against Mexico tariffs
Thursday, 30 July 2009 00:00

A group of more than 150 companies and organizations affected by trade tariffs with Mexico is awaiting a meeting with transportation secretary Ray LaHood.

The group, chaired by the Washington, D.C.-based National Potato Council, announced its official name late July: Alliance to Keep U.S. Jobs.

Mexico reinstated the pre-North American Free Trade Agreement tariffs in direct retaliation to Congress' move to stop funding the Department of Transportation's Cross Border Trucking Pilot Program. In response to the tariffs, President Obama ordered the Department of Transportation, the Office of the U.S. Trade Representative and the State Department to come up with a new plan that would appease Mexico, as well as address the safety concerns of Congress.

“Due to all of the legislation, the health care, appropriations and food safety, they’re (Congress) probably not going to get to this until fall,” said Meghan Kolassa, director of government affairs for the National Potato Council.

LaHood addressed the issue May 21 at the National Press Club and said the White House was vetting a proposal.

“We’re kind of still in that holding pattern,” Kolassa said.

Meanwhile, the group already met with the Federal Motor Carrier Safety Administration, a division of the Department of Transportation, and put in a request to meet with LaHood. The Department of Transportation is the lead agency on the issue.

Kolassa said representative groups from the apricot, apple, cherry, fig, grape, strawberry and tomato industries are part of the alliance, as well as regional and state groups like the Georgia Fruit & Vegetable Growers Association.

In the potato industry, shipments of frozen potato products from the U.S., which were hit with a 10% tariff in March, are down 29%. Canada’s frozen potato exports to Mexico are up 33%, Kolassa said.

There is potential for that overflow to carry into the fresh side, causing an oversupply.

“It’s less likely this year because buyers are under contract, but next year, we don’t know what the trickle down effect will be,” Kolassa said.

The tariffs also cut pear shipments to Mexico down by a third as of late June.

If the tariff issues aren’t resolved by fall, grapes and strawberries will join the list of commodities affected by difficult business with Mexico.

The Mexican government said it wants a plan similar to the one that was cut in order to drop the tariffs. U.S. groups like the teamsters union argue that safety concerns should keep Mexican trucks off U.S. highways.

ThePacker.com, 7/30/2009

 
Rockefeller Pushes STB Oversight
Thursday, 30 July 2009 00:00

Key senator tells nominee captive shippers treated unfairly

Sen. Jay Rockefeller, D-W.Va., told the nominee to head the Surface Transportation Board that captive shippers have suffered unfairly as federal regulators weighed in on the side of railroads in the deregulation era.

Rockefeller, who chairs the Commerce, Science and Transportation Committee that oversees the STB, and is drafting legislation to alter rail regulation, made the remarks after Daniel R. Elliott III said as STB chairman he would be neutral in issues coming before the agency and would favor neither railroads nor shippers.

Rockefeller would have none of that, telling Elliott that usually on issues of law “there is a feeling of who’s right and who’s wrong, and I think what you’re trying to do is bypass” giving his views by pledging neutrality. “When you get to the problem of captive shippers, nothing is neutral,” the senator said.

Elliott is an attorney for the rail conductors’ group, the United Transportation Union. Unions have often sided with shippers in the past to resist railroad positions in regulatory proceedings. The nominee repeatedly assured senators that he would be neutral.

Nominees for various government jobs, from the Supreme Court to regulatory agencies, often try to avoid being pinned down about their views on issues they will soon have to tackle. But in the Commerce Committee’s July 28 hearing on the nominations of Elliott and several others picked for jobs in the Obama administration, Rockefeller made clear he wants rail regulators to change some things.

And Rockefeller made clear his own views on the conflict between shippers whose cargoes may be captive to a single railroad, and the railroads they use. When Elliott said that “obviously as a decision maker at the board I have to be neutral and apply the law as it is,” the chairman interrupted to challenge how regulators have performed.

“If there’s anything that stands out in the history of captive shippers, that’s why it’s been an issue for so long,” Rockefeller said. “The (1980) Staggers Act has not been applied fairly. It’s been applied to the advantage of the railroads, to the disadvantage of the shippers who often can’t bring suit because it will cost them too much money or it will take them too much time and they’ll get worn down by the bigger railroads.”

Journal of Commerce, 7/30/2009

 
FMC Drops Clean-Trucks Probe
Thursday, 30 July 2009 00:00

Commission acts after changes in Los Angeles-Long Beach rules, court rulings

The Federal Maritime Commission is ending its investigation of the Los Angeles-Long Beach clean-trucks program, saying developments since it launched the probe last September have significantly diminished the need for the agency’s involvement.

The FMC said it was dropping out of its role in the controversial trucks program a month after asking a federal court in Washington to drop a lawsuit the commission had filed against the port plans.

Several key issues in the FMC investigation, including the ports’ concession agreements and the Port of Los Angeles employee driver mandate, are the subject of an American Trucking Associations lawsuit in the U.S. District Court in Los Angeles, the FMC noted.

Also, the ports in recent months modified provisions in their program involving collection of a clean-trucks fee. The ports also amended their subsidy programs to help motor carriers purchase new trucks, addressing some of the commission’s concerns about those efforts.

As a result, the FMC said, the need to continue its investigation under Section 10 of the Shipping Act of 1984 is diminished.

“In view of the substantially changed circumstances with respect to the matters under investigation, the additional expenditure of resources to continue this proceeding is not warranted,” the FMC’s Bureau of Enforcement stated in the motion to dismiss it filed with the commission.

The FMC on June 16 had filed a motion with the U.S. District Court in Washington, D.C.; to drop a lawsuit the commission had filed seeking a preliminary injunction against certain aspects of the Los Angeles- Long Beach clean-trucks program. 

Litigation involving the port concession requirements in the clean-trucks program is now confined to the ATA lawsuit. The U.S. District Court in Los Angeles, following an order from an appeals court, enjoined on April 28 certain aspects of the concession agreements, including some of the provisions that were of concern to the FMC.

The U.S. District Court in Los Angeles has requested information from the parties and is scheduled to hear the case on its merits in December.

Journal of Commerce, 7/30/2009

 
JoC-ECRI Index Shows First Growth in a Year
Monday, 27 July 2009 00:00

IPI grows 4.5 percent, reaches high point of 2009

The Journal of Commerce-Economic Cycle Research Institute index of global industrial prices moved into positive territory for the first time in almost a year for the week ending July 24, signaling an improvement in global demand for the raw materials that go into industrial production.

The Industrial Price Index, based on the daily prices of raw materials used in industrial production, ended the week growing 3.3 percentage points to 86.1637; the highest point IPI has reached since Oct. 24, 2008.

The improvement marked a 4.5 percent improvement over the index’s average over the previous 52 weeks, the first time it has grown since the first week of Aug. 8, 2008, shortly before the onset of a steep decline in world financial markets.

“That’s a pretty dramatic recovery when you consider that we were at minus 69.9 percent on Dec. 8,” said Lakshman Achuthan, managing director of ECRI, the New York-based economic forecasting firm that compiles and tracks a number of leading indicators for economic activity around the world.

“That’s very consistent with the restarting of global industrial activity. In some cases that’s associated with an outright upturn in the business cycle of some economies,” he said.

The upturn is occurring in the United States and Asia, excluding Japan and the United Kingdom, he said. “The industrial upturn is now being joined by a broader economic recovery,” Achuthan said. “But in continental Europe and Japan, the recovery is not yet in clear sight.”

Even in Europe and Japan, the export sectors may fare better than the general economies because they are impacted sooner by an upturn in global trade, he said.

The IPI has fluctuated in the low 80's since June 5, and after two weeks of downticks, the index moved up 3.33 points to a 2009 high of 86.1637 for the week ending July 24.

On a strict year-over-year basis, the index remains far below the 132.2840 recorded a year ago, but the sequential increase suggests growing confidence and competition for raw materials in industrial markets.

The JoC-ECRI Industrial Price Index was created in 1985 by Geoffrey H. Moore, the economist who pioneered the study of business cycles at the National Bureau of Economic Research, where a committee of economists that he established is still the official judge of when the U.S. economy goes into and out of a recession.

The index is based on the prices of 18 industrial commodities that are tracked by the index that is compiled every weekday by The Journal of Commerce and ECRI.

The index is based on what ECRI economists call the “bullwhip effect,” which describes how small shifts in the growth of consumer demand are amplified through the supply chain into big swings in price at the wholesale level.

The JoC-ECRI Industrial Price Index has a remarkable record as a barometer that can forecast broad trends in the world's industrial economy.

The JoC-ECRI index differs from other commodity indexes in several ways. It is not a weighted average, but a pure reflection of prices. It does not include agricultural commodities or precious metals such as gold or silver, but only materials that are used in industrial production, such as nickel, tin, aluminum, plywood, benzene, cotton, burlap and crude oil.

In addition, half the commodities in the index are not "exchange-traded" commodities, which means their prices are not established on the floors of any of the world's commodity exchanges.

This serves as a reality check on the prices of the other half, so the index cannot be skewed if a hedge fund or a speculator tries to manipulate the price of a commodity, as the Hunt brothers tried to do in 1980 when they bought half of the world's deliverable supply of silver.

Journal of Commerce, 7/27/2009

 
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