Tea Leaves

The Ceridian-UCLA Pulse of Commerce Index uses real time purchase volumes for diesel fuel as a proxy for over-the-road trucking volumes, which in turn relate to the volume of goods-in-process and final goods moving to distributors and retailers. According to the latest publication, the consecutive monthly declines for August and September have not been seen since 2009 and suggest that the economic momentum for inventory rebuilding has come to an end. The performance of this index is said to lead turns in the Federal Reserve's Index of Industrial Production. While we haven't worked with this Index directly, we have tried to use diesel fuel volumes as an indicator before, but never had the data that Ceridian can generate by providing financial services to volume purchasers. It's not a good sign.

At the same time, a friend who is in the market for rail cars indicates that cars are, and have been, coming out of mothballs, which is a positive for the rail car mode. Rail cars are associated more with movements of fuels, grains, fertilizers, chemicals and agricultural commodities. What he's seeing correlates well with the movement in grain prices, and it seems to be also related to growing export demand, despite the grousing about currencies. The problem with this indicator is that is seemingly more contemporaneous than leading. We'll have to wait and see, but the great results reported by Cargill yesterday reflect strength in the types of commodities that ship by rail, and to a lesser extent trucks.

Finally, the European Central Bank has published a paper by de Bondt, Maddaloni et al. that surveys the relationship between low rates in the run up to the financial system collapse, and it suggests that central banks may again be keeping rates too low for too long. The Fed is due to make more august pronouncements this week, and it may have painted itself into a corner. Backing away from the low rate commitment is off the table, especially given the pending mid-term elections. However, it is a very reasonable question to ask, namely the diminishing power of monetary policy to effect a meaningful boost of adrenalin to the economy going forward.