The Ceridian-UCLA Pulse of Commerce Index, or PCI, by UCLA Anderson School of Management tumbled 1.9 percent in June after its impressive 3.1 percent gain in May.
Coming in the midst of other disappointing economic reports, the PCI’s drop seemingly reinforces the fear that the economy is on the brink of a double-dip recession, but further analysis tells a different story, according to PCI Chief Economist Edward Leamer.
“While June’s number is substantially down, erasing two-thirds of May’s great gain, the daily and weekly activity on which the monthly PCI is based does not suggest that the economy is heading over a cliff,” said Leamer.
“Part of the apparent strength of May and weakness in June is the result of the Memorial Day holiday occurring on the last day of May, allowing the negative Memorial Day effect which is usually confined to May to leak into June. More importantly, the June weakness was confined to the first two weeks, and by the second half of June, we were seeing strong growth again.”
The PCI data also indicates strong year-over-year and quarter-over-quarter growth, even though the month-to-month comparison is worrisome. The annualized number for June climbed 8.6 percent, the seventh consecutive month of positive year-over-year results.
“The PCI has not been showing the sustained negative numbers characteristic of a double-dip recession,” Leamer said.
The PCI is based on an analysis of real-time diesel fuel consumption data from over the road trucking tracked by Ceridian, a global provider of electronic and stored value card payment services and human resources solutions.
By analyzing payment card data for the location and volume of diesel fuel purchased by truck operators, the PCI provides a detailed picture of the movement of goods and materials across the United States.
The PCI closely tracks the Federal Reserve’s monthly Industrial Production (IP) index and forecasts expected results for the IP, which is released later in the month. Due to the negative June PCI report, the PCI is projecting June IP growth of 0.25 percent.
On a quarterly scale, the PCI grew 6.2 percent during the second quarter 2010, down from previous periods. The weaker PCI number suggests a Q2 GDP growth rate of only 2.5 percent, which is a positive number but not significant enough to put the unemployed back to work.
“Since the last half of 2009, manufacturers had been actively replenishing inventories, which brought the quarterly PCI numbers up due to more trucking activity. Now that the heavy period of inventory build-up is over, we’re seeing a corresponding drop in the quarterly number,” said Craig Manson, senior vice president and index expert for Ceridian.
The Ceridian-UCLA Pulse of Commerce Index also provides data for the nine Census regions. The decline in June is widespread, with only the New England region (e.g. Maine and Vermont) experiencing an increase, improving 0.9 percent. Areas of the country seeing the most significant decreases included the East South Central region (e.g. Alabama and Tennessee) dropping 3.7 percent and the East North Central region (e.g. Ohio and Michigan) declining 3.1 percent.