Despite economists’ hopes that the nation would see a strong economic recovery after an encouraging fourth quarter in 2009, a new indicator from the UCLA Anderson School of Management reports that the U.S. economy is still weak.
Economic growth fell from a 14.6 percent increase in December to a 3.3 percent increase in January, according to the Ceridian-UCLA Pulse of Commerce Index, which was published for the first time on Feb. 10.
By tracking and analyzing fuel consumption data from trucks moving goods across the country, the index, which was developed by the Anderson School of Management, Ceridian, a global business services company, and Charles River Associates, gives an indication of the future U.S. economy.
Consumer spending, which is determined by the strength of the economy, controls the demand for goods. As a result, tracking the fuel needed for trucks to deliver goods indicates the movement of goods and therefore how much, or how little, disposable money consumers have to spend on goods, according to Ceridian’s Web site.
“Without the movement of goods, the economy dies, so it is hard to imagine anything that is more pertinent to the health of the economy than the movement of the pulse,” said Edward Leamer, director of the UCLA Anderson Forecast and chief economist for UCLA-Ceridian Pulse of Commerce Index.
The 3.3 percent economic growth in the index in January is too low to indicate a fast economic recovery this year, the report said.
“January growth was still positive, but it’s not enough to feel really optimistic about the state of the economic growth this year,” Leamer said.
For there to be any significant recovery of the economy this year, a gross domestic product growth rate of 5.7 to 6 percent must be maintained, rather than the forecasted 2 to 3 percent, according to Leamer.
Because the index and GDP track similarly and therefore have a long-term relationship, their values are expected to reach peak value at the same time, the report said.
As a result, it is unlikely that the 5.7 percent GDP from the fourth quarter of 2009 will continue, as it would require an index of close to 15 percent to bring the index and GDP in line, Leamer said.
“I was looking for the index to be more encouraging and supportive of this idea that we are going to have a strong recovery and that Americans would be put back to work, but unfortunately, the January report doesn’t say that,” Leamer said.
The dramatic difference between December and January’s GDP and index can be primarily attributed to companies purchasing more goods to stock their inventories in the fourth quarter of 2009, rather than from consumer spending.
“We are looking at the next quarter at something other than the inventory, some evidence that this thing is going to continue to plow forward, but we don’t see that, unfortunately,” Leamer said.
The Pulse of Commerce Index was developed about a year and a half ago by analyzing a database Ceridian has compiled on the use of their electronic card payment services for transportation industries, according to Ceridian’s Web site.
Every time a truck gets fuel using a Ceridian card in one of over 7,000 truck stops in the U.S., the transaction is sent to Ceridian computers in Nashville and recorded, allowing the company to analyze the volume of fuel being used by vehicles on a second-by-second basis, Leamer said.
The second-by-second nature of the database makes the index unique because it is based on real transactions and not after-the-fact surveys, which is what most economists rely on, according to Leamer.
By looking at the movement of goods through the index, Leamer predicts that consumer spending will not be what jumpstarts the economy.
“The consensus forecast is that pulse is going to be somewhat weak throughout the whole year,” Leamer said.
“In order to get economic growth here in the United States, it is not going to come from consumer spending, it is going to have to come from exports, and that’s a slower process.”