Tuesday, September 15, 2009

Economy Improving...Slowly

I've noted several hopeful signs that the U.S. economy is improving. First, it is being widely reported that Federal Reserve Chairman Ben Bernanke says it is over, so it MUST be true. Actually, what he said at a speech today is, "the recession is 'very likely over.'" This is old news to economic analysts, who estimate that the gross national product is growing at a rate of 3% in the third quarter (July through September). Of course, a recovery is a lengthy process, so while the economy is expanding, there are still jobs being lost, albeit at a considerably slower pace than before. (Here is a more comprehensive article from the Wall St. Journal - good for at least seven days.)

The second glimmer of hope is an improvement in manufacturing. Earlier this month, the Institute for Supply Management's manufacturing index (below) showed a sharp spike, rising from the mid-30's to 52.9. A number above 50 means the manufacturing sector is expanding. The index has not been sustainably above 50 since mid-2007. This is good news to me because manufacturing and industry are big natural gas users. (Here is an interesting feature article from the Sunday New York Times)

Third, the Commerce Department released figures showing that retail sales for the month of August increased 2.7%. This was no surprise because the "cash for clunkers" program drove huge increases in auto sales, but it exceeded analysts expectations of a 2% increase. Stripping out car sales, retail sales increased 1%. That's not a lot, but it is movement in the right direction. Like it or not, retail sales are a huge driver of our economy (BTW, I don't like this fact), so their recovery is good for all sectors.

As I've said before, there are lots of reasons natural gas prices are down, but one of the biggest is the recession and the decrease in demand. I view the above developments as very positive to the fundamental demand for natural gas. It will not be an overnight recovery, but the first step in turning the aircraft carrier is changing the direction of its momentum.

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