Leamer: Pulse Of Commerce Index Measures More Than Fuel

October 06, 2011

Relatively new index provides instantaneous measurement of diesel fuel sales that provides quick picture of macro look at the economy.


Ed Leamer is chief economist at the Ceridian-UCLA Pulse of Commerce Index and a faculty member at UCLA. Leamer took the time recently to discuss with HAI Managing Editor Drew Voros the Pulse of Commerce Index, which debuted in February 2010. The index provides real-time economic data based on diesel fuel consumption from over-the-road trucking and can serve as an early indicator of macroeconomic developments because of its instantaneous data collection, according to Leamer.

Hard Assets Investor: What does the Pulse of Commerce Index provide that was missing from other economic data points?

Ed Leamer: We just don’t have much in the way of evidence about trucking activities. For the U.S. or for any country, think of [goods and products] inventory as a big reservoir. It has a certain level in it. And there’s a flow out of it, which is sales, and there’s a flow into it as well, which is the replenishment activities. This inventory has primarily been measured in terms of the height of the reservoir, how much inventories are. And that’s done inaccurately. The small wiggles in inventories are pretty hard to measure.

HAI: Can you talk about the methodology and how the data is collected?

Leamer: This index is meant to be a measure of inventories in motion, inventories destined for some new location. What’s actually measured is the volume of diesel purchases. Whenever a truck, whose driver has a Comdata credit card, purchases diesel fuel, that credit card transaction is recorded within a half second on Ceridian computers in Nashville. That’s the database.

We use the volume of diesel fuel, aggregate that to the level of the country, and that’s our index. There are 7,000 U.S. truck stops that are being monitored by this index.

HAI: What does the Pulse of Commerce Index tell an investor?

Leamer: For example, investors want to know if we are going to go into a recession right now. Everybody is scared to death in the equity markets. It’s a crazy time. Investors need to be able to sort out what’s coming clearly with regard to the economy, because that’s critical in their short-term portfolio outcome. If you decompose the index of leading indicators, there are only three or four components that are really very good for telling you where we are and where we’re going.

HAI: What are those components?

Leamer: Well, the slope of the [Treasury] yield curve is important. Normally you would get an inverted yield curve going into a recession, which we haven’t had. We think manufacturing hours are important because you usually have manufacturers cutting overtime, and therefore having a decline in weekly hours, which we haven’t had.

And then the other important component is building permits. If you asked me if I were going to be cast away on a desert island and I wanted to have three things that warned me that a recession was coming to the United States, those would be the three.

The fourth would be this tracking index.

HAI: And the difference with this tracking index is that it’s simultaneous data?

Leamer: Exactly. These are real transactions. The slope of the yield curve is similar in the sense we know a lot about Wall Street on a second-by-second basis in terms of actual transactions. We know what the bond prices were yesterday. We know it on a second-by-second basis. So that’s a sense in which that measure is analogous. But we don’t know much about Main Street; you know building permits and weekly hours of manufacturing. That always comes out after the fact.

HAI: What’s the easiest place to find this index for someone?

Leamer: Go to www.ceridianindex.com. There are all kinds of data there about the index and what it implies.

HAI: Does anybody use it for actual trading purposes? For example, has anyone constructed an ETF off the index?

Leamer: Not that I’m aware of. That would be interesting. The data sets are extremely rich, both geographically and timewise, because you’ve got purchases at 7,000 truck stops on a second-by-second basis. My understanding is that some investment banks are making use of this information.

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