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Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. Larry was involved in the growth and development of the secondary mortgage market from its near infancy. After close to 7 years at First Boston, Larry joined Bear... More
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Sense on Cents
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Sense on Cents
  • Consumer Metrics Institute: Double Dip Mild but Prolonged 0 comments
    May 27, 2010 7:02 AM
     Is the economy slipping into a double dip or has it already slipped and we just need to wait a few months for mainstream media to hopefully report on it?

    Clearly our domestic and global economies are very fluid and subject to serious fluctuations given the massive amount of government intervention, but where can we go to receive a real-time look at the economy?

    Let’s review the work of Sense on Cents Hall of Famer Rick Davis of Consumer Metrics Institute. Recall that Rick and his colleagues capture and review a wealth of consumer retail data across ten sectors of our economy on a ‘real time’ basis. While analysts are downstream assessing developments with production, Rick and team are way upstream assessing what the consumers are doing NOW. The current consumer activity is highly correlated with GDP out 17-18 weeks. Yes, we are getting a sneak peek at next quarter’s GDP now. Amazing stuff.

    What does Rick see and what does he project? Let’s navigate.

    May 25, 2010 – Personal Finance Sub-Index Turns Sharply Lower:

    Among our many Sector Sub-Indexes is an indicator that tells us a great deal about how Consumers are viewing their personal financial situation at the current time. The ‘Personal Finance Sub-Index’ is composed of a number of data series, some of which collect transactions that are precursors to default and/or foreclosure activities. The levels of these negative activities are inverted before being included in the ‘Personal Finance Sub-Index’, so that a rapid rise in Consumer transactions with default and foreclosure counseling services, for example, will drive the sub-index down.

    Chart

    Over the last week this Sub-Index reached the lowest level ever recorded, easily surpassing the previous low levels set in late summer 2008 and again in January 2009. The Sub-Index has dropped to numbers that are over 30% lower than year earlier values. Whether this portends a new round of credit challenges for Consumers remains to be seen, but it at least means that some Consumers are trying to be more aware of their legal options concerning their debt obligations.

    Our Housing Sector Index has actually staged a bit of a rally over the trailing two weeks, rising from double-digit year-over-year contraction to a level representing a mere -7% ‘growth’ relative to the same period last year. This rise has been steady since the index hit a recent bottom on May 8th at a greater than 13% contraction. This index has be cycling between -5% and -15% since it slipped into net negative ‘growth’ in early December 2009, and it certainly merits a close watch moving forward.

    Chart

    Overall, our Contraction Watch continues to show that the 2010 contraction in consumer demand is tracking very differently from either the 2006 or 2008 events. In fact the current contraction has not yet formed a clear bottom after 130 days, unlike the two prior events. Our ‘Daily Growth Index’ for our trailing ‘quarter’ indicates a nearly 2% year-over-year contraction now, which is the lowest level recorded since the ‘Daily Growth Index’ fell into net contraction on January 15th, 2010. (LD’s emphasis) This would tell us that if a ‘double dip’ is unfolding we should expect it to be relatively mild but potentially prolonged, extending for several quarters.

    LD: edit: I have interviewed Rick Davis twice on No Quarter Radio’s Sense on Cents with Larry Doyle, first on March 28, 2010 and thenagain on May 2, 2010.

    In my most recent interview on May 2nd, Rick projected 2nd quarter GDP would be negative (likely in the -1.5% range). His data since then indicates a further slippage in consumer activity.

    Chart

    While our resident financial wizards are spanning the globe trying to keep their counterpart central banker friends and finance ministers committed to backstops and bailouts, the real pulse of our American economy is being captured by Rick Davis.

    Thanks Rick for your great work!!

    LD



    Disclosure: no positions
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