Although the Consumer Metrics Institute Growth Index (CMIGI) has probably not been around long enough to prove its mettle, the recent ski-slope-like dive (blue line) is hard to ignore.
As it happens, Larry Doyle, long-time Wall Street veteran and publisher of Sense on Cents, just had Richard Davis, the creator of the CMIGI, on his weekly radio show, "No Quarter Radio’s Sense on Cents with Larry Doyle," where they discussed the indicator and what it might be saying about the health of economy.
Here is an excerpt from the interview, in which Mr. Davis first addresses the issue of how government analysts and economic academicians have problems in sourcing and studying data to project GDP.
RD: There’s a problem with the lag in getting the info. The second problem they have, they’re looking at production (LD’s edit: as opposed to the CMI’s focus on real-time consumption) which is way downstream. We think what’s happening in the economy isn’t necessarily what’s happening at factories.
LD: So, you’re way upstream with the consumer?
RD: We’re way upstream with the consumer. It’s going to take some time for the impact of the consumer to flow downstream to production.
LD: In layman’s terms, what you just told me is you’re ahead of the curve or you’re ahead of the academicians or the government analysts in measuring GDP.
RD: Yes. Just by virtue of where we’re sampling. We’re sampling upstream and we’re getting daily data. It takes us two days to authenticate and validate, not a month, and we’re measuring on a daily basis.
LD: Could I be so abrupt and ask you what 1st quarter GDP is going to be?
RD: 1st quarter GDP, we would guess, is going to be about 2.5%. The reason I say that is that’s where our numbers were 17 weeks earlier. What we notice is that our Daily Growth Index, as we call it, leads the GDP at least over the last 6 quarters by about 17 weeks.
LD: Wow!! That right there is an unbelievable statistic. I mean 17 weeks, heck, that’s more than a quarter itself.
RD: Yes, yes it is. In fact, the 1st quarter GDP will approximate where our numbers were at the end of November.
LD: So if that is the case, instead of 1st quarter GDP, could I be so bold as to ask what you think 2nd quarter GDP is going to be? RD: Oh you may, you may! We would guess that the 2nd quarter is going to end up in contraction by about 1.5%. (LD’s edit: That’s -1.5% 2nd quarter GDP, boys and girls!!)
RD: That’s where consumers are at right now.
LD: You’re saying again, I just want to go over that, you’ve got 2nd quarter GDP contracting by 1-1.5%. You think that’s just a function of the wearing off of stimulus? Wow!! That’s a big number. You’re not going to make a lot of friends in Washington with that call.
RD: We don’t get invited to the Washington parties!
LD: You’re invited back to No Quarter Radio’s Sense on Cents with LD whenever you want.
RD: The reality is, as we look at the data there were two bursts of consumer activity that occurred to trigger the recovery, although this is a jobless recovery which, in my mind, most consumers and most citizens would consider a jobless recovery an oxymoron. There is no such thing. Given that we have this thing that the Fed is convinced is a recovery, it’s all the spin. We saw consumers do two things. We saw consumers spend more in Christmas 2008 relative to a year earlier, although it was barely noticed, and they spent again starting in March 2009, but that peaked in August. Since then it’s been basically downhill.
LD: Wow. That’s amazing insight.
Click here to read (and listen to) the rest of the interview.