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Consumer Metrics Institute: ‘Double Dip’ Very Real

Posted by Larry Doyle on April 22, 2010 2:44 PM |

I have become a huge fan of Rick Davis of the Consumer Metrics Institute, the Colorado-based effort that tracks real-time consumer purchases to project future economic growth. Recall that during my March 28th conversation with Rick on No Quarter Radio’s Sense on Cents with Larry Doyle, Rick projected that 2nd quarter 2010 GDP would register a -1.5% (yes, that is a negative GDP for 2nd quarter 2010). You can read a recap of my interview with Rick here.

What does Rick see lately? Let’s navigate. Rick wrote yesterday:

Speaking of what we do, our Contraction Watch (see top chart below) continues to show a contraction event that has not yet formed a clear bottom. The contraction has, however, extended long enough that the likelihood of the dreaded ‘double dip’ has become very real. Nine of our ten sector indexes are moving in negative territory, with even the Automotive Index retreating to year-over-year contraction after the spike caused by early April incentives faded (see bottom chart below). We have now moved about half-way through the ‘demand’ side activity time period that will ultimately flow down to the third quarter’s ‘production’ side GDP. Unless the blue line in the Contraction Watch chart rises sharply over the next 40 days we can expect that the third quarter GDP will come in very near the second quarter’s, i.e. contracting at about a 1.5% annualized rate.


Rick’s economic analysis is way ahead of the curve. My conversation with him one month ago was off the charts, and I look forward to having him back on NQR’s Sense on Cents with Larry Doyle on Sunday, May 2nd.

LD

  • Fred

    Larry,

    Rick’s expectations are inconsistant with recent gov’t reporting and wall street analyst extrapolation. What does Rick attribute the difference to, it can’t all be cash for clunkers, early tax refund’s or wishful thinking can it?

    On another subject, I’d like to nominate Dr. John Hussman to the economic all-star team. He publishes a free weekly analysis that he posts to his website every Sunday night.

    Of recent interest, he attributes a large portion of this quarter’s reported “financials” earnings to reductions in non-required reserves. With all the manipulation that goes on with earnings why do people still give them top billing? Did I just answer my own question?

    • LD

      Fred,

      Rick is capturing real time data on consumer purchases and projects GDP activity a full 17 weeks forward, that is more than a full quarter. The reporting is typically year over year and does not capture the death rate amongst a lot of stores that have shut down, it merely captures same store sales.

      Thanks for plugging John Hussman. I will look for his material.

      I think you did answer your own question.

  • Fred

    Larry,

    Thanks for the info on Rick’s methodology. It seems that gov’t reports leave out a big chunk of the “shadow economy”, (as does income reporting for tax collection purposes).

    Since GDP would appear to recapture the “shadow economy” as measuredby Rick’s ability to accurately forecast it, in the name of fairness, why doesn’t this country move to a GDP based tax system and why doesn’t the federal gov’t hire Rick on as a statistical consultant?

    And while we’re at it, why doesn’t the Fed include GDP growth as a third mandate, it probable captures the “shadow economy” as it relates to inflation and employment better than do gov’t reports w/o Rick.

    • LD

      I am not sure the crowd in Washington would be able to handle somebody like Rick who is trying to keep us ahead us ahead of the curve while the Washington models have us so far behind the curve.

      In all seriousness, plenty of people who could truly help our nation likely have little interest in working for the government for the very simple reason that the bureaucracy is suffocating.






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