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Consumers Shift to Online Shopping: What Does It Mean? How Do We Measure It?

Posted by Larry Doyle on May 5, 2011 8:58 AM |

With gasoline prices running upwards of $4.00-4.50/gallon, we should not be surprised that consumers are changing behaviors. How so? Let’s go online. In fact that is exactly what more and more consumers are doing as the Financial Times highlights, High Petrol Prices Fuel Jump in Online Shopping,

Online shopping grew by its fastest rate in nearly four years in the US last month as rising fuel prices prompted Americans to cut trips to malls and buy on the internet instead, according to MasterCard Advisors.

US consumers spent $13.8bn online last month, a 19.2 per cent jump from April last year, according to the SpendingPulse survey, which is based on spending on MasterCard credit cards and estimates of other forms of payment.

The increase is likely to outpace sales growth at bricks-and-mortar stores, due to be released on Thursday. The consensus of economists’ forecasts is that sales at stores open a year or more rose 7.7 per cent in April.

While consumer behavior changes, are we supposed to blindly accept the traditional methods of capturing and measuring retail purchases? Why should we be so archaic in this day and age? Why should we be so trusting of entities which will “tell us what they think we need to hear” and sugarcoat it in the process.  Regular readers of Sense on Cents are well aware that I am a huge fan and proponent of Consumer Metrics Institute, an entity launched and run by Rick Davis, which

was founded on a simple observation: many ‘leading’ economic indicators are published, but few (if any) are sufficiently ‘leading’ to be meaningful to investors. In fact, many ‘leading’ indicators use the prior month’s equity market results as a key component of their indexes. Investors may find their last month-end account statement more timely.

To remedy this, the Consumer Metrics Institute has developed (and is continuing to develop) techniques for monitoring ‘up-stream’ economic activities on a daily basis.

Our Vision: Our vision is to revolutionize way in which economic data is collected and published, by moving the methodologies and technologies involved into the twenty-first century. The ‘Consumer Leading Indicators’ we provide are much more timely than most other leading indicators, and they tightly focus on the U.S. consumer, which is the driving force behind 70% of the U.S. economy’s activity.

The increased timeliness is the result of two major improvements over other leading indicators:

• First, we have moved as far ‘up-stream’ economically as possible – to the point where a consumer is actually making the purchase decisions for major durable goods. Our information is captured in some cases while the transaction is still being processed – before the retailer (let alone the wholesaler or manufacturer) is fully aware of the cash flows being generated.

• Secondly, we capture that data daily and publish the day-to-day results several times per week, unlike the monthly publication of monthly numbers typical of most other leading indicators.

Additionally, we publish daily indexes for a number of separate sectors of the U.S. economy (e.g., our Automotive Index), and still more weekly sub-indexes of selected segments within those sectors (e.g., Domestic Autos or Luxury Autos).

We also differ from other indicators because our focus is exclusively on major discretionary spending of the U.S. consumer. This is the largest and most volatile portion of the U.S. economy, and the initiating force behind growth and contraction cycles. Other leading indicators heavily weight manufacturing data into their ‘leading’ indicators – activities which, from our perspective, are months or quarters ‘down-stream’.

I first crossed paths with Rick in early 2010. His read on the “real” economy, not the perceived apparition put forth by Uncle Sam and his sycophants has been deadly accurate. What does Rick see happening currently? He writes that his Daily Growth Index is Bottoming at New Record Lows, ,

On April 26, 2011 our Daily Growth Index nudged up slightly from its record year-over-year contraction rate of -6.31%, where it had hung for several days. For the moment this may be a bottom forming movement, but it is equally likely to be just more bottom-bouncing as the consumers we track continue to lack enthusiasm for increased spending.

Put into the context of the past 48 months (covering the entire “Great Recession”), the recent weakness in consumer demand clearly surpasses the lowest levels that we monitored in 2008.

As we have mentioned before, our “Contraction Watch” follows the Daily Growth Index and compares it on a day-by-day basis with the same index during the dip created by the “Great Recession” (with the plotting for each event starting on the first day that the Daily Growth Index started to contract).

We feel that this single chart is perhaps the best way to visualize what has been happening with the consumers that we monitor, and that chart is still not showing any signs of a sustainable consumer driven “recovery”.

With the BEA confirming in their “Advance” estimate of 2011’s first quarter GDP that the recovery is at best anemic (and arguably nonexistent when more realistic price “deflaters” are used) we are beginning to believe that we may not be quite as delusional as some people have thought. Sadly, that is a really scary thought.

While consumers shift behaviors, we should not rely on old tools which are easily manipulated by government entities. Rick Davis and CMI are must reads and remain one of the few online services well worthy of the exceptionally reasonable subscription fee.

Why do you think Fed governors are starting to leak the possibility of QE3 (quantitative easing)? Think they subscribe to Rick’s work? If they don’t, they should.

Navigate accordingly.

Larry Doyle

GO AHEAD and please subscribe to all my work via e-mail, an RSS feed, onTwitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.


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