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Rick Davis’ MUST READ American Consumer Review

Posted by Larry Doyle on May 5, 2011 12:37 PM |

After having highlighted Rick Davis’ work at Consumer Metrics Institute in my morning commentary, I reached out to him and received the following MUST READ fabulous response.

If you care to truly learn what is going on with the American consumer as we collectively navigate the economic landscape, sit down, take notes, save this review, and share it with your friends. In terms of cutting edge, real time, unbiased economic analysis and commentary it does not get better than this.



We go to great lengths to remove from our data both the inexorable shift of consumers from brick-and-mortar to on-line and the impact of price inflation. We use “same shopper” metrics to neutralize that effect, and the data just released merely documents the ongoing cannibalization of brick-and-mortar sales by newly emboldened web users.

As an example, since November we have registered substantially higher traffic at the on-line portals for the major mall-based department store chains, which corroborates the data in the nominally-priced FT report to a large extent.

But that traffic has been much more “feel good” spending than the “quality” spending necessary to stimulate the economy through the purchase of discretionary durable goods from expanding real income (or even expanding credit) — as reflected in our Daily Growth Index or Weighted Composite Index.

We continue to believe that (FT report notwithstanding), U.S. consumers are still very cautious about major spending. In fact my next commentary will start out something like this:

“After a week-long pause our Daily Growth Index resumed its movement into record territory, setting a new all-time low representing a 6.35% year-over-year contraction on May 2, 2011.

Since the Daily Growth Index is a 91-day moving average of our Weighted Composite Index (converted from a nominal 100 based year-over-year index to a simple year-over-year percentage change), if the current levels of the Weighted Composite Index now entering the moving average are lower than the levels falling out of the trailing 91-day span, the average will continue to decline.

That is the case now, and it is likely to persist for at least the next few of weeks.”

Although our data about consumer spending is clearly weaker than that being provided by U.S. Bureau of Economic Analysis (BEA) or the U.S. Department of Commerce (DOC), there are a number of reasons to suspect that the consumers that we monitor are less enthusiastic about the economy than Mr. Bernanke:

1. We have always held Gallup’s measures of the the U.S. consumer’s psyche with high regard — if for no other reason than that their very livelihood (unlike the BEA or DOC) depends on them evolving their polling techniques to stay in contact with even those “households” that connect with the outside world only through Facebook or Twitter. They have recently published three polls that show consumer caution:

“Last week Gallup issued their regular update on consumer confidence. In it they found that only 27% of U.S. consumers feel that economic conditions are “getting better,” down from 41% who responded in the same manner one year ago.

“In a separate poll they reported that self-reported consumer spending was flat in April. This is remarkable, since relative to a year ago consumers are reporting that a substantially larger share of that spending is going for gasoline and groceries — meaning that discretionary spending is losing a commensurate share.

“In yet another consumer view of the economy, they reported that over half of U.S. consumers think that — at least for them — the ‘Great Recession’ is still here. Although the numbers have improved since the bottom of the recession, they have deteriorated from last year.

2. We have often commented that the metrics used to measure retail sales are seriously flawed, creating at least a ‘survivor bias’ in the statistics and a sampling bias that over-represents the elite large cap retailers. We have expected that the numbers would eventually be quietly revised.

Last week the Census Bureau did exactly that, lowering their baseline historical data substantially for some segments of the retail sales data. Of particular note they reported that 2010 home furnishing sales were 3.6% weaker than previously reported, while ‘miscellaneous store retailers’ sales were a whopping 6.7% less than previously reported.

And while they were at it, they mentioned that gasoline stations had actually had sales that 4.6% greater than they had told us before. No surprise there, given flat consumer incomes and spending in the face of soaring gasoline and food prices. But we continue to be amazed at how the bad news is quietly issued in revisions that hardly anyone actually follows. Where were the headlines on this report?

3. It isn’t just the U.S. consumer who is being cautious. Eurozone consumers have also become cautious, with German consumers in the vanguard of the new thrifty habits. This is even more remarkable given that employment is not considered to be as much a problem in Germany as in the rest of Europe.”

I fear that the Fed will soon be sending out guys in white coats to round up those of us that they consider to be in a dangerously delusional state.

Rest assured that I’ll ask for a cell next to yours …

Rick Davis
Consumer Metrics Institute

Double dip, perhaps? QE3, anybody?

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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