Consumer Contraction Continues to Slow

We are becoming more convinced with each passing week that the rate of contraction of on-line consumer demand for discretionary durable goods “bottomed” at the end of May 2011. The climb in the year-over-year contraction rate curve (decrease in the rate of contraction) since then has been significant:

The above chart follows the course of our Daily Growth Index (actually just a 91-day moving average of the Weighted Composite Index, converted from the base 100 index to a +/- percentage) since that index first went into contraction (on January 15, 2010 — now 540 days ago). The chart also shows what the Daily Growth Index was doing during the consumer contraction that occurred within the formally defined “Great Recession” of 2008-2009. The progress of each event is recorded as a track of Daily Growth Index values commencing on the left margin on the date that the index first went into contraction.

It is important to remember that the Daily Growth Index tracked in the above chart is actually a measure of the rate of change or slope of on-line consumer demand, not the demand itself — i.e., only when the change in year-over-year demand zeroes out will the current absolute level of demand itself be leveling off or “bottoming.” By analogy to a road trip in hilly country, our aggregate consumer demand passed the point where the car’s angle of descent (i.e., slope) was greatest in late May, and we will reach the bottom of the aggregate demand canyon when that slope (our Daily Growth Index) returns to zero.

It remains possible that the curve being traced by the blue line in the above chart will plateau long before getting to zero. If nothing else the current contraction event’s duration has been unprecedented within our data horizons (dating back to January 2005) — and judging by the recent unemployment news, this contraction may be unprecedented dating back to the end of “Great Depression.” Although the current Weighted Composite Index has moved back to within day-to-day striking range of positive territory, we will remain guarded in our enthusiasm until we see sustained periods with substantial growth — e.g., enough support to pull the Daily Growth Index above a potential plateau zone between -3% and -2% year-over-year contraction.

The upward movement of our Weighted Composite Index has been accompanied by some stirrings among people sitting on the vast inventory of available residential real-estate. In particular our measurements of people engaging listing services has shown some relative strength recently, perhaps as owners hope that the bottom has been reached:

Although the corresponding condition in the home loans marketplace is also up, that movement has been anything but spectacular:

And the flood of refinancing activities that we witnessed last year has continued to subside:

All of which may be an indication that the sharpest descent portion of this contraction event may be behind us, but we have a long ways to go before we should get excited about the immediate future.

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