CMI: Weighted Composite Index is Strong

by Rick Davis

During the past week we have seen our Weighted Composite Index plateau at double-digit year-over-year growth rates, only slightly below an all-time high set the preceding Saturday, August 13, 2011:

To give these extraordinary year-over-year readings some context it is important to remember that they are being measured relative to near-record low readings from August 2010, when the same index bottomed at 90.57 (only to set further record lows as late as the middle of March, 2011). To help our members visualize the compounding effect of the year-over-year changes, we have developed our “Absolute Demand Index” to take that compounding into account. The daily view of the “Absolute Demand Index” shows that the compounded demand has not yet recovered to average demand levels for 2005 (the line at the 100 level in the chart):

Meanwhile, the monthly version of the same data (through July only) shows the depth to which the “Great Recession” had pushed on-line consumer demand for discretionary durable goods through the past four years:

The horrific dip in the above chart is the “news” that the equity markets are at last responding to.  Without massive governmental interventions to levitate the economy, the impact of what the U.S. consumer has been living through for the past four years should finally come home to roost. The markets and the main-stream media are probably 18 months late in recognizing that “Main Street” America has not benefited in any substantial way from Mr. Bernanke’s magic, the next round of which may be announced on Friday from Jackson Hole, Wyoming. If, on the other hand, the markets simply haven’t cared about what has been happening on “Main Street,” we suspect that at some point soon the fundamental realities of a consumer driven economy will become impossible to ignore.

There are several points to keep in mind during the next few months:

— If the “markets” were 18 months late in recognizing the pain on “Main Street,” then they are likely to be really late in recognizing when the bottom has finally arrived.

— We’re not sure that a few weeks of really encouraging numbers yet constitutes cause for celebration. But it is at least that: encouraging.

— We would feel much better about the abrupt change in our demand measurements if we knew where the money was coming from.

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