CMI: Growing Consumer Strength

by Rick Davis

Over the past two weeks our Daily Growth Index has been setting new historic highs every day. We have commented previously about the possible causes for this behavior, and we though that today we should look a little deeper into the various components driving the index’s unusual behavior.

The first thing to note is the extraordinary rate of the rise in the index, which has caused the 91-Day “trailing quarter” index to skyrocket while leaving the longer term averages (the 183-Day 6 month average and the full year average) behind in the dust:

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A glance at our current Sector Indexes shows broad based strength, particularly when considering how weak some of the more heavily weighted transactions were during the summer of 2010. Among the improving sectors are the Automotives:

We have previously mentioned that the Household Sector has shown significant recent year-over-year improvement:

This particular area has major impact on our Weighted Composite Index and the Daily Growth Index as a consequence of the home improvement and major appliances it includes. We had wondered if the surge of activity might be related to spring storms and the subsequent rebuilding that they generated, but our geographical screens have not shown any particular regional aspects to the sector’s strength.

Even non-housing related sectors have shown improvement on a year-over-year basis, including our Health Sector (which captures only the discretionary components of health care):

But by far the strongest of the sectors continues to be our general Retail Sector, which takes the same transactions used for the Weighted Composite but selects exclusively for the major S&P 500 class merchandisers:

The heaviest weighted sector in our composite is Housing, and it continues to flirt with absolute year-over-year growth. Although this is certainly “bottom bouncing,” it is a whole lot better than the free-fall we were seeing from last summer through late spring:

This may only be a sign that things can’t get any worse in the Housing arena, but it is at least an indication that, for the moment, the implosion may have stalled.

In fact, only the Technology Sector is substantially in contracting territory:

Our overall read from the indexes is that some interesting things are happening with the consumer beyond what has been reported in the popular press. As our previous comments indicated this is a very complex situation, influenced by continued financial stress on consumers from their negative “real” income growth and a year of soaring commodity prices — coupled with very recent relief in gasoline prices. We will monitor the data that those consumers are providing us and pass on the results as soon as the cross-currents resolve themselves.

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