The CMI Contraction Watch: Discretionary Expenditures Declining

We have had to update a couple of our charts as a consequence of the continued contraction in our Daily Growth Index. In its original form our “Contraction Watch” covered just a quarter’s time span — since in January 2010 we did not expect the contraction event to last much longer than that. We have now had to expand the horizontal time scale on six separate occasions, with the latest rendition reaching 540 days (or 18 months):

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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.”

In fact, the chart shows that the Daily Growth Index is rapidly approaching its previous record low value set on October 4, 2010 — and it has again surpassed the lowest values seen during the 2008 contraction event. Regardless of what is happening in the economy as a whole, the consumers that we track are either not participating in the upside or have chosen to be cautiously frugal until they see clearer signs of recovery.

The extended nature of the contraction had also completely destroyed the logic behind another one of our charts. Our “Contraction Severity Gauge” attempted to help our members better visualize the “area under the curve” in the our Contraction Watch, and at the same time forecast as best we could the ultimate extent of the 2010 contraction. Unfortunately, our initial projection logic broke down when the duration of the contraction event substantially surpassed our experiences with the 2008 event. We have now recast our projection logic to be an average of four different potential contraction ending scenarios, based on different combinations of curve fitting strategies using both the 2008 contraction and the greatly prolonged 2010 (current ongoing) event. That chart now looks like this:

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As alarming as the projection now appears, it reflects a mathematically derived duration of nearly an additional 11 months. At that duration the severity ratio relative to 2008 would broadly match the ratio between the aggregate consumer real estate net-worth losses through 2008 and recent projections for the aggregate value of those same losses a year from now.

And as our Daily Growth Index (our 91-day trailing average of our Weighted Composite Index) approaches record territories again, we thought that it might be useful to show the movement of all three of our trailing averages over the past 48 months:

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Although we regularly focus on the 91-day moving average and its descent into record territory, the 183-day average and the 365-day average have been setting new record lows every day since September 2010. This contraction has been long, and it isn’t over yet.

Related Articles

CMI:  Consumer Weakness Continues  by Rick Davis

Wholesale Sales:  Evidence of Moderate Growth  by Steven Hansen

A Significant Reason Retail Sales do not Indicate Recovery by Doug Short

Strong Retail Sales Do Not Point to Real Economic Growth  by Steven Hansen