CMI: Consumer Expenditure Bottom Better Defined

The “bottom” that we had previously seen in our Daily Growth Index has become better defined, but we feel that any celebrations may still be a bit premature:


And it is important to keep this upward movement, such as it is, in perspective. Although it is clearly visible in our “Contraction Watch,” the significance of the upturn pales in comparison to the overall “area under the curve” that has been traced out by the Daily Growth Index for now well over a year:

(Click on chart for fuller resolution)

As for that “area under the curve,” this particular contraction in on-line consumer demand is substantially worse than what we observed during the 2008 “Great Recession”:


The bottom line on this contraction is that, indeed, “this time is different.” Our data indicates that the classically defined 2008 “Great Recession” was felt disproportionately in the finance and “large cap” business sectors, with consumers spooked by the headlines from “Wall Street” but largely un-impacted themselves. However, since then (even as the contraction was disappearing for “Wall Street”) a shadowy extension of the “Great Recession” has evolved and become personal and deeply entrenched on “Main Street,” where unemployment has proven to be more than a temporary inconvenience and real disposable incomes have continued to shrink.

This can be seen most clearly by viewing the continuing disconnect between what our consumers are doing and the official GDP reports from the BEA:


The levitation effect provided by the Federal fiscal stimulus packages will begin to wilt soon, as will Mr. Bernanke’s monetary magic when QE-2 lapses in June. At some point in time the GDP will revert to tracking the 70% of the economy provided by consumer spending. When that happens the glaring gap in the above graph will close, and most likely with the upper line converging towards the lower, rather than the other way around.

We have said before that our consumers seem to know that the headline recovery in the S&P 500 has not yet been fully shared with the them, their neighbors or their local merchants. Until unemployment materially decreases and the residential housing market returns to at least pre-2005 levels of activity, the “Great Recession” isn’t over, despite what the National Bureau of Economic Research (NBER) would have us believe.

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