We have not had a daily Weighted Composite Index reading of 100 or more since May 3, 2010 – now 13 months ago. A Weighted Composite Index reading of 100 is neutral, with readings above 100 showing year-over-year growth and readings below 100 showing year-over-year contraction. We have now had 396 consecutive days of daily contractions:
The important thing to remember is that our indexes are always year-over-year, so any period of contracting readings that extends for more than a year is now comparing itself to levels that were already contracting in the prior year. There are two aspects of this that bear repeating:
— A steady 366 day reading of 95 in our Weighted Composite Index (representing on each day a 5% decline year-over-year) is recording a compounded 9.75% contraction relative to the economic activity two years earlier.
— Even a return to a neutral reading of 100 would mean only that economic activity would be at the same level as last year, when it was contracting relative to the prior year.
Our best chart for visualizing this is our “Contraction Watch,” which 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) over the course of this recent contraction event. The chart also shows what the Daily Growth Index was doing during the consumer contraction that occurred within the formally defined “Great Recession.” 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:
We would expect that at some point the consumer economy will bottom, and when it stands at the same level as in the prior year our Weighted Composite Index will reach 100 again. But we’re not holding our breath …
CMI: Consumer Expenditure Bottom Better Defined by Rick Davis
Personal Income and Expenditures Growth Frozen in April 2011 by Steven Hansen and Doug Short
Weak Consumer Prevented 1Q2011 Improvement by Rick Davis
March 2011 Personal Income & Consumption Expenditures Good Until Cost Increases Considered by Doug Short and Steven Hansen
Is Ignorance Bliss? A Look at U.S. Income Inequality by ElliottMorss