In lieu of a credible macroeconomic data reporting infrastructure in America, increasingly more people are forced to resort to secondary trend indicators, most of which have zero economic "credibility" within the mainstream, yet which provide just as good a perspective of what may be happening behind the scenes in this once great country. A good example was a recent Gallup poll, which contrary to all expectations based on a now completley irrelvant and thoroughly discredited ADP number, which led some br(j)okers such as the Barclays Insane Predictions Team to speculate a 580,000 NFP number was in the books, indicated that the jobless situation barely improved in December. Sure enough, this was promptly confirmed by the January 7 NFP number. And so, in looking for a variety of other "off the grid" economic indicators we read a recent report by Nicholas Colas, which proves to us that we are not the only 'nerdy' entity out there increasingly searching for metrics that have some rooting in reality, and not in the FASB-BLS-Census Bureau joint ventured never-never land. And while we recreate the key points from the report, the one item that should be highlighted is that, as we have suspected for a while, the social undertow of fear, skepticism and anger is coming to a boil, as Google queries of the "Buy A Gun" search querry have just hit an all time high. How much of this is due to the recent events from Tucson, AZ is unclear. What is clear is that the trend is most certainly not your friend (unless you are of course the CEO of Smith and Wesson).
We'll leave the interpretation of this chart to our very erudite politicians.
As for other must read observations on the topic of derivative economic indicators, we present Nicholas Colas' must read latest: "Off The Grid” Economic Indicators – Q410 Edition
There are a lot of economic indicators out there, and we pay attention to all of them because government decision makers have told us they shape economic policy. But there’s a wealth of independently developed economic and statistical data available as well, and much of it provides much-needed color on the real state of the U.S. economy. Our collection of anecdotal datapoints, which we have dubbed the “Off The Grid” indicators, paint a more nuanced picture of a slow growth U.S. economy that is still struggling with the aftermath of the Financial Crisis. Bullish points include demand for pickup trucks, used cars and an increasing number of people who leave their jobs voluntarily instead of through layoff. Bearish points are headlined by still-rising food stamp participation, with gun sales and rampant buying of silver coins underpinning continued popular concerns over personal security and the soundness of the dollar. Food inflation also features on this list. Neutral points: mutual fund inflows (but potentially turning positive) and Gallup poll consumer spending.
Ever wonder where the word “Nerd” came from? It’s a “nerdy” question, to be sure, but apparently it comes from a Dr. Seuss book entitled “If I Ran the Zoo.” I don’t remember the appearance of the word from my early exposure to the work, but I certainly remember the opening:
“If I ran the zoo,”
Said young Gerald McGrew
“I’d make a few changes,
That’s just what I’d do.”
That’s pretty much the way I feel about the current state of economic indicators that we all pick apart, analyze, and try to cajole into some form of investable signal every day. We look at them because the Federal Reserve looks at them. And the Treasury. And the White House. And every other seat of economic power. But in reality they look at them because these datasets have been around long enough that someone, somewhere, has done a doctoral dissertation or other academic treatise validating their relevance.
In the world of automated and computerized payrolls, for example, the Bureau of Labor Statistics still uses a telephone survey of a few thousand households to decide if employment is rising or falling. OK, this used to be a hard issue to tackle in the 1950s and 1960s. But the U.S. Treasury’s Internal Revenue Service tracks everyone’s contributions for payroll and tax withholding in real time now. If someone stops getting their paycheck, Treasury knows about it by the time of their next pay cycle. They can identify where the person works based on their zip code. The employment picture should be clear as day using this data. It used to be hard when paychecks doubled as computer punchcards (my Dad had those in the 1970s). The telephone survey approach is like using a horse and buggy to get around when there are the keys to a perfectly good Ferrari in your pocket.
All good natured ranting aside, there’s no excuse for not casting a wider net when it comes to the never-ending search for useful economic data. And you don’t need to be a “nerd” (there’s that word again) to get it – we aren’t talking about advanced language algorithms working against a Twitter API feed. The data is out there and thanks to the Internet it is pretty easy to track. That’s the reason we have developed our “Off the Grid” economic indicators – our “eyes” into the real U.S. economy. And those “eyes,” we hope, are truly the windows into the soul of some form of lasting recovery.
Our take away from this quarter’s indicators is that the recovery in the U.S. economy is slow and unevenly distributed, with several long-tailed effects that may take decades to fully understand.
- The bad news – and there’s still plenty of it – is that the Financial Crisis pushed millions of Americans into government assistance programs such as Food Stamps, dampened their confidence in the currency, and made them feel much less secure about their personal safety.
- The good news – and there is more now than at any point in the year we’ve been looking at the data – is that more people are feeling better about the labor markets, buying big ticket items, and perhaps even investing in U.S. stocks again.
- The wild card – and it is a big one – is food inflation. We’re back to where we were at the peak of the prior cycle in 2007, but with an economy that is nowhere near as strong.
The data, in short, supports the mainstream economic viewpoint that the U.S. economy is improving at a slow pace. The nuances that it highlights, however, are that the damage from the recent recession is as much cultural as economic. A consumer base – even one at the lower end of the economic ladder – with fundamental concerns over food security and affordability or personal safety is not the “dry tinder” of a strong economic bounce back. I don’t know whether to call that “New Normal,” “Old Abnormal” or whatever other rubric might fit this paradigm. But it is a picture of the landscape that you don’t see as much in the government-approved economic indicators, and it tells a separate and perhaps more accurate truth.
The various indicators that inform this view are all included in the attachments to this note , and we’ll touch on a few of the important ones here:
Food Stamps – This program, originally created to sell surplus produce to starving Americans in the Depression, has morphed over the decades into a foodpurchase grant to low income households. The growth rates for SNAP (the modern name for Food Stamps – Supplemental Nutrition Assistance Program) have been stratospheric for the last two years at +15% year-on-year growth. Part of this was a change to eligibility requirements in 2009, but a lot more was the impact on the recession among low income households. The program now helps over 43 million Americans feed themselves, about 14% of the U.S. population.
The good news, if one can call it that, is that the growth rates are slowing. Last month one of our one strategy team members went to several public assistance offices outside New York to speak to people waiting for a consultation and those interviews shed some light on this trend. The bottom line is that such facilities were simply overwhelmed over the past two years. People who qualified for public assistance needed to visit such centers several times, as the paperwork needed to complete the application process is lengthy and convoluted. So growth rates rose steadily as these individuals finally cleared the hurdles required to receive benefits. One other data point that supports that the growth in the SNAP program may have peaked: Google searches for the term “Food Stamps” are no higher than mid-year 2010.
The deeper question is what the widespread adoption of SNAP will do to the society over the coming years. This is actually not a budget discussion – SNAP is very efficient and costs less than $100 billion a year to help +40 million Americans. Rather, it is a question of the effects of long term reliance on government support to economic issues such as labor participation rates and employment levels. We are in uncharted waters here, to be sure.
Durable Goods Purchases – The most upbeat news from our indicators is the degree to which consumers are snapping up used cars and pickups. Yes, the economic data focuses on all light vehicles, but the “Off the Grid” indicators dance to a different drummer. Used car prices are a great leading indicator for new car and truck demand, and the Manheim Auto Auction data keeps hitting new highs. Pickup trucks are work vehicles, primarily purchased by small businesses. After a steep selloff from the bursting of the housing bubble, pickup truck demand is now positive again, to the tune of +20% year on year for several months in a row.
Guns, Ammunition, and Silver Coins – Whether you are “pro-“ or “anti-“ gun, the sale of firearms should be on your radar screen as a heuristic measurement of something I will call “consumer security.” There is a baseline of organic firearm demand in the U.S. – for years it was about 8 million units, as measured by the FBI’s instant background check request data. With the 2008 recession that number spiked to first 10 million and now 14 million background checks a year. At first observers chalked that up to a Democratic President, but it has been years since Obama’s inauguration and the numbers keep climbing. I attribute that to a deeper sense of unease in the population – perhaps about government controls, perhaps about crime. Hard to say how much of each. But it is easy to say that an unsure society is not one ready to resume a carefree spending profile. And keep in mind that guns are not cheap – a basic rifle or shotgun will run $300 or more.
Much of the same point applies to the recent surge in demand for silver coins. From a monthly sales run rate of less than 1 million coins, the U.S. Mint now pushes out close to 3 million coins a month, and dealers would clearly like to have more. As with guns, silver coins are not cheap - +$30/piece, or +$600 for a roll of 20. I suspect much of this demand stems from gold’s steady price move higher and the fact that the Mint is not producing as many fractional ounce gold coins as it once did. That means people with less than $1,400 to spend on precious metals coins migrate to silver. That is born out in the decline in Google searches for “Gold Coins” as prices there spiked in 2010. Bottom line – there is a fundamental lack of confidence among enough people in the population as to the long term soundness of the dollar.
We’ll close out on a few positive points and one real problem.
- Workers are quitting more often now, according to the underappreciated but highly useful BLS JOLTS data. Almost half of all separations from an employer are now the employee’s idea, rather than a layoff. That dovetails with the recent rise in consumer confidence, as the attached chart highlights.
- Mutual fund flows into U.S. stock funds had a positive week, ending 1/12/11. It has been a long dry spell here – ever since May 2010 – so perhaps investors are finally reengaging with domestic equities as they start contributing to 401(k)s in the New Year.
- Food inflation could be a very large, very nasty problem. The Dept of Agriculture’s “Prices Received” data shows that “All Farm” prices are back to where they were in 2007.
And all the non-government originating charts that's fit to print:
Manheim Used Vehicle Value Index and Equity Mutual Fund Flows:
Food stamp participation and gold coin sales
Silver coin sales, Prices Received, and NCIS Background Checks
Pickup truck sales and Consumer confidence
Google Queries: "Buy a Gun", "Buy Ammunition", "Food Stamps", "Gold Coins", Gallup consumer spending.