Fed begs you to ignore non-economists that predicted revised Q1 GDP in Nov 2009

EB's picture

Despite the pleas of Dr. Athreya to the contrary, Rick Davis of the Consumer Metrics Institute boldly goes where no BLS statistician or Fed economist dares...that is into the upstream consumption data (gathered in real time, no less) that leads the taxpayer-subsidized bean counters' work by up to seven months.  While it's no surprise that all is not well on the H2 2010 horizon, CMI tells us specifically what to watch out for.

The following is reprinted with permission from the Consumer Metrics Institute.

June 29, 2010 - What the Revised 1st Quarter GDP Numbers Really Mean:

On June 25th the BEA quietly revised its measurement of GDP growth for the first quarter of 2010 down for the second time, this time to 2.7%. The newly revised growth estimate nearly matches the Consumer Metrics Institute's original projection for the first quarter, which was 2.62%. The big difference is that the Consumer Metrics Institute's projection (based on our Daily Growth Index) was available on November 30, 2009 -- seven months ago.

Chart
(Click on chart for fuller resolution)

Because the Consumer Metrics Institute's Daily Growth Index only lags the real-time consumer economy by several days and has a day-by-day time resolution, the Daily Growth Index can also tell us something totally missing in the BEA report: that the newly revised GDP 'freeze frame' picture captures a moment in time when consumer demand was dropping at a rate of about .08% per day. This means that the difference between the revised GDP and our original projection represents only a single day of economic change. But more importantly, our Daily Growth Index shows the dynamics of the economy at the point in time when the BEA 'still picture' was taken.

One other important note should be made about the June 25th BEA release: in it the BEA also increased the inventory component within the 2.7% number from 1.65% to 1.88%. That means that the net-after-inventory-adjustments number was less than 0.9%, and over two-thirds of the reported aggregate growth was from relatively unpredictable inventory swings.

If factories were unwittingly growing inventories during the first quarter in the face of what was really slackening consumer demand, the official GDP numbers for both the second quarter and the third quarter (to be released 4 days before the U.S. mid-term elections) could be interesting, since factories could very well over-correct again -- but in the opposite direction.

Because Friday's BEA release mirrors our Daily Growth Index from November 30th, the index's subsequent course provides some insight into where the economy has been heading since then. Roughly half a quarter later (on January 15th, 2010) the index fell into net year-over-year contraction. During the nearly two quarters since then the index has been showing mild but continued contraction. When that contraction is charted along with similar contraction 'events' from 2006 and 2008 it can be seen that 2010 is shaping up as wholly unique:

Chart
(Click on chart for fuller resolution)

As the chart shows, the current contraction has progressed for nearly two quarters without yet tracing a clearly formed bottom. And any measure of the severity of an economic slowdown must include not only maximum rate of contraction, but duration as well. Although the 2010 event has been milder than 2008 in terms of absolute negative growth rates observed, if it progresses long enough the aggregate economic pain could be substantial. For a little perspective, the total economic impact of 2010's contraction is already nearly twice what was experienced in 2006, when the GDP slipped to a barely positive +0.1% growth rate. And (to date) the total economic impact of the 2010 event represents nearly a full third of the pain experienced during the 'Great Recession' of 2008-2009.

The key message to take from these numbers is that the fundamental change in consumer behavior which we have been observing over the past three quarters is likely to be protracted. Although this change in behavior is most clearly shown in our data by consumer reluctance to take on new or increased debt, it probably reflects de-leveraging much more than balance sheets -- almost certainly including de-leveraged consumer expectations for the near future.

At the Consumer Metrics Institute we measure day-by-day changes in the discretionary durable goods transactions of internet shopping consumers. We genuinely believe that the real economy lives where 'Main Street' consumers are (figuratively and/or literally) clicking 'Add to Shopping Cart', not where the BEA's factories slavishly follow the consumer's lead. The millions of consumers we measure respond collectively to what they see going on with their own local economy, family and friends. And right now real-world 'Main Street' consumers are demonstrating significant caution. 

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RichardP's picture

From RockyR:

So, according to the good Dr Athreya I have no business commenting on economics.

One more time, this was his actual point folks:

From Athreya:

Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy(Economic policy, not economics; there's a difference.)

From Pritchard:

Actually, Greenspan never got a Phd. His honourary doctorate was awarded later for political reasons.

Is it possible that Athreya was actually taking a shot at Greenspan rather than the man on the street?

At any rate, to advance the discussion in any field is to do something more than talk about the field.  In academic terms, to advance the discussion means to contribute to a body of knowledge through research.  To advance the discussion in economic policy is to do something more than simply talk about economics.  To talk about economics is an activity that has nothing to do with advancing the discussion about economic policy.

Athreya is technically correct.  If you are not part of the group that is actually creating economic policy, all of your talk about economics will not meaningfully advance the discussion on economic policy.  Why?  Because they are listening to each other, not to you.  Whether they should maybe be listening to you is a completely different subject.

Pritchard is here:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100006729/ti...

 

unemployed's picture

 

  Come across another if they aren't publishing peer reviewed graduates of decent economic departments then they are not worth my time viewpoints.

New talking point for dissing bloggers?

RockyRacoon's picture

Yup.  Read all that.  Bloggers are the "problem".

Check out Denninger's take on it:

It is true that there are "bloggers" and even "economists" (Krugman anyone?) who post bombastic piles of dog squeeze.  But then again, so do most so-called "articles" in the so-called "academic press", when it comes to matters economic.

http://market-ticker.denninger.net/archives/2458-Economics-Is-Hard.html

JackAz's picture

"The Fed is planning for 15-20 years of [fill in the blank] to get all the crap out of the system."

15-20 years of planning? These are the people who couldn't see the freight train coming at them? These are the people who thought the solution to debt was more debt? These are the people who think Keynes makes sense?

And they are planning 15-20 years in advance? These people couldn't successfully plan a picnic.

sgt_doom's picture

Has anyone yet heard Dr Athreya admit he's done consulting work for Tata?

I wonder why not?

RockyRacoon's picture

So, according to the good Dr Athreya I have no business commenting on economics.  Wonder if he comments on sports?  Politics?  A backwater degree (no offense to you other Iowans) does not an expert make.  Even Ben B.'s pedigree degree won't cut it out in the real world.

The entire charade is about politics and being re elected.  All the talk about HFT, PPT, TPTB, banks TBTF, and all the other initialisms are just the deck chairs -- the ship is taking on water, the bulkheads have failed.

Money flows thru DC are the key to the whole thing.  Nobody wants to feel any pain so the politicians do all they can to relieve the pain of the populace.   When Wall St greases the political wheels it is simply to receive reciprocal legislation.  The Banks are just ticks on the Washington dog.  The populace are the fleas.  The host will bite and scratch but the infestation is only growing larger. 

Nobody fails, nobody loses money, nobody lives without cable, nobody goes hungry.  All the things that make for progress and innovation are subdued and nullified.

When a fair and honest discussion of term limits is introduced there will be a start in providing solutions.  And then the whole thing will start over again with new faces trying to game the system.  It is not a Democratic or Republican thing; it is a systemic problem.  Politicians and policies are the medium, not the message (apologies to McLuhan).  When the original founding vision was distorted and disfigured the outcomes became inevitable.  The only fortunate thing we can depend upon is that the failure of the original plan allows for its own destruction.  That's the death of the DC dog described above.  We'll get a new healthy host, but the parasites will simply move in and start proliferating.

All we can hope to gain is a few more years or decades of decent living and some personal freedoms.   I just hope that a trumped-up war is not the final solution -- again.

This next comment might spur some controversy, but what the hey.  There is a lot said about the "sheeple" and the lumpen proletariat.  Yeah, we have those in abundance.  But I'll submit that those who come here proposing that the troubles we are experiencing are the result of a Democratic or Republican agenda are drinkers of the same kool-aid.  The level of thinking required to blame specific politics or politicians is of low quality.   There is hardly, if ever, any proposed replacement of those politicians with any specific people.  If you don't like one, nominate a replacement, and say why.  Soon enough it becomes apparent that the prolems lay not in specific individuals or policies but in what the system itself has evolved to. Look past the minor differences in the parties and try to find a deeper solution.  Until that is done we shall make no real progress -- and that is what "they" would like.  "Politics" is a diversionary tactic. Don't give them the satisfaction of a victory in the propaganda war.

I apologize for the sloppy logic, mixed metaphors, and disjointed writing, but the subjects are not easily covered in a comment section.  I guess I'm just in one my above average pissy moods.  Mandy is exhibiting some extraordinary cleavage this morning so it ain't all bad.

t0mmyBerg's picture

When a fair and honest discussion of term limits is introduced there will be a start in providing solutions.

SCOTUS already doomed the American Experiment with the ruling against term limits.  See here for a start: 

http://en.wikipedia.org/wiki/U.S._Term_Limits,_Inc._v._Thornton

Just a matter of time now.  Of course time to resolution can be measured in scores and even hundreds of years;  or months.  Loading up on cartridges for my S&W .357 just in case.

RockyRacoon's picture

Oh, yeah, I'm aware that the states cannot restrict these elections.  I'm looking to a federal law.  Fat chance of that!  Might as well ask for them to work for minimum wage as well.  Or perhaps to be governed by the same laws they pass for the masses. No way.

I also have a variety of calibers to choose from, or to trade with.  Pick up a box or two on the occasional outing to Walmart or the local sports store.  Properly stored ammo is a joy forever.

DollarMenu's picture

Thanks for your always good comments.

Republican and Democrat combine to dance

to the tune played by big money.

It's all theatre.

 

RockyRacoon's picture

Theatre?  Sure, but not even good enough for a B-movie.

For what they take we should at least get a little song and dance.

(Congressional hearings don't qualify.)

jkruffin's picture

This is excellent stuff, thx.

bruiserND's picture
http://www.youtube.com/watch?v=ZsxDmzl19Yo   The Richmond Fed is close to the DC beltway where the elite meet to decide what is best for the rest of us.   I never could figure out why they had to have a Richmond fed AND a federal reserve central bank within 100 miles of each other. The Philadelphia Fed is 138 miles from DC and the New York fed is 228 miles from DC which means that the entire national credit and monetary policy is driven by a small incestuous clique that promote the interests of banks within 200 miles of each other doing whatever NY City tells them to do.   If we can't shut down the central bank then at least move it to Kansas City and make them drink Pabst Blue Ribbon at their little get togethers.  Maybe they wouldn't be discussing Keynes as THE engine of big government  and the blessings of eugenics when applied to the actuarial bell curve of social security and medicare if they wern't under the influence of Chrystal champagne and cocaine.   http://www.youtube.com/watch?v=_dmPchuXIXQ&feature=related
Mark Beck's picture

FYI, FOMC has regional representation.

http://www.federalreserve.gov/monetarypolicy/fomc.htm

That being said. It is clear that the FRBNY is the real seat of power for maximizing profits for the member banks on wall street. Put another way, transfering wealth to the banks.

The FED in DC services politicians.

Mark Beck

Lux Fiat's picture

Interesting data collection approach, as well as the results.  Their data maps up much better with what I have been seeing on the ground over the last several years, along with observations from friends in other cities.  Thanks for sharing. 

vote_libertarian_party's picture

-2.5% GDP number 4 days before the midterms?  We all know that will never be allowed.

AnAnonymous's picture

FED begs something?

Sensationalism. One guy wrote one piece with a disclaimer "does not represent FED mindset etc"

But who cares?

jc125d's picture

You don't need a weather man to know which way the wind blows...you don't need an economist to know when you're fucked.

DoctoRx's picture

I visit that Consumer Metrics free site daily.  Interestingly, their composite index has kicked up recently.  Retail is especially strong.  In part because of CM's data, FWIW I'm hoping/planning for the glass half-full growth slowdown scenario rather than a full-blown new downturn this year.  But per ECRI, it is reasonable to expect more frequent recessions/depressions/Depressions and the assoc money-printing to push gold higher. 

Assetman's picture

Interesting perspective, but even the analysts at Consumer Metrics have a different read. 

While the composite index is improving at the margin-- it remains solidly in negative territory.  What the analysts there are telling you is that the duration for which it remains negative is very material-- and the longer it stays that way, the more problematic from a GDP growth standpoint.

Perhaps that's just the way the Fed wants it.  Allow the private sector to de-lever, provide more moderate QE to reflate when asset contraction intensifies-- and live with moderate rolling recessions for the next 15-20 years until the credit contraction process plays out.  I don't know if it will succeed, but I've heard of worse planning scenarios.

Lux Fiat's picture

Yes, I think that is the overall idea.  Question is whether credit markets and massive sovereign debt overhangs will give them enough manuevering room on one side, and political incapacity to endure moderate pain in order to avoid massive trauma.  It will be "interesting" to see if they can continue to thread the needle for the next 10 to 15 years.  However, given the manner in how they handled the 2008 meltdown and insolvent financial entities since, my guess is "no".

Assetman's picture

I think they took a kitchen sink mentaility as things unwound in 2008-- they were clearly in panic mode, becuase they didn't expect that things would unwind so severe, so quickly.

The data here suggest there will likely be an unwind, but not as severe... and possibly longer than the 2008-09 episode.  The problem with "threading the needle" (great description) is that the nature of this global unwind is GLOBAL-- meaning that there are a multitude of things (economic, political, stupidity, etc.) that can go wrong.  As long as the nature of "wrongness" it isn't catastrophic, then perhaps they can keep threading. 

The key word is "perhaps".

mephisto's picture

I think you're being too generous with your Fed scenario. I really think they believe in debt. They believed that giving money to the banks would kickstart a recovery, and now they are seeing signs of failure. The machine is supposed to be starting up again and it's not.

Question for you. What must the atmosphere be like in an institution for Dr Athreya to feel he

a) has to write an article defending his profession from bloggers.

b) will even be allowed to publish his Jerry Maguire bad pizza moment.

I think the Fed are scared. They have lost the aura built during the Greenspan 'great moderation'. Their profession is on the ropes, and they know it, and data like that shown in the CMI charts predict an EPIC FAIL by the end of 2010.

Assetman's picture

First off, I think Ripped Chunk's assessments are correct.  Greenspan thought history would review his attempts to deal with balance sheet issues by avoidance via ultra-low interest rates.  But it (and a lax enforcement structure) made a bad debt problem grow into an enormouns one.

My scenario, quite frankly, is the best the best that they can hope for at this point.  Just an opinion.

Are they scared?  Not like they were in 2008.  But they know full well they're running out of options.  What they did in 2008 (with additional debt) did nothing but buy time... and they know it.  They also know it didn't really fix anything.

I'm not sure the CMI implies epic fail, as the Fed and Congress reflated with the hope that things would get better.  From what I see, it's not the 2008 version of "epic", but it's not a success, either.  If they can keep the fails moderate (debt deflation) and selectively reflate to keep their heads above water, it MIGHT work.

I'm just not convinced it will.

Ripped Chunk's picture

Greenspan is a criminal and should be treated as such.

He bailed because he thought people and history would be stupid enough not to connect him the mass implosion that is about to take place.

After all, he was only obeying his dark overlords.

 

kaiten's picture

You must be joking, right? And what about unemployment in that "moderate rolling recessions" lasting 15-20 years? You wanna see bloodbath on the streets?

Assetman's picture

Nope.  Not joking.  But then again, I'm not even sure the strategy would work.  What do you think Japan has had the last two decades?

Like it or not, unemployment is going to remain high until the deleveraging process is over.  If reflation is done right, it will come in the form of financing work/jobs programs that actually build real things for real utility-- and not stuffing the banking sector with excess capital.  I'm not sure TPsTB are too forward thinking on that, though.  Even so, unemployment could be well over 20%.

You really wanna see bloodbath on the streets?  Try unlimited money printing and USD devaluation with gold confiscation.  Or take the bloodbath somwhere else via war... how about that?  The policies to put those in place are certainly available, too.

If you have a viable strategy, let's hear it...

kaiten's picture

My solution is simple: Let the chips fall. I think that a 4-5 year long cathartic depression is better, than 15-20 years long agonizing recession on life support.

As for employement. US needs badly investments in infrastructure and energy sector where million could be employed. A well designed investment-stimulus could solve this. The current one is very poorly designed, because it´s mainly about consumtpion. US also need to bring back some manufacturing - another employement opportunity.

Perhaps not viable(or too radical), but just piling up debts is not a solution , IMHO.

And as for Japan. That solution would not work for the US. Japan got lucky that the rest of the world was growing while they slipped into 2 decades long recession/stagnation. Plus, Japan was/is a net exporter and that helped them to stay afloat and keep unemplyoment at low levels. Right know the whole world is at the edge of recession and US is a net importer. A completely different situation.

Dr. Acula's picture

"Allow the private sector to de-lever, provide more moderate QE to reflate when asset contraction intensifies-- and live with moderate rolling recessions for the next 15-20 years until the credit contraction process plays out.  I don't know if it will succeed, but I've heard of worse planning scenarios."

The plan is insane. It hinges on childishly playing with numbers and belief in a tangled mess of economic fallacies.

"If you have a viable strategy, let's hear it..."

End the Fed.

Assetman's picture

End the Fed.

And? Then what?  Do you replace currency with Skittles?   Replacing something with nothing is NOT A PLAN.

Please, if you're going to propose something viable, use more than 3 words. 

Sheesh... anyone who wears a cape and sports fangs can criticize. ;)

Lux Fiat's picture

Checked out the website (and bookmarked it), and noticed the uptick in the composite data as well.  However, with looming mortgage resets, increasing private and public sector rollover risk and attendant economic risk, etc., think that it will be relatively short-lived.

Trifecta Man's picture

Audit the Fed.  Then put it out of business.