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"Off The Grid" Indicators Suggest US Economy Anything But On Solid Ground
Via ConvergEx's Nick Colas,
Summary: Every quarter we take a break from all the standard economic indicators to look at a range of alternative data. The purpose here is to pose the question: “Does the consensus view of the U.S. economy square with what real people do in their day to day lives?” Consider one example: do consumers believe inflation is below 2% when the raw materials for a bacon cheeseburger are up 5.8% year-over-year? Economists would say that’s apples and, well, burgers, but the question stands. Or look at food stamp participation rates, which look to be on the rise again to the tune of 400,000 Americans in just the last four months. Other news is better – used car pricing remains robust, people are quitting their jobs more often than being terminated, and pickup truck sales (mostly small business purchases) are still increasing. Overall, though, the news from “Off the Grid” challenges the notion that the U.S. economy is on solid ground and accelerating. Inching forward, yes… But not much more.
* * *
It’s not too early to start thinking about Holiday presents for your loved ones, and I have a suggestion for you: a drone. Unmanned aviation isn’t just for the mountains of Pakistan any more. It is, in fact, a fast rising area of interest for American consumers.
How do we know? Because every quarter for the last few years we have been logging what Google autofills when you type “I want to buy” into their search box. “House”, “ car” and “Stock” fill the medal-paying positions at the moment, as they tend to do every time we check. But the new entry, in the #4 position, is “Drone”. In past quarters we’ve seen items like “Gun”, “dog”, and “Facebook stock” in the mix, mirroring America’s interest in personal safety, animal companionship, and investments du jour. Now, it is the ability to check out the rest of your neighborhood from the comfort of your patio chair.
The reason this analysis has some merit stems from Google’s autofill algorithm, which constantly updates the most likely completion of often-searched-for phrases. Some searches, such as “Chinese restaurant in” will likely autofill with the name of your town. More generic ones, like “I want to buy/sell” are based on larger populations. And speaking of the other side of the proverbial online search coin, Americans commonly search for “I want to sell...” a “car”, a “house” and a “kidney”.
That last entry – the common (if illegal) thought to sell an important internal organ – is a good jumping off point for what we call our “Off the Grid” economic indicators. These are a collection of reliable data, gathered by both private industry and the Federal government, that run parallel to the A-list data we all analyze regularly. The point is not so much to develop an alternative paradigm of economic analysis as it is to poke and prod at the consensus we all embrace. After all, can the U.S. economy be doing all that well if “Kidney” is a common autofill?
Take for example the myriad of data available from the U.S. auto industry, one of the cornerstones of the American manufacturing economy. Unlike the organ sellers of Google, the data from the nation’s car dealers is remarkably positive, and not just because auto sales have remained robust. Consider the following (charts for all the data described included after the text):
Used car pricing, according to auction company Manheim, remains robust. Unlike in prior cycles, the median cost of a used car in August 2014 remains on par with that of several prior years. Pricing have zigged and zagged a few percentage points, yes… But potential new car buyers are getting just as much for their 3-5 year old cars are they were at any point in the last 4 years. That’s good for trade-in values and new car sales.
Full sized pickup truck sales remain robust, up 9% year on year. These products – Ford F-Series, Dodge Rams, Chevy Silverados and the like– are primarily the domain of small businesses that use them as work trucks. Demand has been good for these products since 2010, and the most recent data shows continued sales momentum. Total monthly unit sales aren’t back to where they were pre-Crisis, but at 170,000/month they are closer to those 200,000/month highs than the 80,000 lows of 2009.
Overall, dealer inventory in the U.S. is surprisingly good at 62 days supply. Automakers made a considerable wager on the strength of the domestic demand this year and that bet has paid off pretty well. As a result, inventories are just about where they should be – 60 days is optimal to give buyers adequate choice. Be forewarned, however: inventories always rise between now and year end.
Grain of salt time: most Americans cannot afford to buy new cars (or find better value in purchasing used), so that marketplace doesn’t really speak for the broader population. How secure does the American consumer feel just now? Look at these Off the Grid indicators and judge for yourself:
Food stamp participation seems to be on the increase again. Peak usage of this important social program hit 47.8 million people and 23.1 million households in late 2012/early 2013. For reference, that is 15.2% of all Americans and 20.0% of all households. After dropping to 46.1 million people in March 2014, the most recent data from June 2014 shows an increase to 46.5 million. That’s 400,000 people added to the SNAP (Supplemental Nutrition Assistance Program) in just 4 months.
Gun sales are set to match their 2013 run rate of 21 million units this year. Through 8 months, the FBI has run some 13.8 million instant background checks for gun stores with Federal Firearms Licenses as well as pistol permit renewals in select states. That works out to about 21 million background checks by December 2014. For reference, the pre-Financial Crisis counts were more like 8 million annually. Considering that New York banned the sales of many popular semi-automatic rifles earlier this year, the overall background check count shows robust demand for firearms at a national level.
On a more positive note, people are quitting their jobs more often than they are terminated involuntarily. The JOLTS (Job Openings and Labor Turnover Survey) shows that 55.2% of all separations were due to the employee quitting their position. The accompanying graph shows that this statistic correlates well with consumer confidence and we’ve seen that economic indicator move higher in recent months.
Gallup’s survey of self-reported daily spending is at a post-Crisis high of $94/day in out of pocket cash outlays. We’re not back to the +$110/day stats of early 2008, but well off the $63-65/day levels of 2009.
A gaggle of Google Trend analysis shows a similarly mixed picture about these points. In case you don’t use it, this is a Google tool that allows you to see how many times users have entered a particular search term over the years. Searches for “Food Stamps” are ticking higher after a decline earlier in the year. “Buy a gun” searches are remarkably stable and remain at 2011- 2012 levels. Searches for “Gold coins” are at new lows since the Financial Crisis.
That last point on gold coins leads us to a range of indicators related to investing. Just a few points here:
Public interest in buying gold and silver coins seems to be in a bit of a slump relative to the fevered demand of 2010 – 2013. The U.S. Mint publishes monthly sales statistics, and on a rolling 6 month basis (the numbers are very chunky) revenues from the sale of gold coins are half the year ago levels ($48.7 million/month versus $97.7 million). Silver coin sales show the same trends: $56.6 million/month versus $80.5 million last year.
Investors are pulling money out of U.S. stock funds to the tune of $5-10 billion a month, choosing products that focus on bonds and/or fixed income products.
We’ll close out this note with our personal favorite “Off the Grid” indicator: the Bacon Cheeseburger Index. In all truth, it is a diet-friendly construct insofar as it omits the bun. If you do your own shopping you’ll know that a hamburger costs about $3.40 in raw materials. In case you don’t do the shopping, that’s $2.00 for ground beef (80% lean), $0.25 for the cheese, and $1.25 or so for 3 slices of bacon. If you really need the bun, throw on $0.45. We go through this math because the raw materials for the classic American Bacon Cheeseburger are up 5.8% in the last year.
We doubt our exemplar of inflationary pressures will ever make it into the Fed minutes, but perhaps it should. So much of measuring inflation has to do with expectations of future price increases rather than what is happening in the moment. As the U.S. central bank focuses on 2% inflation, everyone shopping for dinner sees far higher numbers. Does that matter to economists that only focus on “Core” inflation? No, but they should know that consumer expectations come from real world experiences. And what’s more real than a bacon cheeseburger?
In summary, this turn through our Off the Grid indicators show a U.S. economy that is still only gradually on the mend. Consumers are no longer as afraid of systemic failure of the banking system, hence the decline in gold and silver coin demand. They are confident enough to quit their jobs and invest in their small businesses. They are buying cars and trucks. At the same time, food insecurity is still an issue and food inflation is on the rise. Demand for firearms remains extremely robust.
Yes, we seem to come to a similar place as the “Standard” economic analysis might. But it feels like we got here by drone, with a different perspective of the same picture. At least we didn’t have to sell our kidney to see it.
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OMG, the Tylers really seem to be pissed they did not see a crash today.
Why? Were they expecting one today? I don't remember seeing that.
Just buy the fucking dip, it's worked for 6 years. It's all Bullshit!!!
The Venezuelan stock market didn’t crash either. Doesn’t mean it’s not fucked up.
Who cares about the health of the economy? Koolaid is free! Drink Koolaid, be happy!
Forward (over the cliff)!
Wolf..
Don't put both feet in your mouth at the same time -- it does't leave you a leg to stand on.
Economic resets alwyas have all the tender, but await a match in public consciousness.
Ebola continues to double every 3 weeks, which puts it on course for 8 billion cases next June.
td wrote this on 7/21:
US equity markets have given up all the gains from Friday's knee-jerk massive short-squeeze fest...
short squeezes on fridays have been very common over the past few years. i hardly think zh was expecting a crash today.
I like this part: "These products – Ford F-Series, Dodge Rams, Chevy Silverados and the like– are primarily the domain of small businesses that use them as work trucks."
Is this a joke? There are tens of thousands of these things cruising around here and not one of them has a business logo. They are all commuter cars that have never seen a load larger than a barbeque for the beach party.
Is this a joke? There are tens of thousands of these things cruising around here and not one of them has a business logo. They are all commuter cars that have never seen a load larger than a barbeque DURING DAYLIGHT HOURS.
there.. fixed it for ya
Deficit for the year is 1 trillion so my question is what recovery ?
Finger it this way. 6+ years of the most excessive monetary and fiscal stimulus ever in the recorded history of mankind and the world, even on the Talking Head Programs, still is essentially debating the viability of the recovery.
Thus, not.
Green sharts.
the ebola jokes are on the other thread
The title of this article did make a reference to "solid ground," so I figured it was fair game.
Solid ground??
Where the fuck are you going to find that????
Best you can do is develop a technique for walking on jello.
hmm, looking at the critters capable of walking on jello, I need hairier legs...
The best non-recovery debt can buy!
Do we cross the 18 Trillion threshold by calendar year end?
http://www.usdebtclock.org/
The economy is doing so good they can stop force feeding it cash but its WAY too early to think about lifting rates from record low levels... right...
Seems like yesterday auto sales were, whats the word, oh yeah collapsing and channel stuffing was at an all time high.. I know the CB's are criminal and sooner or later they will need to make a transition to something else but collapse? Starting to wonder if this has not been gamed all the way through the transitional ( here is your new currency suck it peasants) phase..
All fake. All fraud. Economy is imploding right now. This weekend. This month. This quarter.
The slow collapse is subtle but very real. It is occurring now. We have slowed down.
Jobs reports? Hahaha. Fake. Fraud.
Agreed. That's the thing about freefall - you can't feel that you're falling. It's the proverbial story about the frog and the pot of water...
It's not the fall that kills you. It is the sudden change in velocity.
Exactly...
"...subtle but very real"........
=
"Zugzwang"
But what will z fed do after holloween?
We are all swimming in a sea of bullshit.
Most seem to have lost their sense of smell.
I'm not one of them, for better of worse, who knows?
Try getting any money for a car older than four years. A car seven years old won't even be financed even by Wells Fargo. That really kills values. Sure people are getting great money for 3 year old cars, but they just add a few extra thousand to the new loan to make up for the "loss".
All you need to know about the US economy is Walmart, Kmart, and Target all have Christmas up before Halloween sales even started. Desperate for sales doesn't cover it.
This kind of article is what I want from ZH.
The economic recovery that the media and talking heads have been bantering around is a manipulated myth. A manipulated stock market distorted by recent economic policy hides and mask the real truth, in many ways it is ground zero in the war to convince us all is well.
The American people and Main Street will tell you they are far from convinced that it is smooth sailing ahead. Huge weakness in the economy has been shown by numbers that barely get by even after record amounts of stimulus. Fact is if QE or the massive government deficit spending that props up our economy is removed it will fold like a cheap umbrella.
Recent changes in how the GDP is figured , which boosted growth thus reducing the debt to growth ratio, and attempts to spin poor numbers regarding employment have been met with skepticism. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/10/myth-of-economic-recovery.html
My company is one of the final pieces of the manufacturing puzzle. It is slow, our vendors are slow, our customers are slow. We lag the ISM by a month to two.
Which means that next month's releases are going to be down, maybe brutal.
The PTB are holding back some of the reality until after November. Letting the truth out is no longer good for any incumbent in either party.
I have a feeling the dam is breaking and a whole lot of reality is getting ready to wipe out another strata of our middle class.
Regulating small companies out of existence while increasing the percentage of earnings/labor forced to insurance companies, banksters and government, is not turning out quite as well as they had planned.
Turbulent waters dead ahead. It remains to be seen if a calm will return before the real storm hits.
My business reality matches yours. Reality will bite to the bone. If ebola cases start breaking in Dallas, reality will kill and government will lose all credibility. By allowing common folks from west africa endemic nations to fly to America, Obama is taking a huge risk for his ideology.
I was expecting our country to be ruined by an african this year, but I wan't thinking about ebola.
I have seen (and been involved with) a significant increase in "off the books" or "under the table" transactions. Our main production has remained intact but I definitely have seen more an more people dealing directly with one another (end user with producer) and eliminating the middle-man (that's all government really is, a functioning government is a good thing, a non-functioning corrupt crony/fascist government is bad for business and all productive capital).
Long black markets and sharecropping...
OT: Sweden is talking about recognizing Palestine as a sovereign state, here the Guardian article: http://www.theguardian.com/world/2014/oct/03/sweden-recognise-state-pale...
from there: "However, there is likely to be strong criticism of Sweden from Israel, as well as from the United States and the EU, which maintain that an independent Palestinian state should only emerge through a negotiated process."
this of course is also a valid showcase of how much the EU... isn't. or even NATO
as a reminder, Poland, Hungary and Slovakia already recognized Palestine, before they joined the EU