Via ConvergEx's Nick Colas,
Drones are “In”; laptops are “out”. Demand for pickup trucks, guns, and used cars are all still hot, but food stamp participation is climbing once again. Sales of gold and silver coins remain weak, but the same goes for U.S. equity mutual funds. And forget worries about deflation if you like bacon cheeseburgers, which are 7% pricier to make now than a year ago. Those are some of the headline observations in our quarterly review of “Off the grid” economic indicators. Taken in total, they tell a story somewhat less sanguine than the typical government data. Confidence is returning, yes. But consider just how low it got: the top 3 Google autofills for “I want to sell my …” featured “kidney” for the first 3 quarters of this year. It was replaced in the current quarter with “Laptop”. Progress, of a sort…
Every quarter since the beginning of 2011 we have assembled a variety of “Off the grid” economic indicators. The original idea stemmed from the burst of demand for gold coins and guns during and after the Financial Crisis. After all, the typical long gun costs several hundred dollars, and even fractional ounce American Eagles are more than that. Americans clearly had money to spend, but it wasn’t going into traditional products and services. There was clearly more to the state of the U.S. consumer psyche than the headline government economic data showed.
Over the years we have collected a wide array of repeatable, large sample datasets with an eye to tracking how real people think about their economic conditions. Take, for example, the Supplemental Nutrition Assistance Program (SNAP, better known as “Food Stamps”). The U.S. Department of Agriculture releases participation data monthly – the last numbers available date from September 2014. Here’s a snapshot of what they tell us:
There are 46.5 million Americans in the SNAP program. That is 15% of the entire U.S. population. In late 2006, before the Great Recession, that number was 43% lower at 26.3 million. Government expenditures on the program currently run $5.7 billion/month or $124/person/month.
The number of people in the SNAP program makes it the largest “State” in the Union. California, by way of comparison, has just 37 million inhabitants.
The number of SNAP participants rose from March 2014 to September by over 300,000. The program grew in the wake of the last recession, but that trend had tailed off by 2012. Now, the program is growing again, even though Congress reduced its funding in late 2013.
So, riddle me this: the U.S. economy is growing, and job growth is accelerating, so why hasn’t the SNAP program seen reduced participation since March? This is a means-tested program, and despite what you read in the papers fraud is only about 2% - less than most credit card businesses, by the way. And no matter what your political leanings, I think we can all agree that having a seemingly constant 15% of the U.S. population in need of government assistance to buy food is no one’s idea of a healthy economic system or “Recovery”. No, capital markets will never move on this data. But it is still important if you want a complete picture of the U.S. economy.
Casting a broader net, we track many other such underutilized indicators. There are numerous tables and charts attached to this note, but here is a brief summary:
What’s hot: Pickup trucks, guns, and used cars. Sales of full-sized pickup trucks have been on a tear all through 2014, and November sales were up +20% from the prior year. Lower gas prices should help the momentum here, but the offset of potentially lower demand from the energy industry will be something to watch in the 2015. FBI background checks for the purchase of guns at licensed dealers totaled 18.7 million through November, and reports from retailers point to a strong enough December to make 2014 the second-ever highest year for demand behind only 2013. Used car prices from auction house Manheim show remarkable stability, at record-high levels.
What’s not: U.S. equity mutual funds, gold and silver coins. On a 6-month rolling average basis, Americans bought just $60 million in gold coins through November 2014, down from a peak of $193 million in April 2013. The same trends hold for silver: an average of $61 million now versus $115 million in early/mid 2013. Among financial assets, investors are still reducing their ownership of U.S. equity mutual funds. November 2014 saw them pull $7.3 billion in assets and there hasn’t been a +$1 billion month since March.
Google search autofills may be signaling “End of days” for the laptop. Those helpful hints that Google gives you as you type a search term are a societal “Tell”, since they represent the words others entered to finish what you are just starting. We’ve tracked searches like “I want to sell my” and “I want to buy” for several years. This time around, the logical entries hold sway: “House” and “car”, for example. One positive for the equity market: “Stock” is #2 on the “buy” list. One negative for laptop makers: their product appears for the first time on the “Sell” list. One positive for society as whole: laptops replaced “Kidney”. And one last minute Christmas gift idea: “Drone” is a top “buy” autofill for the second quarter in a row.
Consumer spending and confidence are returning to more normal levels. Gallup’s survey of daily cash spending among American households shows they now go out of pocket to the tune of $95/day, up from $60 in 2011 but still below the +$110 of 2008. And more people are quitting their jobs than being fired, by a ratio of 56-44%. That statistic correlates well with overall consumer confidence.
Cheeseburger, cheeseburger, cheeseburger, inflation, inflation. We know that falling crude prices has the fixed income markets worried about deflation, but bond daddies must be vegans these days. Our bacon cheeseburger index of inflation (one third each from the CPI data: beef, bacon and cheese) shows a 10% year on year price bump in the raw materials for this diner staple. Food inflation is a lingering problem for many Americans, even if it gets short shrift from policy makers.
What to make of all this? Yes, the U.S. economy is slowly recovering in that Americans are back to buying durable goods, from used cars to trucks to guns. And they feel a little more confident than they did last year, or the year before. At the same time, the comps were very easy indeed. At least we don’t need to explore selling a kidney any more. Now, it seems, ditching the laptop will do.



