A very telling consumer sentiment analysis

[reggie]

Re: A very telling consumer sentiment analysis

I could understand you not putting much weight on their reports for this reason, but "really frightens" ??? That seems like a tad overly paranoid to me.

It's "frightening" because separating inputs from outputs via black-boxed systems is a trend we're seeing in system design across society, and people are not questioning this trend.

[ThePythonicCow]

Re: A very telling consumer sentiment analysis

It's "frightening" because separating inputs from outputs via black-boxed systems is a trend we're seeing in system design across society, and people are not questioning this trend.

If you choose to find the presence of seldom questioned black box systems frightening ... be my guest.

[Rajiv]

Re: A very telling consumer sentiment analysis

Rajiv, just what are these charts "telling?" For instance, is the end of the world near? Will the Republicans gain control of the world in November and in 2012 will Palinomics provide the road to US world dominance in all things? What is the "tell?"

Good analysis of this at TAE - One more time: GDP and CMI

Ilargi: After another annual gathering of the empty headed at Jackson Hole, replete with economists looking at each other to once again confirm what deep down they know not to be true, in their desperate attempts to convince themselves and others that the trade they ply is based in science instead of simple belief and wishful thinking, we come away yet another time realizing that these folks are entirely useless when it comes to reorganizing our economies in any meaningful way, at least one that would benefit society as a whole, not just its political and financial elites.

Perhaps economics should be taught in seminaries and madrasses, so someone can step up and ask the pope to beatify Milton Friedman. Speaking of which, Ben Bernanke held another one of his Delphic Fed-speak talks, devoid of any substance, and the markets went up. When it comes to solving the problems caused by their own baseless ideas about how things work, they have nothing. But when it comes to lulling the gullible into complacency, then yes, it all still works like a charm.

Still, it never ceases to amaze that empty hot air evokes such exuberance, if even just for one day. Certainly when on the same day that Bernanke spoke, the US Commerce Department's Bureau of Economic Analysis adjusted its 2nd quarter 2010 GDP number downward 33% (!).

Sure, Bernanke has said he will do everything in his power to prevent further economic mayhem, and that he still has tools left to do it with. But then, he has said the exact same thing numerous times over the past few years, and look where we are: an at best anemic GDP growth, unemployment at (U3) 9.5%-(U6) 17.5%, homes sales down the drain, an expected 4 million foreclosures in 2010 even as lenders strongly hold off on repossessing homes, in short: not a pretty picture at all. The Federal Reserve epitomizes the Receding Horizons of finance revisited: it's always: next time, we’ll bring the big guns!

The Fed will likely buy more Treasuries and perhaps even dabble further into wobbly securities. Which may be nice for financial institutions, but does nothing for society as a whole. On the contrary, that very society's badly needed money is used to purchase the paper, just so banks and lenders may live to see another day. The USA has its priorities upside down and scrambled up in many fields these days, but arguably nowhere more so than in its economy and the politics that shape it.

But I wanted to talk a bit more about the revised Bureau of Economic Analysis GDP numbers. A 33% revision within one month (from 2.4% to 1.6% growth) can hardly be ranked as "margin of error", can it? Makes you wonder what they base their valuations on. Makes you wonder, too, what happens if an airline pilot misses his runway by 33%.

By the way, consensus has it that the US needs 2.5% GDP growth just in order not to see unemployment rise even further. Keep that in mind. And count your blessings. Equally funny is it to see that media, economists and politicians, to a (wo)man, stop dead in their prediction tracks at "slow growth", or something along those lines; nobody dare mention negative growth. After all, we have a recovery, right, even if it's slowing a tad?!

Which kind of inevitably brings me back, once more, and at the risk of boring you, to the Consumer Metrics Institute and the interpretation of their data by Doug Short. Apologies in advance, but I do think these numbers are that important.

Yes, there are differences between the BEA and CMI data. As pointed out before, the CMI tracks only the 70% of US GDP driven by consumers. No government, except for those expenditures that directly benefit the consumer. Think the $8000 tax credit for home buyers, or the Cash for Clunkers program (not sure about the Bush tax cuts). But, as is abundantly evident, the CMI follows the BEA very closely, if you interpret the data in the right way.

Here’s the original graph again, updated for Friday's numbers:



As discussed before, there are a number of issues with this graph that make it less "strong" than it could, and arguably should, be. First, the BEA GDP stats cover April-June 2010, but it's almost September now. The CMI numbers are updated daily, they don't "look back" the way the BEA ones do. The disparity is at least one quarter "wide", since Friday's BEA 2.4% to 1.6% growth correction includes data dating back to early April, close to 5 months ago.

Therefore, in order to get a clear picture, you have to move one of them forward and the other one back. I dove into my left-over long-ago Photoshop tricks to redo the graph, and chose to leave the BEA GDP number where it was, and move the CMI data forward by one quarter. The idea behind this move is that, seeing the -delayed- correlation between the two, the CMI stats -arguably- take on the quality of predicting where the GDP stats will go, as you will see. The first step - leaving out the S&P 500- looks like this:



Then there's the S&P 500 numbers that Doug Short incorporated into his graph. Since these, if you follow the sequence of peaks and troughs in the first graph, evidently lag the GDP numbers by about one quarter, you need to push them about back that amount, i.e. in the opposite direction from the CMI data, thereby establishing a two-quarter difference between the two. Which leads to this graph:



Now they peak and trough at the same "moment". Granted, it's not a perfect correlation. But then again, I would argue that at the same time it’s far too good to dismiss offhand.

Let's try this: permit the CMI a two year run-up time, and let's start at January 1 2007. Which would look something like this:



Now the correlation is very strong, apart perhaps from an initial "irrational exuberance" from the S&P, presumably coming out of the last gasps of very cheap credit in the pre-Lehman collapse period. The S&P is a bit of the odd duck out, but it's still not too far off.

All this serves, as I noted above, to point out to what extent the CMI data may serve as potential predictors for the second half of 2010, of which, in case you forgot, 2 months have already passed. For Q1 2010, the CMI seems to run alongside with the BEA data pretty closely. Even as, and this becomes clearer in Q2, BEA GDP numbers come in one quarter "blocks", i.e. they depict the average over 3 months.

In Q2, this "closeness" is no longer there. Friday's revision, as stated, brought BEA GDP numbers down from 2.4% to 1.6% growth , whereas CMI data seem to indicate an average contraction of about -1%. Looking forward towards Q3, of which we’ve already spent 2/3, mind you, CMI data point to a -2% contraction. For Q4, we're looking at some -4.5%. And there doesn't seem to be a lot of positive movement that could stop a further downfall.

Adding these to the graph gives us this:



These are alarming numbers. That is, if you wish to see them: you are, of course free to believe what the government says.

The one big caveat, again, consists of the fact that the CMI doesn't track government expenditures, other than those that enter the economy at large directly. But that in turn means that Washington would have to make up for a -5-6% contraction in the 70% of the economy led by consumers, as well as keeping its own spending habits "neutral".

Here's thinking no such thing will materialize. Sure, Bernanke can buy trillions of dollars of Treasuries, but hardly any of that "spending" will reach the real economy, and certainly not in time to balance out the deep dark abyss presented by the CMI data. We won't receive revised BEA Q3 GDP numbers until late November, of course, but does that really matter?

Provided we take the CMi data seriously, the downfall is already locked in. Barring, perhaps, a direct $1 trillion give-away to American citizens. But that will not happen, there'll be no free money in the USA, except for bankers. And besides, even if there would be, in the present economical climate most Americans would just sit on that money and hock it, and there’d be no stimulus to speak of.

While I was Photoshopping, I did notice another neat little thing. If I lower the CMI graph a little (and nudge it a bit more to the right), it matches the BEA peaks and troughs even better. But then, that also brings the contraction down even more, below -6%. Don't let's go there, shall we? It's bad enough as it is.



To summarize: we will either find out that Ben Bernanke never had any big guns or tools, and the US economy will scratch the gutter -using the heads of the poor to do so-, or the Fed will come out cannons ablazing, but then they'll still have to use taxpayer money. They, and you, can't win this one, unless truly spectacular growth rates will emerge out of the blue, preferably no later than tomorrow morning. Which are impossible without huge rises in homes sales and job creation, neither of which are even beyond the horizon.

How accurate the CMI numbers, and their "predictive value", are can best be determined by looking at how well they've matched the BEA data over the past 40 months. Watching the two, I'd say: ignore them at your own peril. Remember: the 91-day trailing CMI Growth Index started the week at -5.06%, and finished Friday at -5.43%.

What do you think: women and children first?!

[grapejelly]

Re: A very telling consumer sentiment analysis

GDP numbers are fake because the government distorts them with deficit spending and monetization. I contend we have been in a Depression since 2008 and remain there and it will get worse. It is the next downleg starting now, maybe it started last month, maybe next month. But it's very long term, the more "stimulus" and Keynsian garbage, the worse it gets, and so on and so on.

Doctors used to kill their patients in the West by bleeding them or by using leeches or by infecting them with disease. Today's government efforts are exactly like that. The more the government does, the sicker the patients get. And the more "call to action" there seems to be.