Thursday, March 11, 2010

A New Source for Tracking Economic Data Shows the Double-Dip is Here

As long-term EPJ readers know, I am very suspicious of the methodology behind much of the data that is collected and reported by the government. I have outlined my concerns here in the post, How To Monitor the Economy.

Now, new data collections methods are being developed by Richard Davis of the Consumer Metrics Institute that I am very excited about. His data is what I classified in my HME post as raw data. What's most intriguing about Davis' data is that it is real time data. Davis explains:
This is a revolutionary new daily source of spin-free hard data about the demand side of the economy. It does not involve any governmental sources. It does not utilize 'seasonal adjustments' (all numbers are year-over-year). It is simply based on real-time U.S. consumer transactions...

The new data is derived from millions of daily U.S. consumer internet transactions.
Davis, mind you, is not tracking, say, Amazon book sales. He is tracking "durable goods" orders---what I consider capital goods purchases, which, of course, for me is key to understanding the business cycle.

In a phone conversation with Davis, he admitted to me that because he is tracking internet data, there may be a slight bias towards more educated, higher net worth shoppers. But, he tells me his numbers are tracking pretty closely with sales tax numbers across the states.

The key, though, is that in addition to his numbers being raw data, his numbers are real time and show what is going on now versus weeks and months of lags. So what do his numbers show? Here's Davis again:

Current real-time consumer tracking data is showing contraction even as the latest GDP release indicates nearly 6% growth. The GDP lags by some 17 weeks both because it measures production activities 'downstream' from consumers and because the traditional data requires months to collect and adjust.

From our perspective on the demand side of the economy, a contraction is already here, having started officially in the middle of January. The only question now is whether the 2010 contraction will revisit 2006 or 2008?
This coincides with my thinking that there will be a second dip to the recession, because of the slow M2 growth. Davis says this "second dip" is milder than the 2008 downturn ( I guess you can real only blow up the housing market once), but on a gut basis (not his numbers) he thinks it will be more prolonged.

BTW, Davis is trained as a physicist and considers himself an IT guy. He is not a trained economist. I consider this a plus. He is going to take data collection to an entire new level with fresh eyes. His data needs to be watched and I will be reporting on it regularly here at EPJ.

Davis' indexes can be found here.

1 comment:

  1. I see...I guess it all depends on your definition of "double dip."