Tuesday, August 3, 2010

CMI 'Daily Growth Index' Turns Sharply Lower

Rick Davis at Consumer Metrics Institute writes:

Since last week our 'Daily Growth Index' has dropped significantly, putting the trailing 91-day moving 'quarter' at a contraction level that would place a similar calendar quarter of GDP growth below the 5th percentile of all quarters since 1947. Under normal circumstances we might expect a quarter that bad once in slightly over 5 years.

Click on chart for larger view.

The chart above clearly shows that things were much better one year ago, when the recovery was peaking in late August and early September of 2009. At that time the Daily Growth Index was above the 70th percentile, meaning that at that happy time of full blown recovery only roughly 1 in 4 quarters since 1947 had been happier. The decline during in the 4th quarter of 2009 was spectacular, and it has been steady throughout 2010. For those of you who are curious, the last time that our 'Daily Growth Index' passed the 5th percentile on the way down was on July 16th, 2008.

More telling perhaps for economic forecasts is that the longevity of the current contraction is somewhat rarer than its nominal severity. Our 183-day moving 'two consecutive quarters' growth index would place that 6-month span in the 4th percentile of consecutive quarters since 1947. Only roughly one in every 25 six-month periods since the first Truman Administration would have been worse. The lingering nature of the current contraction can be seen in our Contraction Watch:

Click on chart for larger view.

This chart compares three consumer demand contraction 'events' that we have tracked: 2006 when consumer demand went negative but the GDP stayed just barely positive, the 2008 'Great Recession', and the current 2010 contraction that first sent our 'Daily Growth Index' negative on January 15th, 2010. The above graph charts all three events on a daily basis, with the first dates of respective negative growth aligned on the left margin. As we approach 200 days of contraction the 2010 event is now worse on a day-by-day basis than either of the two earlier slowdowns, and unlike the prior two events the current one has not yet formed a bottom.

We have said before that one measure of the pain caused by an economic contraction is the area between the respective event lines in the above chart and the gray '0.0%' horizontal line. By this measure the current contraction is over two and a half times as severe as the 2006 event and nearly half as bad as the 'Great Recession' (which had returned to net 'Daily Growth Index' growth after 220 days).

And a glance at the above chart tells us that the 2010 contraction is figuratively in 'uncharted' territory, behaving very unlike either 2006 or 2008. After nearly 200 days of contraction, the 2010 event is now less than a month from surpassing the 'Great Recession' in longevity, with no end in sight.

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