New Consumer Data Suggests a Double Dip is On the Way

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These past few weeks, some of you may have noticed our more frequent discussion of variables impacting metals prices. Whether you track steel, aluminum or copper prices, everyone wants to know where prices are going and what will push prices in one direction or another. Whether you look at these five metrics that we covered last week or this handful of Chinese economic indicators or news stories saying that Boeing is increasing production and March auto sales show an economic rebound, at least one person sees quite different writing on the wall.

We caught up with Rick Davis, a self-described “numbers geek physicist who runs the Consumer Metrics Institute out of Lakewood Colorado. Davis started his, for lack of a better description, consumer data research firm out of a frustration with the inherent biases in current economic research data. He shared with me some of his thoughts and rather than draw conclusions for you, I’d like to share with you some of Davis’s research so you can make your own decision. But first, what biases does Davis take issue with? He thinks the retail economic indicator “same store sales has two design flaws. The first, the notion of under-reported casualties that same store sales only report the stores that are still around, not the stores that go belly-up. This results in a bias because the data will appear more favorable than the underlying economic reality. He went on to describe Circuit City and Best Buy as an example. When Circuit City went out of business, Best Buy picked up share, which looks favorable from a reporting standpoint and even suggests growth when in fact, Best Buy may only be gaining share left from the void of Circuit City. Rick calls this Ëœsurvivor bias’ (maybe it’s also the proper economic term, I don’t know)

The second issue with economic data that troubles Davis involves the delay in relaying data. According to his site, “Leading Indexes that rely on data published by governmental departments are generally updated monthly several weeks after the month’s end. Often the governmental data includes some estimates and is necessarily preliminary, so a final set of numbers is published yet a month later. Going through the myriad of charts, statistics and analyses that Davis has on his site, one can see why he draws that conclusion. Take a look at this chart below:

The pink line is what the government is reporting but look at where the Consumer Metrics Institute line goes. According to Davis, “production trails consumption. A healthy factory is going to respond to consumer demand. So what explains some of the positive factory/producer statistics including greater capacity utilization?” Davis believes, “producers may be re-stocking but are lagging consumer demand. Upturns in manufacturing may just involve re-stocking and response to consumer demand from the third quarter of last year. It’s hazardous for manufacturers to ramp up production too rapidly.

In a follow-up post, we’ll examine some of the other key economic indicators Consumer Metrics Institute tracks, their own biases and how these indicators square against the rather positive headlines of the past few days.

–Lisa Reisman

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