Troubling Consumer Data Suggests GDP Numbers for Q2 and Q3 Will Continue Downward Trend

Here at MetalMiner as many of you are aware, we track dozens of variables that impact metals prices. Two of our favorite research houses include an organization called EcoTrends (that would be economic trends, not ecological trends) and the Consumer Metrics Institute. And as would happen, they each have divergent views as to the state of the economy (EcoTrends being largely supportive of a growing US economy) whereas the Consumer Metrics Institute, well, let’s take a look at what they have to say.

As we have previously reported, the Consumer Metrics Institute data leads the official BEA data by as much as 127 days. So it’s no surprise that data from the Consumer Metrics Institute failed to mirror the Q1 2010 GDP release. On May 27, the BEA issued a revised Q1 2010 GDP growth rate lowering the number of 3.2% to 3.0%. The Consumer Metrics Institute’s “Daily Growth Index now predicts a Q3 2010 GDP growth rate of -2.0%. See chart here.

Rick Davis, Founder of the Consumer Metrics Institute made several interesting observations of relevance to metal buying organizations, ” Several things were interesting about the BEA announcement, which seems to have been largely ignored by the equity markets on a day when the Dow Industrials were up over 280 points. Not only was the total growth rate revised downward by .2%, but the impact of inventory building was adjusted upward from 1.57% to 1.64%, meaning that the end growth rate of consumer demand (net of inventory build-ups) dropped from about 1.63% to something closer to 1.36% — a 17% reduction that was hardly worthy of a 28 point rally in the markets. Perhaps the U.S. equity markets should obsess less about Greece and Spain and pay more attention to what is happening with consumers in their own domestic economy.

Davis goes on to discuss the above-referenced chart highlighting that though the severity of the current consumer contraction appears much less severe than the contraction of 2008, “it has already lasted longer without forming a clearly defined bottom. We know that if the GDP mirrors consumer activities (as at least 70% of it should, net of inventory adjustments), both the 2nd and 3rd quarters of 2010 should be contracting at a level of between 1% and 2%.

All of you supply chain folks are familiar with the bull-whip effect¦.are we seeing true demand or the result of re-stocking and replenishing? Factory orders eventually decline if the consumer is MIA. What’s your take? Leave a comment!

–Lisa Reisman

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