Monthly Archives: March 2010

Consumer Metrics Institute Charts

Pursuant to the last post, here are some charts from The Consumer Metrics Institute that I find noteworthy:

As I indicated in the last post, I plan on including updated information from The Consumer Metrics Institute in my frequent updates of economic indicators…

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SPX at 1170.51 as this post is written

The Consumer Metrics Institute

In the previous blog post I wrote of the issues and implications regarding the current economic growth rate.

There are a variety of sources and methods one may use in trying to gauge current and future economic growth.  In this blog I frequently highlight and discuss many I feel are prominent and/or noteworthy.  However, I am constantly searching for new sources as I feel that many of the well established, existing indices and methodologies have inherent weaknesses.  These weaknesses, in many cases, are being magnified and exacerbated in our current economic environment.

One source of forecasting economic trends that I have recently become aware of is called “The Consumer Metrics Institute.” This site uses proprietary methodologies that appear quite disparate from those used by others.  I’ll probably comment more on these methodologies later; however, for those interested the FAQs section as well as various other pages on the site provide an overview.

Their methods are yielding statistics that I find most interesting, both with regard to our current economic condition, as well as those pre-dating the 3Q/4Q 2008 financial maelstrom and aftermath.

In aggregate, I interpret the data shown by The Consumer Metrics Institute to show that current economic growth is not as strong as widely depicted and believed.  Based upon their data, I infer (based on this data) that the economy may be far more vulnerable to significant economic weakness than widely envisioned.

It is always hazardous to place too much reliance on one data source, especially when it comes to economic forecasting.  As well, it is easy to view the non-confirming (vs. highly established economic forecasting sources and widely held economic expectations)  nature of this Consumer Metrics Institute data with skepticism as it belies many underlying consensus beliefs and associated data sources.

However, I think this is a potentially very valuable source of information and I plan on monitoring it diligently.  It will be included in my frequent updates of economic indicators.

In the next post I will display a few charts from the site that I find especially noteworthy…

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SPX at 1171.80 as this post is written

The Chicago Fed National Activity Index

This post, and the next, will deal with economic activity and economic indicators.

My most recent update of various economic indicators was on March 15.

One indicator that I have yet to add to this list is that of the Chicago Fed National Activity Index.  Many people believe the Chicago Fed National Activity Index to be the best, or among the best, indicator of economic activity.  Among its strengths is its broad nature, as it is comprised of 85 individual indicators.

Here is the most recent (March 22) chart of the CFNAI, that depicts February activity:

Source: Chicago Federal Reserve (pdf)

It is important to note that the trend shown on the chart is a 3-month moving average.  One can see the monthly values denoted in the table as “CFNAI.”

Overall, one can see the chart depicts the 3-month average as still being “below trend” after making a strong rebound off the early-2009 lows.

What I find interesting in this data is that it seems to indicate that the rate of economic rebound appears to have peaked.  This same indication is seen in many of the economic indicators shown in the March 15 post.

If it true that we are now off-peak in terms of the rate of economic growth, the pivotal question becomes what will be the going-forward growth rate.  As shown in the various economist forecasts that I have posted, most economists (as well as other professionals) are assuming a growth rate consistent with full-year GDP of 3%…i.e. relatively steady growth for the rest of the year.

However, there are also some who think a “double-dip” or other resumption of weakness is likely.

Is it possible that the rate of economic activity is already on a faster than anticipated decline?  It appears too early to definitively say, based upon this CFNAI and other indicators.  However, this possibility is something that I certainly think bears close monitoring as the implications of such could (dependent upon the extent of such weakness) be enormous.

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SPX at 1173.22 as this post is written

The Latest Housing Intervention

Saturday’s Wall Street Journal chronicles the latest housing intervention plan in a story titled “Mortgage Plan Remodeled Again.”

I have written extensively about the residential real estate problems and dynamics thereof.

It strongly appears as if we, as a nation, have come to a place where there is hardly a real estate intervention that we don’t like.

I think this situation is one filled with peril, as I strongly believe (and have written extensively of) the unintended consequences and hidden risks of interventions.

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SPX at 1166.59 as this post is written

Greenspan’s Most Notable Phrase

Alan Greenspan recently gave a lengthy video interview on Bloomberg.  A short summary is found at this link; the actual video is the first listed near the bottom of the article.

I found the video to be most interesting.  Greenspan elaborates upon his recent “The Crisis” paper, which I mentioned here.  As well, he discusses many other issues.

While there is much I can comment upon in this interview, I want to focus on a key phrase he mentions with regard to what is now happening:

“You can see the whole blossoming of finance.”

I believe this to be the most notable of all of Greenspan’s famous phrases.

I think we are seeing a blossoming – not of “finance”, but instead of (hyper)bubbles.  I think there are many bubbles of severe magnitude throughout the worldwide economy.  I have previously written of these bubbles in a variety of posts.

I strongly disagree with those who think that bursting bubbles are not something to be unduly concerned about.  In fact, Greenspan says in the interview, “Remember that the bursting of the bubble by itself is not a big catastrophe. We had a dot-com bubble, it burst, and the economy barely moved.”

While it may be pleasant to ignore the existence of bubbles, and downplay the potential significance of their bursting, I believe that the existence and prevalence of bubbles in today’s worldwide economy is perhaps the largest threat to achieving Sustainable Prosperity.

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SPX at 1166.59 as this post is written

Disturbing Charts, Part II

As a continuation of yesterday’s post, here are three other charts that I find disturbing in nature.

These charts raise a lot of questions.  Many of these questions I have discussed in the blog, as I believe they are very significant in nature.  Additionally, these charts should highlight the “atypical” nature of our economic situation from a long-term historical perspective.

Here is a St. Louis Fed chart depicting the Median Duration of Unemployment:

These next two charts are from the Minneapolis Federal Reserve.  These charts really provide a perspective on the length and extent of this downturn.  The first depicts our Unemployment situation:

This depicts Output:

More about these last two charts can be found in this previous blog post.

I will update these charts on an intermittent basis as they deserve close monitoring.

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SPX at 1175.44 as this post is written

Disturbing Charts, Part I

In the next two posts, I am going to display various charts that I find disturbing.   These charts would be disturbing at any point in the economic cycle; that they depict such a dismal situation now – 9 months into what most believe is an economic recovery – is especially notable.

Many more such charts exist, unfortunately.  I also regularly discuss many troubling aspects of our economy in this blog.

As well, I find many aspects of the financial markets to be problematical.  Those aspects will be covered in the near future.

All of these charts are from The Federal Reserve.  Charts in this post are from the St. Louis Federal Reserve.  I especially find these charts valuable as they depict our current situation in a longer-term historical context.

Here are the charts:

Housing starts:

The Federal Deficit:

Federal Net Outlays:

State & Local Personal Income Tax Receipts  (% Change from Year Ago):

Total Loans and Leases of Commercial Banks (% Change from Year Ago):

Bank Credit – All Commercial Banks (Percent Change from Year Ago):

M1 Money Multiplier:

Now, onto Part II…

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SPX at 1172.35 as this post is written

Greenspan’s “The Crisis” Paper

Last Thursday, Alan Greenspan’s “The Crisis” paper (pdf) became available.

I assume this is the paper that Alan Greenspan has previously spoken of, as seen in my previous post on his defense of his tenure.

For now I simply want to post a link to the paper.  I may further comment upon the paper at a later time.

I think the paper is valuable in that it provides a unique perspective on the financial crisis.  However, I don’t agree with many of the points made in the paper.

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SPX at 1166.49 as this post is written

Health Care Legislation – A Few Comments

I would like to make a few comments regarding the health care legislation.   I’ve written a few posts mentioning health care; here are the most substantive.

First, as I’ve previously written, the health care system that we now have needed to be changed.  It clearly has evolved into something that is unsustainable economically as well as clearly suboptimal in other areas.

However, I don’t view the legislation voted upon last night as a good solution.   Although some aspects of it appear, in a general sense, to be laudable – such as making health care attainable to a broader audience – from an “all things considered” basis I believe that it doesn’t solve many underlying problems.  Furthermore, it will likely create new problems.

We, as a nation, had the opportunity to fix a long-standing “mess” and, as the future will show, we’ve failed to enact an effective solution.  This scenario, of having opportunities to address major problems, and subsequently failing to enact effective solutions, is recurring in an increasing fashion, unfortunately.

Second, one aspect of the health care legislation that seems to be lacking in recognition is that of how businesses will be impacted.  The health care legislation adds uncertainty, complexity, regulation, and costs to businesses.   These factors are very significant, especially in today’s economic climate.   One area that these factors impact is hiring.  I’ve explained this in my blog post series “Why Aren’t Companies Hiring.”

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SPX at 1158.71 as this post is written

Comments On The HIRE Act

On Thursday President Obama signed the HIRE Act, a jobs stimulus.  The summary of the signing can be found here.

There is also a transcript of his remarks found here.

I could make many comments about this jobs stimulus.  However, as an intervention measure, it has many of the same characteristics of other interventions.  As such, my previous extensive comments about interventions are highly relevant.  Those posts can be found listed under the “Intervention” Category.

However, I will make two comments specific to this legislation:

First, the ARRA was supposed to be a “jobs creation” legislation.  On various levels it has not performed as intended with regard to job creation.  As I’ve pointed out before, we should be very cognizant of how previous stimulus bills have fared before enacting new ones.

Second, in President Obama’s comments he said, “I’m signing it mindful that, as I’ve said before, the solution to our economic problems will not come from government alone.  Government can’t create all the jobs we need or can it repair all the damage that’s been done by this recession.”  This entire idea of “creating” jobs or “stimulating” job creation needs to be intensely scrutinized.  Should government be attempting to “create” jobs – as seems to be the current widely accepted theory – or should job creation and job growth be an inherent feature of a strong economy?


Here is a link to a blog series I have previously written titled “Why Aren’t Companies Hiring?” :

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SPX at 1159.90 as this post is written