Growth Index vs. GDP
On February 26th the Bureau of Economic Analysis of the U.S. Department of Commerce revised their measurement of 2009's 4th quarter annualized production growth to 5.9%, almost exactly matching the Consumer Metrics Institute's measurement of the trailing quarter of annualized consumer demand growth of 5.89% reached on August 31st, 2009. Since then the latter leading number has dropped significantly, moving into net contraction on January 15th, 2010 and reaching a net annualized 'growth' rate of -1.5% by the end of February.
"The consumer demand lead time over factory production has been running at about four months during the current business cycle," said Richard Davis, President of the Consumer Metrics Institute. "We can expect that the downturn in consumer demand that we have been measuring since late August will finally cause U.S. production and the GDP to begin to shrink during the second quarter of 2010."
Mr. Davis also mentioned that a second indicator representing two consecutive quarters had dropped to a level representing a very weak .75% annualized growth. "The traditional economic definition of a recession has been two consecutive quarters of negative GDP growth. For that reason we track on a daily basis the trailing 183-day 'two consecutive quarters' rate of annualized net change in consumer demand. Using this methodology we saw the consumer demand segment of the recent recession start on June 19th, 2008 and end on March 8th, 2009 (coincidentally at the bottom of the equity markets). At the current rate of decline, our 183-day trailing 'two quarter' growth index will slip into the consumer demand 'recession' mode during March. If the current year-over-year contraction in consumer demand does not sharply reverse, we can expect that the production side of the U.S. economy and the GDP will enter the second dip of the current recession during the third quarter of 2010."
Mr. Davis went on to say that "it's important to note that the GDP measures only the production or 'supply side' of the economy, which necessarily lags the demand side stimuli provided by consumers. From our perspective on the demand side, economic contraction is already here, starting officially in the middle of January. Similarly a demand side 'recession' may not be far behind, perhaps commencing before the end of March. Our daily numbers will ultimately tell the story."
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