Via ConvergEx's Nick Colas,
Our quarterly survey of “Off the Grid” economic indicators finds that the U.S. economy is still growing, but the pace seems to be slowing from Q3 2015.
On the plus side, used car prices remain robust and dealer inventories of new cars are in good shape. Americans are driving more, with the growth rate for miles driven (and gas consumed) running at levels not seen in +10 years. Lastly, workers are still quitting their jobs at a healthy clip.
As for the indicators that give us pause: food stamp program participation rates are within 6% of their peaks, and the population here still runs +45 million people (15% of the entire U.S. population), money is flowing out of mutual funds but into gold coins at equally furious rates, and FBI background checks for gun sales look set to reach a new record in 2015 at 21.6 million. Before the Financial Crisis, that count never even reached 9 million.
On a lighter note, our Bacon Cheeseburger Inflation index is still negative for the year. Good for lactose-tolerant carnivores, but perhaps bad news for the Fed.
A few of us were sitting around the Convergex trading desk this morning, thinking about what surprise events had defined the capital markets and the world as a whole in 2015. In no particular order, a few common responses:
- The dramatic drop in oil prices globally, and the relatively muted effect these declines had on consumer spending.
- The migrant crisis in Europe and growing fears across much of the developed world about the threat of both home-grown and imported terrorism.
- The thematic dominance of technology companies as the epicenter of investing, in everything from S&P 500 stocks to the unicorns roaming Sand Hill Road.
- The challenges faced by China in keeping its capital markets from a wholesale meltdown in August/September.
- The rise of ISIS in the Middle East, Africa and south Asia.
- The increasing presence of Russia on the world’s political stage despite both a weak economy and increasing isolation from its actions in the Crimea.
- Donald Trump’s persistent popularity in the face of almost universal scorn from the mass media and “Very smart people”.
We could go on, but the point is that all these “Surprises” were not hard to see 1-2 years ago but they certainly required some imagination to embrace as potential realities. What comes along to bite markets and investors rarely saunters out of left field with no warning, but getting the timing right matters too. It is all well and good to have “Predicted” the fall of the Chinese market in early 2014; the problem is that your short from that time is only now back at breakeven. The same hold true for calling tech stocks overvalued at the beginning of the year. While many individual names have underperformed, the S&P Large Cap Tech Index is still up close to 4% on the year while the S&P 500 is down 1.0%.
“Think differently”, to put the old IBM slogan into proper English, is easier said than done and requires a differentiated process to gather and process information. It’s not enough to the early bird to get the worm; it also helps to be pecking on an uninhabited bit of earth right after it rains. In the spirit of that sentiment we’ve spent several years collecting various underfollowed datasets that we think help shape a more complete picture of the U.S. economy. I doubt any of them will ever end up in a Federal Reserve briefing book or Fortune 500 board presentation. But if they help you think about the economic world around you in a slightly different light, I think they serve their purpose.
Here’s what this quarter’s “Off the Grid” economic indicators have to say about the U.S. economy.
On the plus side:
Pricing for used cars is holding very steady according to the Manheim (a large auto auction company) Used Vehicle Index. Many auto analysts were looking for this to drop in 2015, hurting trade-in values and potentially limiting new car and truck sales. No worries, though – the index is right where it was in 2011 and looks to start 2016 on a strong note.
New car and truck dealer inventories are in great shape heading into 2016, at 65 days sales. Americans don’t order new cars and trucks from the factory and wait for delivery; they buy them off dealer lots. Sixty days supply is optimal, giving consumers enough choice while not so heavy as to demand incremental discounting from the auto companies to clear aging inventory.
Google autofills for “I want to buy” now feature an entry we haven’t seen in 5 years (the entire time we’ve been tracking this): “Timeshares”. We noted in another recent report that Americans were finally Googling the term “Vacation” more, the first uptick since the Financial Crisis. Now, interest in timeshares is so great that the search engine’s predictive software assumes you may just want a nice 2 bedroom condo in Boca to call your own 2 weeks a year.
Americans are driving more – a lot more. The DOT data of miles driven shows an average of close to 4% more in the back half of 2015 versus 2014. That growth rate hasn’t been this high since the Asia Crisis in the late 1990s cut the cost of filling up a Chevy Suburban to $20.
Workers are still quitting their jobs at near-record rates according to the BLS’ JOLTS data. Some 57% of all workforce “Separations” are the employee’s idea, not the employer. That shows some confidence in the economy and presumably a decent labor market. This statistic has only been higher during the tail end of the last expansion, and only for a short period of time.
On the downside:
Food stamp (now called the Supplemental Nutrition Assistance Program, or SNAP) participation totals are still +45 million Americans. This means-tested assistance program peaked in terms of total enrollment at 48 million in late 2012/early 2013, but at current levels is still within 6% of that high water mark. This is 15% of all Americans, and 20% of all households.
Mutual Fund money flows are negative, but gold sales in dollar terms are back to levels more commonly associated with the Financial Crisis and its aftermath. In fairness, mutual fund flows are likely as much demographic as sentiment-based. After all, the original cohort of retail mutual fund investors started saving money in the 1980s, during the industry’s first boom phase. They are beginning to retire and shifting their risk preferences. The U.S. Mint gold coin sale data is, however, more surprising. Falling prices haven’t dented demand for the yellow metal – as a matter of fact the Mint is averaging over $100 million in monthly sales, on average, at the moment. That level is more consistent with demand in 2009 – 2012 and early 2013, both volatile periods in the global economy.
Large pickup truck sales have stalled out. Despite the drop in gasoline prices, sales of Chevy Silverados, Ford F-Series, Dodge Rams, Toyota Tundras and Nissan Titans are now unchanged year over year. These vehicles are the workhorses of the small business economy. If demand is stagnating, that’s not a good sign.
Our Bacon Cheeseburger Index is still down year over year, signaling deflation fears. Based on the notion that consumer inflation expectations are grounded in real-world experiences, we look at the cost of ground beef, bacon and cheese. Mostly because we like bacon cheeseburgers, but also because these are commonly and frequently purchased consumer food items. Turns out that this mini-basket of food products is down 1.9% year over year, and the negative month comps go back to May 2015. That is 7 months of negative comps, and the last time we had that much “Greasy spoon deflation” was 2009.
Head scratchers, or data points that make me go “Hmmmm”.
Firearm sales, as measured by the FBI’s record of instant background checks, are set to make a new record in 2015. At current rates, the U.S. government will process 21.6 million background checks this year, more than the 21.0 million in 2014 or the 21.1 million in 2013. Since the Financial Crisis in 2008, the FBI has processed 139 million firearm background checks, and if each one resulted in a sale that would amount to a similar number of completed transactions. Perhaps 10% are related to the renewal of carry permits, but there’s also the point that you can buy two firearms by completing one background check.
Now, on the one hand firearms are expensive so this demand is a sign that consumers have money to spend. On the other, 139 million firearms sold is a lot of guns. Take the populations of California, New York, Florida, and Texas and you only get to 105 million. Moreover, Google search volumes for the term “Buy a gun” are once again near record levels.
Gallup surveys of personal out of pocket spending have been flat for 2 years at an average of $92/day. They were as high as $100/day in early 2008.
For reasons we’ve never been able to figure out, people insist on Googling how to sell their kidneys. Go type “I want to sell my” into Google and it will suggest autofills of “Car”, “house” and “kidney”. Further down the list is “Eggs” (legal) and “hair” (also legal). Just to be clear: selling your kidney is not legal in the U.S.
To sum up this disparate data set, consider three conclusions.
- First, the economic growth seen in the U.S. over the last several years has not reached the nation’s less fortunate citizens (Food stamp participation).
- Second, the broad middle has seen some improvement (car sales, used car prices, willingness to make large purchases, quit their jobs) but remains worried about their personal safety (firearm sales) and economic security (gold coin sales).
- Lastly, deflation is more prevalent (Bacon Cheeseburger Index) on Main Street than Constitution Avenue (where the Fed is based).
Somewhere in our list of Off The Grid indicators sits at least one “Surprise” for 2016. Will it be the resilience of the U.S. consumer? Or will inherent social brittleness and angst – a legacy of the Financial Crisis – play the lead roles? We hope for the former.