Rick Davis Nailed 1st Qtr 2010 GDP Report on November 30, 2009
Posted by Larry Doyle on June 30, 2010 9:41 AM |
How would you like to have the answers to a quarterly report before other participants have even thought that the activity is occurring, data is being compiled, analysis is being rendered, and the results are released? That would truly be awesome, wouldn’t it?
Can you imagine college students knowing the answers to their final exam before other students have even registered for the class? A doctor successfully making the diagnosis, while other doctors are waiting for the patient to arrive at the hospital? How about a weatherman pinpointing forecasts literally months in advance? Well, in my opinion, the work produced by Rick Davis of Consumer Metrics Institute is the economic equivalent of these seemingly miraculous calls.
I have written about Rick’s work previously and interviewed him twice on No Quarter Radio’s Sense on Cents with Larry Doyle (March 28, 2010 and May 2, 2010). Rick and his work are true gems. Why am I revisiting Rick and CMI?
Last Friday morning as I drove to a college visit with my son, I was listening to Bloomberg Radio and heard that BEA 1st quarter 2010 GDP was revised for a second time to a final level of 2.7%. Wow! I thought back to my interview with Rick in late March in which he shared that his call for 1st quarter GDP was 2.6%, BUT he had projected that result on November 30, 2009. Be mindful that the 4th quarter 2009 GDP ultimately registered a reading of 5.6% and initial estimates of 1st quarter GDP ranged from 3.5% to over 4%.
Rick offers the following analysis of the 1st quarter report:
On June 25th, the BEA (Bureau of Economic Analysis) quietly revised its measurement of the GDP growth for the first quarter of 2010 down for the second time, this time to 2.7%. The Consumer Metrics Institute’s original projection for the first quarter was based on our November 30th, 2009 ‘Daily Growth Index’, which was 2.62%. It is also important to note that the newly revised GDP captured a time when measurements of consumer demand were dropping at a rate of about .08% per day, meaning that the difference between the revised GDP and our original projection represents only one day of economic change.
We often wryly observe that we’ve given up trying to guess what ‘wild & crazy’ numbers the BEA will cook up next. In fact, we freely admit that the uncertainties caused by factory inventory adjustments (and non-consumer/stimulus spending) overwhelms the accuracy of our insanely consistent 17-18 week lead-time over the GDP. But we genuinely believe that the real economy lives where consumers are (figuratively and/or literally) clicking ‘Add to Shopping Cart’, not where the factories slavishly follow the consumer’s lead. And since there are no reliable ways to predict factory over-correction whims, analysts are generally better off ignoring the BEA and sticking to purer (and more timely) measurements of consumer demand.
Think Rick and team at CMI just got lucky with this 1st quarter call? Let’s look back at his analysis from prior quarters and see how far in advance he was projecting the ultimate BEA GDP report (click on table for larger image):
What about 2nd and 3rd quarter GDP? Is our economy going to suffer a double dip and revert into a recession? Rick writes:
If factories were unwittingly growing inventories during the first quarter in the face of what was really slackening consumer demand, the official GDP numbers for both the second quarter and the third quarter (to be released 4 days before the U.S. mid-term elections) could be interesting, since factories could very well over-correct again — but in the opposite direction.
What are Rick’s projections for 2nd and 3rd quarter 2010 GDP? -1.5% and -2.0% respectively!!
What does a double dip look like? See for yourself (click on chart for larger image):
Thoughts and comments encouraged and appreciated.
P.S. I have no affiliation with Rick Davis and CMI. That said, I strongly encourage readers to subscribe to Rick’s “Members Only” commentary. The nominal fee is well worth it. Having been inundated with all sorts of promos about stockpicking and market commentary, the one and only independent analysis I feel comfortable recommending people pay to receive the premium product is Rick Davis’ work at CMI. He is genuine. He is professional. He is beyond cutting edge and way ahead of the curve in his work. He provides amazing sense on cents.
Related Sense on Cents Commentary
Consumer Metrics Institute Projects 3rd Quarter GDP of -2%!! That’s Right -2%!! (June 2, 2010)