A question I've received several times in recent days was best expressed in an email this morning from a financial planner in New York:
I'd be interested to hear your thoughts about how the CMGI could be showing prolonged contraction of consumer spending when the September retail sales numbers showed an approximate 7% increase over September of last year!
Good question — one that I've had some email exchanges about with Rick Davis, the founder of the Consumer Metrics Institute. For background, here is my recent post on the latest retail sales.
My sense is that the CMI methodology is too new to fully evaluate. But there are a few key points to consider:
CMI metrics are based exclusively on discretionary spending while census bureau sales are a comprehensive sampling of sales, which has a substantial non-discretionary component.
CMI stats are real-time. Census Bureau sales are compiled, analyzed, seasonally adjusted, etc. In other words, they are backward looking.
The Census Bureau's stratified random sampling method is probably unreliable in periods of economic contraction — times when many small businesses and some large ones are closing their doors.
To date, CMI has tended to lead GDP by six months or more.
Bottom line: CMI Growth Index is intriguing. Let's see what the first revision GDP looks like (at the end of November, after the elections). The advance numbers, due out next Friday will be interesting, but recent history suggests they'll be revised down in November.
