Personal Finances Continue Decline – Guest Post | Rebel Traders

Rick Davis of the Consumer Metrics Institute has provided an update to his previous article published here on May 2nd. When Rick presented his research to the RebelTraders readers last month I was very impressed with the data and the subsequent findings.

I highly recommend Rick’s work so be sure to visit his site.

The Consumer Metrics Institute's Personal Finance Index continued its
decline for the sixth consecutive week, with it now showing a year-over-year
decline in consumer confidence in excess of 40%. This contrasted sharply
with the situation as recently as the end of January 2010, when the same
measure of confidence was showing a year-over-year gain in excess of 7%. The
Consumer Metrics Institute's Personal Finance Index is composed of a number
of data series, some of which collect transactions that are precursors to
the initiation of default and/or foreclosure activities. The levels of these
negative activities are inverted before being included in the 'Personal
Finance Index', so that a rapid rise in Consumer transactions with default
and foreclosure counseling services, for example, will drive that particular
index down.

 

The Personal Finance Index is not alone in reflecting continued weakness. In
fact, our 'Weighted Composite Index' (which is by far our best daily
aggregate measure of the consumer 'demand' side of the economy) has shown a
relatively steady deterioration since peaking in August 2009, with the
trailing month now recording contraction in excess of 2%.

 

The sliding 'trailing quarter' as reflected in our 'Daily Growth Index' has
also reached a level consistent with a year-over-year contraction rate of
about 2%, after initially dropping into net contraction on January 15th.
When compared to previous contraction events in 2006 an 2008 this particular
episode of contraction in consumer demand is following a unique profile: at
it's worst it is still milder than the mild 2006 event but it has gone on
longer than even the 2008 event without forming a clear bottom.

 

If the housing market is expected to recover soon, a significant increase in
demand for residential real estate loans will need to be occurring in the
near future. Although there has been a recent minor upturn in consumer
interest in refinancing on a year-over-year basis, it may only be a sign
that consumers are beginning to expect that the historically low mortgage
rates are nearing an end.

 

A more telling development would be for a similar upturn in consumer
interest in new loans, which we have not seen. In fact the year-over-year
change in consumer interest in new loans has dropped to the lowest level we
have ever recorded, slightly surpassing the previous low set back in August
of 2008.

 

If there is a strengthening recovery, we are not seeing clear signs of it.
In fact, we could argue that most consumers are increasing their already
substantial caution about taking on new debt, while others are exploring
their legal options should their current debt loads become harder to
manage.

Our data is significantly upstream economically from the factories and the
products measured by the GDP, putting us far ahead of the traditional
economic reports.

A PDF covering our methodologies is at
http://www.consumerindexes.com/overview.pdf.
The indexes themselves can be found at http://www.consumerindexes.com.

Thank you,

Richard Davis
Consumer Metrics Institute, Inc.