An Economic Decline: A Contrarian Review

Following declining PMI data (both manufacturing and non-manufacturing) of late, you'd be hard pressed not to spot a picture that looks significantly less rosy than it did this time last year. But there's a fundamental question at the moment about how much the economy really ever recovered, aside from part of the stimulus, from the recession. In fact, much of the growth of PMI and GDP from non-deficit spending no doubt came from two areas: restocking and rising exports. Indeed, companies within the S&P and other organizations with strong balance sheets have continued to reinforce their cash fortress because of concerns over core economic fundamentals beyond GDP, including consumer spending. And this is of course one of the reasons so many of us in procurement and operations roles have had more free reign to enter different areas of the business and identify and implement cost reduction opportunities with little push-back from those whose axe wielding efforts on cost have been most affected in recent years.

Perhaps things didn't feel entirely right about the economic recovery because there wasn't one. Following the debt downgrade and capital markets plunge, MetalMiner -- my better half, to be specific -- commented that what's clear is "the economy never really 'recovered' in the traditional sense" looking at continued GDP data revisions -- at least up until now. However, one forward looking indicator MetalMiner often references, the Consumer Metrics Institute, whose consumer spending data precedes BEA data by at least 160-180 days, suggests new data is now finally painting slightly difference picture. According to the organizations founder "the economy has "moved out of its vegetative state and into [merely] a comatose state." In case you were wondering, MetalMiner suggests that consumer demand plays an important role in roughly 70% of the US GDP equation.

As MetalMiner notes, Consumer Metrics' research shows that on August 3rd, consumer demand "finally hit the zero yard line" for the first time in 566 days... Whereas the Consumer Metrics Institute believed the 2010 recovery comprised more vapor than substance, they believe the economy appears to have bottomed. And if you follow the BEA's lag time in reporting actual GDP, Consumer Metrics Institute believes we'll see one more bad quarter of GDP data followed by a better report in Q1 2012." Yet earlier in the month, "unfortunately, markets (and sentiment) have reacted to the lousy, antiquated, ever-changing BEA GDP data." And, of course, the debt downgrade.

Jason Busch

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