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Off The Grid Economic Indicators: Q1 2018 Edition

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Submitted by Nicholas Colas of DataTrek Research

Today we offer up our quarterly Off the Grid economic indicators to look at the state of the US economy with fresh eyes. Everything looks pretty good, even as expectations for Q1 GDP growth falter slightly. Our best observation, courtesy of some Google Trend data hounding: still disappointing wage growth may be a lingering after-effect of the Great Recession. You need genuine confidence to demand higher compensation, and many workers aren’t there yet.

With estimates for US Q1 GDP coming down, today we turn to our quarterly “Off the Grid” indicators to see if first quarter growth is really as sluggish as more traditional measures say. We’ve been looking at non-standard measures of US economic growth since the Financial Crisis. Over the years we have found a handful that reveal both underlying growth trends and consumer confidence.

One of our favorite vectors for this analysis is the US auto industry. Specifically:

  • Full sized pickup truck sales are weakening. February 2018 posted an 8.0% decline to last year, the worst comp since March 2011. January was only 1.0% higher. Some of the decline may be due to storm damage replacement last year pulling demand forward, but this is a critical indicator of the health of American small business. And it is moving in the wrong direction.
  • Used car prices, as measured by Manheim Auctions, have been ticking down from their post-hurricanes Q4 highs and are now equal to where they were last August. Since almost every new vehicle sales comes with a trade-in, the value of used cars is an important driver of new car sales/product mix.

    Now, used car prices have remained elevated far longer than most experts thought possible. The recent drops may not mean much, but they do bear watching as we go into spring selling season.
  • Vehicle inventory on new car dealer lots is, at least, in good shape. At 74 days supply, current stock is the same as last year at this time. This bodes well for production schedules (and economic growth) in Q2, especially if consumers use some of their tax reform savings to purchase a new car or truck.

Overall score here as it relates to US economic strength: C+. While light vehicle demand has remained very good for this point in the economic cycle, lower pickup truck sales and used car prices are worrisome.

Turning to the strength of the US consumer and their confidence in the domestic economy and financial system:

  • Google search volumes for “Food stamps” in Q1 2018 were less than half peak levels from October 2013 and near 12 month lows. Program participation at the end of last year was down to 41.3 million people (of which roughly half are children) from 47.7 million in 2013. Current program levels remain slightly elevated from last year’s storms, but are among the lowest levels since the Great Recession.
  • Gold and silver coin sales from the US Mint, which reliably ran over $250 million on a monthly basis from 2010 to 2013, are now just $51 million/month. These are levels we haven’t seen since mid 2008.
  • Google autocompletes (where the search box algorithm suggests common endings to your partial query) for “I want to buy” include: bitcoin, a house, a timeshare, and ripple (in that order). In Q3 2011, the top autocomplete for this partial search entry was “used”.
  • Top autocompletes for “I want to sell my” are: car, fur coat, and furniture. As recently as 2015, “kidney” was a top Google suggestion here.

Overall score for consumer confidence in the economy and banking system: B+/A-. While way too many Americans still need (and qualify for) government assistance to purchase necessities, the general trend is thankfully positive. Worries over the banking system (manifested in interest in precious metals) are very low. And if the top Google autocompletes for “buy” and “sell” are highly volatile crypto currencies, we trust consumers have the basics largely covered.

Other items of note/interest related to the Federal Reserve’s dual mandate of inflation and employment:

  • When we go off the grid, we measure consumer inflation expectations through the lens of a commonly purchased treat: a bacon cheeseburger. The Consumer Price Index subcomponents cover all the bases here, with long-term price records for all three ingredients.

    Through this greasy lens, we see that these commonly purchased food items are collectively exceeding the Federal Reserve’s 2% inflation target. Year to date, bacon, ground beef and cheese are up 3-4% over last year. Moreover, the momentum of these changes is broadly accelerating, for last year at this time price levels were declining by 1-3%.

    No word on whether new Fed Chair Powell likes his bacon cheeseburger rare, medium, or well done. But no matter his preference, consumers are seeing rising inflation in this all-American food item. And since consumer inflation expectations can anchor on things they purchase frequently, this should/could boost public perceptions of inflationary pressures. This was, for example, a large piece of the 1970s inflation story.
  • “Take this job and shove it”. Jessica covers the monthly JOLTS data in detail, but we lift one piece of this report for Off the Grid. We have found that consumer confidence is closely aligned with the percentage of workers who quit their job rather than being let go.

In January 2018 (latest data available), the percentage of workers who submitted a resignation letter rather than receiving a pink slip was 60.5%. While not the highest percentage in the dataset (December 2017 was 62.9%, for example), it is significantly above average. Since 2010, the mean quits/separation ratio is 51.5%.

Overall score for inflation and labor markets: B. Our two Off the Grid items point to the conundrum the Fed will face this year. Labor markets are tight, so workers have their choice of employment and are quitting at near-record levels for (presumably) better opportunities. Inflation should be ticking higher. The missing piece: wage growth.

On that point, we have one last Off the Grid Indicator: the number of domestic Google searches for “Ask for a raise” (polite) and “get a raise” (brusque). The former has not increased in popularity for more than 5 years. The latter has doubled in terms of Google search volumes in the same period.

Our take: wages may be stagnant in part because workers are still a bit shy about pushing for a pay increase. Total US search volumes for “Ask for” and “get” a wage bump aren’t that different. And, we suspect, the people that Google “Get a raise” have a better chance of that result than those who “Ask”. The Great Recession damaged consumer (and therefore worker) confidence in many ways. The ability to push for a wage increase may well be one less appreciated bit of that damage.

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