| Cheeseburgers, Pickups And Guns: "Off The Grid" Economic Indicators For Q3 2016 Oct 4th 2016, 21:06, by Tyler Durden Submitted by Nick Colas of Convergex Cheeseburgers, Pickups And Guns: "Off The Grid" Q3 2016 Our quarterly look at unconventional "Off the grid" economic indicators shows the challenges facing the U.S. economy, told through everyday items like bacon cheeseburgers and full sized pickups. The former shows the risks of systemic deflation, with food costs declining in a pattern reminiscent of past recessions. Pickup sales, a good proxy for small business growth, are now plateauing/declining modestly despite still-low gasoline prices. Taken in total, our indicators show a balanced picture of the American economy, but they point to a lackluster GDP growth rate (1-2%) for the second half of 2016. On the plus side are: steady used car prices, lower food stamp (SNAP) program participation, total automotive dealer inventories, and employee quit ratios. Indicators flashing yellow or red are: food deflation (that bacon cheeseburger), mutual fund outflows, pickup truck sales, and a Gallup survey of daily spending patterns. Somewhere in the middle are firearm background checks (a proxy for sales), which show 2016 will almost certainly be another record year for gun sales. We've been doing these "Off the grid" economic indicator pieces since shortly after the Financial Crisis and the most common question I still get is "Why?" After all, the world is not short of economic indicators. Further, policymakers, academics, investors, and politicians all use the official playbook figures to set interest rates and macro policy. No one, to my knowledge, mentions used car pricing or gold coin sales in these deliberations. Our rationale is best summed by the old Yogi Berra-ism "You can observe a lot by just watching". Sometimes the official data is fine, but we think it never hurts to triangulate against other signposts we see on the road. Conventions wisdom is sometimes wrong, after all. A year ago you would have probably given me 100:1 odds on Donald Trump making it to the big show. Only after he caught traction did you hear much about underemployed high-school educated workers having a tough time economically. The data was there the whole time, of course. It just wasn't considered important enough to base a campaign around or design economic policy to address. That changed in a hurry. And so today we offer up our latest installment of "Off the grid" indicators and hope we can observe a few novel things by just watching for them. There are graphs and charts for all the items here attached to this note. Good news (4 Items) - Used Car Prices Holding Steady. A more prosaic indicator you will not find, but used car prices are an important lynchpin holding together the US economy. Almost every new car sale comes with a trade-in. The more that old car is worth, the more likely it is that the prospective buyer will actually purchase a new car.
- The good news is that despite years of hand wringing, used car prices are holding up well and essentially unchanged from their 2011 highs. The reason is strong residual values for pickups and SUVs, which offset the erosion in values on the passenger car side of the business. Still-low energy prices are clearly helping both used car prices and new truck sales as well.
- Lower Food Stamp Participation/Google Search Interest. After peaking in 2013, nationwide participation in the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), is down to 43.4 million Americans from a high of 47.8 million. Google searches for the term are also declining.
In fairness, only a part of this decline is due to better economic outcomes for lower income households. Many states have rescinded eligibility for single people to pre-Great Recession rules that limit participation to 3 months per year. And, of course, even at current levels over 15% of all American households require public assistance to purchase food. A return to pre-recession levels would require a 50% contraction in participation. - Total vehicle Inventories. Despite several months of uninspiring light vehicle sales, deal inventories remain in good shape at 61 days supply. That is close to what the industry considers optimal, although it is higher than last year's 55 days supply. This is important because it means auto makers will not have to materially adjust their production schedules for the remainder of the year if sales rates remain the same. Given the focus on industrial states like Michigan and Ohio in this election cycle, that's important.
- Quit Ratios. We disagree with the old "Quitters never win" thing because job quitters are almost always leaving for a better job with higher pay and/or benefits. The monthly JOLTS report from the Bureau of Labor Statistics shows that fully 60% of job leavers in July were quitters, a very high level as compared to the 40% rate in the Great Recession and 50% rate of 2011-2012. These quit rates correlate strongly to consumer confidence, which is also reasonably high (although perhaps capped).
Bad News (4 Items) - Bacon Cheeseburger Deflation. Have you noticed how much cheaper food prices are? No, neither have I but this is evidently a thing outside New York. See here for more: http://www.bloomberg.com/news/articles/2016-09-27/eight-cent-eggs-consumers-gobble-cheap-food-as-grocers-squirm
Our bacon cheeseburger index (BCI), which takes the CPI prices of that brew pub trinity and compares them over time, confirms the fact that deflation is among us. In fact, with the exception of May 2016, the BCI has been flashing "Deflation" for over a year. Similar negative comps have only occurred during recessions or near-recessions (1983/84, 1991/1992, 1998 and 2009/10).
Wonder why the Fed is so reluctant to raise rates in the face of food deflation, which must certain be a part of most consumers' inflation experience? You might scope out b Penn Quarter in Washington DC for any Fed Governors or visiting regional presidents. According to Yelp, they have the best bacon cheeseburger in DC. - Mutual Fund Outflows. Investors have been exiting mutual funds for years, in favor of exchange traded funds and other lower cost investment alternatives. This quarter was no different, and the only months of the year with positive flows were back in January and February (for foreign equities).
- Pickup Truck Sales. We look at sales of full sized pickup trucks (Ford F-150, Chevy Silverado and the like) as a window into the health of small businesses in the US. Even with low gasoline prices, these vehicles are sufficiently expensive to purchase and maintain that pure "Personal use" purchases are a small portion of overall demand.
Unfortunately, sales are down 8% year over year for August. Sales rates are certainly healthy, at right around 190,000 units/month. But this seems to be the plateau for the segment, barring an economic resurgence in key end markets such as homebuilding or mining/energy extraction. - Gallup Daily Tracking of Average Daily Cash Spend. The Gallup organization does a regular consumer poll asking how much participants spent in cash the prior day. Before the Financial Crisis, these self-reported amounts were $97-110/day. In 2010 they bottomed at $63-65/day. They haven't moved off of a range of $89-95/day since 2014 and the most recent average is $91/day.
Take It For What It's Worth (2 Items) - Firearm Background Checks/Google Interest. Perhaps the most eyebrow-raising statistic we've tracked in these reviews is the FBI's data regarding the number of instant background checks done by the agency for Federal Firearms Dealers. Before 2008, they averaged 8-9 million checks per year, and we assume that every check resulted in 1 sale of a firearm. Yes, some of these checks are for pistol permits which renew annually after an automatic FBI check. But others result in the sale of more than one firearm at the dealer. So we assume 1 FBI check = 1 sale of a new firearm. There is also a used firearm market, but much of this activity occurs at gun shows.
At current trends, 2016 will see 27 million FBI background checks for firearm sales (up from that 8-9 million level pre-2008). In fact, since 2008 there have been 129.7 million background checks performed in the US, and we assume the majority were for the purchase of a new firearm. - Precious Coin Sales/Interest in Gold Coins. With all the recent murmuring about the global financial system in the last few weeks we were curious to see if demand for gold and silver bullion/coins has
started to increase. This has occurred during prior periods such as 2008-2009 and 2013.
So far, however, demand for physical gold and silver coinage from the US Mint is running at similar rates to last year: about $85 million/month for gold and $51 million/month for silver, both on a 6 month rolling average basis. Google searches for "Gold coins" are also flat versus last year. The upshot of all this is that the US economy isn't really accelerating; it may, if items like the pickup truck data or the Gallup spending information, be slowing a little. There may be some core inflation, but everyday items like food are showing deflationary pressures. If you tore up the Fed's usual briefing books and indicators, would you see enough reason for a rate hike in December? For me, the answer is "No", but since the Fed doesn't actually look at these indicators we'll just have to wait and see what they decide. * * * And the charts: 
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