Is GDP Contraction Coming in Second Quarter 2010?

I've been speaking with Rick Davis at the Consumer Metrics Institute about leading economic indicators. Davis claims his data leads the GDP by about 17 weeks while noting that other so-called "leading indicators" are merely a reflection on the stock market and yield curve.

Davis captures his data solely from online transactions of real consumers, in real time.

Here are a four charts. The first chart shows the Consumer Conference Board LEI, not the Consumer Metrics Index.

Consumer Conference Board LEI versus S&P 500


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Davis writes:
 

Is the conference board LEI really leading anything or is it merely a reflection of the stock market? A look at the actual values of the LEI and the S&P 500 over the last four years confirms the indicator is really a coincident indicator for the equity markets, published once a month, three weeks in arrears.

Weighted Composite Index (WCI) versus S&P 500


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The above chart shows the Consumer Metrics Weighted Composite Index (WCI) versus the S&P 500 Index. Watch what happens when the above data is offset by five months.

WCI versus S&P 500 Shifted Five Months


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The Consumer Metrics website shows most of the WCI components advancing. However, housing and consumer spending account for roughly 60% of the index and those are contracting.

It's hard to make a case on the basis of so little data, but at least since 2006 we see evidence of actual leading.

However, the stock market doesn't always follow the economy, nor is the stock market a leading indicator of the economy.

Please see Is the Stock Market a Leading Indicator? for a discussion.

Thus, as interesting as the above chart may be, I wouldn't recommend using Consumer Metrics Data to project stock-market movements. However, when a stock market is as lofty as this one, and a recovery is priced in that's not likely to happen, I'd expect the stock market to decline if the economy tanks.