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Consumer Metrics Institute: Economic Contraction Is 357 Days Long

The somewhat disappointing December retail sales report was in the news today, with the Bloomberg headline giving the typical spin: December Retail Sales Damped by Snow as Estimates Missed. But the end-of-year pattern in the Consumer Metrics Index data suggests a frugality of consumption beyond the inconvenience of weather. The most recent peak in the Growth Index was around the first of September, 2009, almost eight months before the interim high in the S&P 500 on April 23rd. Since its peak, the Growth Index declined dramatically and remains deep in contraction territory although the contraction has become less severe. It's important to remember that the Growth Index is a moving average of year-over-year expansion/contraction whereas the market is a continuous record of value. Even so, the pattern is remarkable. The question is whether the latest dip in the Growth Index is signaling a substantial market decline like in 2008-2009 or a buying opportunity like in June 2006. I've also highlighted the recession that officially began in December 2007 and ended in June 2009. As a leading indicator for GDP, the Growth Index also offers an early warning for possible recessions.

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