The 2010 contraction event is now very nearly a year old, dating back to January 15, 2010. Although the chart clearly bottomed at about 9 months into the contraction (at roughly 270 days), the rise since that bottom has been neither steady nor substantial. In fact, there is no way to forecast when the indicated contraction will end based solely on the recent course of the blue line.
Frankly, our greatest disappointment in 2010 was how even the feeble 0.9% growth rates of “real final sales of domestic product” during the second and third quarters began to diverge significantly from the much weaker data that we track. The divergences started in the second quarter and widened during the third — with early consensus expectations for the fourth quarter of 2010 pointing to divergences that likely continued through the end of the year.
We have taken from this experience a number of key lessons. These lessons have helped us understand that 2010 was a year of extraordinary distortions in the sources of economic growth in the U.S. economy. Even though it was the fourth consecutive year of unprecedented governmental intervention in the economy, this time the interventions were not targeted exclusively at rescuing financial institutions, auto makers and the housing market. By the second quarter of 2010 the full impact of both a wide range of stimulus spending and the defacto devaluation of the dollar was supplanting the consumer as the primary (and traditional) source of economic growth in the U.S. economy.
The shift to non-consumer sources of economic growth was clearly not the sole reason for the divergence between our indexes and the commonly reported measurements of the economy. By the third quarter we began to understand that the demographics of the consumers most likely to buy on-line were the same as those households most severely impacted by the recession. Unwittingly, some of the previously identified sampling biases in our data collection methodologies turned out to be much more significant than we might have suspected. Simply put, young and highly educated members of generations “X” and “Y” were particularly vulnerable to the hallmarks of this recession: entry level job losses and vanishing home equity.
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