ConvergEx Strategist: Look at ‘Off-the-Grid’ Economic Indicators

Tuesday, 03 Jul 2012 08:38 AM

By Nancy Stanley

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Nicholas Colas, chief market strategist at ConvergEx Group, told CNBC there are many atypical key economic indicators investors should be watching but aren't.

Some of the “off-the-grid indicators” Colas said are positive for the economy include steady used-car pricing, accelerating pickup-truck sales, and people who are increasingly quitting their jobs rather than being fired.

These aren't typical metrics for the economy.

Used-car prices are holding up, which is an important sign for the U.S. auto sector, an important driver for economic growth for the past three years, he said.

“Used cars prices are important because when somebody buys a new car, they have a used car to trade in. The better the used-car price, the more trade-in value there is and the more likely they are to buy a new car,” Colas stated. “So it’s really an important indicator to keep new-car sales going.”

In addition, new-car sales, which will be reported Tuesday, are expected to slow from earlier this year, according to MarketWatch, but the industry is still expected to report its best June in five years.

Colas told CNBC that pickup-truck sales are a mirror for what small business is doing.

“We focus on big pickup trucks — the F-150s, the big Chevys, the big GMCs — as real indicators of what small business is doing,” he said. “We've had the best comps year-over-year growth for pickup sales in the past couple of months, which shows the small-business cycle, while still depressed … is beginning to rebound as well.”

The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, which is showing people are more willing to take a chance and are quitting their job in hopes of getting a better job, is a good sign, Colas told CNBC.

“It’s our ‘take this job and shove it’ indicator, as we call it internally. The fact that half the people who leave a job are quitting versus being fired shows they have confidence their next job is just around the corner, another modest positive sign,” he said.

Off-the-grid indicators that are reasons to be negative include a record number of U.S. households on food stamps, continued growth in firearm sales and declining gold- and silver-coin sales.

The biggest concern, according to Colas, is that approximately 20 percent of all households in the U.S. are receiving food stamps, 15 percent of all people and more than a third of all children rely on food stamps.

“The fact those numbers don't go down even with the growth in jobs shows you there's a very soft patch in recovery at the lower end of the socioeconomic scale,” he stated.

The number of people filing the paperwork to buy a gun is at a new high but has been growing for a very long time.

“This is one of the odder indicators that we track. What it shows is over the past few years the number has doubled from 8 million a year to 17 million this year,” Colas noted. “That shows that on the plus side people are willing to spend money on something — these are expensive items. On the downside it's a bit concerning perhaps that they are worried about public safety.”

The demand for gold and silver coins has been declining for the past six months out of U.S. mint, he added, which shows that people are less worried about the solidness of the dollar.

“Negatives and positives still end up on the positive side because of those critical factors in the auto sector that point to continued recovery,” Colas stated. “If that sector can continue to improve, and we’ll see car sales this week, that's a positive sign that we're not going to slip back into a recession.”

Meanwhile, Warren Buffet’s Berkshire Hathaway Inc. furniture-rental unit saw a slowing in demand from business clients in the second quarter, indicating that firms are curbing spending on projects amid less optimism about the U.S. economy, Bloomberg reported.

Demand is “simmering compared to where it was at the beginning of the year, when it looked like the recovery, at least from our perspective, would have been pretty robust,” said Jeff Pederson, the new chief executive officer of Berkshire’s CORT Business Services Corp., the world’s largest provider of rental furniture. “It’s not flat-lining, by any stretch of the imagination, but it has slowed down,” he told Bloombeg.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.



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