Corporate Profits As A Percentage Of GDP

In the last post (“2nd Quarter 2016 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the second quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

Corporate Profits As A Percentage Of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 26, 2016

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2173.94 as this post is written

2nd Quarter 2016 Corporate Profits

Friday’s (August 26, 2016) GDP release (Q2, 2nd Estimate)(pdf) was accompanied by the BLS Corporate Profits report for the 2nd Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (without IVA and CCAdj) (last updated August 26, 2016, with a value of $1626.9 Billion):

Corporate Profits After Tax

Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:

Corporate Profits After Tax percent change from a year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed August 26, 2016; https://research.stlouisfed.org/fred2/series/CP

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2184.67 as this post is written

Durable Goods New Orders – Long-Term Charts Through July 2016

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are two charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through July 2016, updated on August 25, 2016. This value is $228,904 ($ Millions):

(click on charts to enlarge images)

durable goods new orders

Second, here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:

Durable Goods New Orders percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER]; U.S. Department of Commerce: Census Bureau; accessed August 25, 2016;

http://research.stlouisfed.org/fred2/series/DGORDER

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2175.04 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the August 18, 2016 update (reflecting data through August 12) is -1.094.

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on August 24, 2016 incorporating data from January 5,1973 to August 19, 2016, on a weekly basis.  The August 19, 2016 value is -.70:

NFCI_8-24-16 -.70

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 24, 2016:

http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on August 24, 2016 incorporating data from January 5,1973 to August 19, 2016, on a weekly basis.  The August 19 value is .25:

ANFCI 8-24-16

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 24, 2016:

http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2183.22 as this post is written

Money Supply Charts Through July 2016

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the MZM (Money Zero Maturity), defined in FRED as the following:

M2 less small-denomination time deposits plus institutional money funds.
Money Zero Maturity is calculated by the Federal Reserve Bank of St. Louis.

Here is the “MZM Money Stock” (seasonally adjusted) chart, updated on August 19, 2016 depicting data through July 2016, with a value of $14,332.3 Billion:

MZMSL

Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis:

MZMSL percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 24, 2016:

https://research.stlouisfed.org/fred2/series/MZMSL

The second set shows M2, defined in FRED as the following:

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on August 18, 2016, depicting data through July 2016, with a value of $12,891.8 Billion:

M2 Money Supply

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis:

M2 money supply percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 24, 2016:

https://research.stlouisfed.org/fred2/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2185.22 as this post is written

The U.S. Economic Situation – August 23, 2016 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.

I have written extensively about this peril, including in the following:

Building Financial Danger” (ongoing updates)

A Special Note On Our Economic Situation

Forewarning Pronounced Economic Weakness

Thoughts Concerning The Next Financial Crisis

Was A Depression Successfully Avoided?

Has the Financial System Strengthened Since the Financial Crisis?

The Next Crash And Its Significance

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through August 19, 2016, with a last value of 18552.57):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

DJIA since 1900

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2182.64 as this post is written

The Yield Curve – August 22, 2016

Many people believe that the Yield Curve is an important economic indicator.

On March 1, 2010, I wrote a post on the issue, titled “The Yield Curve As A Leading Economic Indicator.”

An excerpt from that post:

On the NY Fed link above, they have posted numerous studies that support the theory that the yield curve is a leading indicator.   My objections with using it as a leading indicator, especially now, are various.  These objections include: I don’t think such a narrow measure is one that can be relied upon;  both the yields at the short and long-end of the curve have been overtly and officially manipulated, thus distorting the curve; and, although the yield curve may have been an accurate leading indicator in the past, this period of economic weakness is inherently dissimilar in nature from past recessions and depressions in a multitude of ways – thus, historical yardsticks and metrics probably won’t (and have not) proven appropriate.

While I continue to have the above reservations regarding the “yield curve” as an indicator, I do believe that it should be monitored.

As an indication of the yield curve, below is a weekly chart.  The top plot shows the spread between the 10-Year Treasury and 2-Year Treasury, from January 1, 1990 through August 19, 2016.  The August 19, 2016 value is .82% (1.578% – .76%).   The bottom plot shows the S&P500:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

Yield Curve

Additionally, below is a chart showing the same spread between the 10-Year Treasury and 2-Year Treasury, albeit with a slightly different measurement, using constant maturity securities.  This daily chart is from June 1, 1976 through August 19, 2016, with recessionary periods shown in gray. This chart shows a value of .82%:

Yield Curve

source:  Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed August 22, 2016:

https://research.stlouisfed.org/fred2/series/T10Y2Y

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2182.64 as this post is written

Updates Of Economic Indicators August 2016

Here is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The August 2016 Chicago Fed National Activity Index (CFNAI) updated as of August 22, 2016: (current reading of CFNAI is .27; current reading of CFNAI-MA3 is -.10):

cfnai-monthly-ma3 8-22-16

The ECRI WLI (Weekly Leading Index):

As of August 19, 2016 (incorporating data through August 12, 2016) the WLI was at 137.8 and the WLI, Gr. was at 8.4%.

A chart of the WLI,Gr., from Doug Short’s ECRI update post of August 19, 2016:

ECRI WLI,Gr.

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting the ADS Index from December 31, 2007 through August 13, 2016:

ADS Index

The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):

As per the August 18, 2016 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased,” (pdf) the LEI was at 124.3, the CEI was at 113.9, and the LAG was 121.8 in July.

An excerpt from the August 18 release:

“The U.S. LEI picked up again in July, suggesting moderate economic growth should continue through the end of 2016,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “There may even be some moderate upside growth potential if recent improvements in manufacturing and construction are sustained, and average consumer expectations don’t deteriorate further.”

Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of August 18:

Conference Board LEI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2179.07 as this post is written

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of August 12, 2016:

from page 19:

(click on charts to enlarge images)

FactSet Earnings Insight 8-12-16 CY2016 and CY2017

from page 20:

FactSet Earnings Insight 8-12-16 CY2006-CY2017

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2187.02 as this post is written

S&P500 EPS Projections 2016-2018

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings tag)

The following estimates are from Exhibit 20 of the “S&P500 Earnings Scorecard” (pdf) of August 18, 2016, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share and the Year 2015 value is $117.46:

Year 2016 estimate:

$117.89/share

Year 2017 estimate:

$134.30/share

Year 2018 estimate:

$147.94/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2187.02 as this post is written