S&P500 Price Projections – Livingston Survey December 2017

The December 2017 Livingston Survey published on December 15, 2017 contains, among its various forecasts, a S&P500 forecast.  It shows the following price forecast for the dates shown:

Dec. 30, 2017  2644.8

Jun. 30, 2018   2739.8

Dec. 29, 2018  2805.0

Dec. 31, 2019  2980.0

These figures represent the median value across the forecasters on the survey’s panel.

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2675.81 as this post is written

Deflation Probabilities – December 14, 2017 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”

As stated on the site:

Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2022.

A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the December 14, 2017 update states the following:

The 2017–22 deflation probability was 0.2 percent on December 13, down from 4 percent on December 6. The 2016–21 deflation probability was 0.0 percent on December 13, unchanged from December 6. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2016 and early 2017, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2016 and April 2017 and the 10-year TIPS issued in July 2011 and July 2012.

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site 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 2659.38 this post is written

Janet Yellen’s December 13, 2017 Press Conference – Notable Aspects

On Wednesday, December 13, 2017 Janet Yellen gave her scheduled December 2017 FOMC Press Conference. (link of video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of December 13, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2017“ (pdf).

From Janet Yellen’s opening comments:

You may have noticed that we altered the statement language about the labor market outlook.  This change highlights that the Committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers, and rising wages.  We anticipate some further strengthening in labor market conditions in the months ahead; however, we expect the pace of job gains to moderate over time as we gradually reduce the degree of monetary policy accommodation.  Allowing the labor market to overheat would raise the risk that monetary policy would need to tighten abruptly at a later stage, jeopardizing the economic expansion.

Even with a firming of economic growth and a stronger labor market, inflation has continued to run below the FOMC’s 2 percent longer-run objective.  The 12-month change in the price index for personal consumption expenditures was 1.6 percent in October, up a bit from the summer but still below rates seen earlier in the year.  Core inflation–which excludes the volatile food and energy categories–has followed a similar pattern and was 1.4 percent in October.  We continue to believe that this year’s surprising softness in inflation primarily reflects transitory developments that are largely unrelated to broader economic conditions.  As a result, we still expect inflation will move up and stabilize around 2 percent over the next couple of years.  Nonetheless, as I’ve noted previously, our understanding of the forces driving inflation is imperfect.  As emphasized in our statement, we will carefully monitor actual and expected inflation developments relative to our symmetric inflation goal.  And, as I’ve noted before, we are prepared to adjust monetary policy as needed to achieve our inflation and employment objectives over the medium term.

Janet Yellen’s responses as indicated to the various questions:

STEVE LIESMAN. Steve Liesman, CNBC. Every day it seems we look at the stock market, it goes up triple digits in the Dow Jones. To what extent are there concerns at the Federal Reserve about current market valuations, and do they now or should they, do you think, if with keep going on this trajectory, should that animate monetary policy. Finally, maybe as a sign of what’s been going on with valuations, this cryptocurrency called bitcoin keeps going up every day. What is the policy of the Central Bank of the United States of the introduction, use, and incredible rise in popularity of bitcoin?

CHAIR YELLEN. Okay. So let me start, Steve, with the stock market generally. I mean of course the stock market has gone up a great deal this year, and we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price earnings, ratios, and comparable metrics for other assets other than equities, we see ratios that are in the high end of historical ranges. And so that’s worth pointing out. But economists are not great at knowing what appropriate valuations are. We don’t have a terrific record, and the fact that those valuations are high doesn’t mean that they are necessarily overvalued. We are in a, I’ve mentioned this in my opening statement, and we’ve talked about this repeatedly, likely, a low interest rate environment lower than we’ve had in past decades, and if that turns out to be the case, that’s a factor that supports higher valuations. We’re enjoying solid economic growth with low inflation, and the risks in the global economy look more balanced than they have in many years. So I think what we need to and are trying to think through is if there were an adjustment in asset valuations with the stock market, what impact would that have on the economy and would it provoke financial stability concerns. And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange. We have a much more resilient, stronger banking system, and we’re not seeing some worrisome buildup in leverage or credit growth at successive levels. So, you know, this is something that the FOMC pays attention to, but if you ask me is this a significant factor shaping monetary policy now, well, it’s on the list of risks. It’s not a major, it’s not a major factor. And then you asked about bitcoin, and there I would simply say that bitcoin at this time plays a very small role in the payment system. It is not a stable source of store value, and it doesn’t constitute legal tender. It is a highly speculative asset, and the Fed doesn’t really play any role, any regulatory role, with respect to bitcoin other than assuring that banking organizations that we do supervise are attentive, that they’re appropriately managing any interactions they have with participants in that market and appropriately monitoring anti-money laundering bank secrecy act, you know, responsibilities that they have.

also:

VICTORIA GUIDA. Are there any banks that are too big to fail right now?

CHAIR YELLEN. So, you know, we continue to work seriously on resolution and the resolution plans, the living wills, and the structure of systemic firms, to ensure that it would be possible to resolve a firm under the bankruptcy code would be the top choice of methods, or alternatively under the orderly liquidation authority, and I think it’s fair to say that over time we have learned more ourselves and more clearly detailed our expectations for the firms that file living wills, and the firms themselves have made considerable progress in, you know, changing what they do, whether it’s adopting financial contracts that would facilitate a resolution rather than a disorderly unwinding of contracts, making sure that they’re appropriately dealing with shared services so that key services would be able to continue governance arrangements, legal entity structures, the firms have all made progress in adapting to our expectations of what would enable a successful resolution. So I think it’s an ongoing process, and I believe we have made substantial progress.

also:

HOWARD SCHNEIDER. Hi, Howard Schneider with Reuters. So you mentioned in response to Steve’s question that asset valuations you didn’t thing were on the sort of high priority risk list right now. So I’m wondering what do you think is on that risk list, and more broadly, what have you left undone? You’ve gotten high marks for bringing the economy back towards its goals, but are there things that are going to nag you when you walk out of here in February and say really I wish I’d seen this to completion. I mean we’re not doing negative interest rates. We’re not doing inflation framework. What’s at your top of, what’s at the top of the to-do list that you are not getting to see to bring to ground here?

CHAIR YELLEN. So you asked about the risk list. There are always risks that affect the outlook. We tend to focus in our own evaluation on economic risks, and we’ve characterized them as balanced. And I think they are balanced. You know, I can always give you a list of, you know, potential troubles, international developments that could result in downside economic risks. But, look, at the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable, build-up of debt as we had in the run-up to the financial crisis. The global economy is doing well. We’re in a synchronized expansion. This is the first time in many years that we’ve seen this. Inflation around the world is generally low. So I think the risks are balanced, and there’s less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook. I feel, you know, good that the labor market is in a very much stronger place than it was eight years ago. We have created 17 million jobs. We’ve got a good strong labor market and a very low unemployment rate, and I think that’s been tremendously important to the well-being of American households and workers, and I feel very pleased when I hear anecdotes from firms that tell me they’re having a hard time finding workers, and they talk about given that they’re taking on people with skills that don’t quite match what they want, but they’re training them, and, you know, giving them the training that they need in order to be able to fill jobs. I think that’s a development that is a natural one that occurs in a strong labor market that tends to build human capital and worker skills and that that’s a strong positive. As I mentioned, I think the financial system is on much sounder footing and that we have done a great deal to put in place greater capital, liquidity, and so forth that make it less crisis prone and that has been an important objective. What’s on my undone list, you ask? We have a two percent symmetric inflation objective, and for a number of years now, inflation has been running under 2 percent, and I consider it an important priority to make sure that inflation doesn’t chronically undershoot our 2 percent objective, and I want to see it move up to 2 percent. So most of my colleagues and I do believe that it’s being held down by transitory factors, but there’s work undone there in the sense we need to see it move up in line with our objective.

also:

GREG ROBB. Thank you. Chair Yellen, what do you think will be the drivers of inflation over the next couple of years, and how long will the committee go with low unemployment, low inflation, before you rethink monetary policy as gradual rate hikes? Thank you.

CHAIR YELLEN. So, you know, I think for a number of years we’ve had an undershoot of inflation for a number of years. We absolutely recognize that. I think until this year undershoot was understandable. First we had a good deal of slack in the labor market. Then we had plummeting oil prices, and beginning in mid-2014, there was a marked depreciation in the dollar. And those three factors held down inflation for a number of years. Now in 2016, core inflation came very close to 2 percent. We seemed to be on a path of inflation moving up, and this year, beginning in March, there seemed to be a sequence of negative surprises. Some reflect one-time factors that were easily identifiable like a marked decline in quality adjusted cell phone plans. There may be other factors that are not so easy to name, but we would judge, inflation doesn’t always follow exactly their errors, and many factors that affect it beyond the key influences of labor market slack, exchange rates, and import prices, and oil prices. Those are three big ones, but there are other factors that affect inflation too, and our judgment at this point is that transitory factors that are unrelated to the broader macroeconomic outlook are holding inflation down. But I have tried to be straightforward in saying that this could end up being something that is more engrained and turns out to be permanent. It’s very important to watch it and if necessary, rethink what’s determining inflation. A possibility is that the longer run sustainable rate of unemployment, it’s been coming down, estimates in the committee have come down. It’s conceivable that they need to come down even more. It’s not my judgment that inflation expectations have slipped but that also remains a possibility that needs to be monitored. So there are, you know, there could be a rethink of inflation. I think it’s important to watch inflation outcomes carefully, and if we don’t see inflation moving in the manner that the Committee anticipates to alter policy so that we do achieve our two percent objective, but at the moment, most of my colleagues and I believe we are on track to achieve it.

also:

MICHAEL MCKEE. Michael McKee from Bloomberg Television and Radio. I suppose I should be asking you a valedictory question since it’s the last question, but I don’t think you can top what you’ve already said, so let me just do a couple of cleanup questions here. President Trump, while you were speaking, just said that he thinks his tax plan will produce four percent growth. Do you think that is possible? Second, do you think that there is any Fed blame or complicity in the flattening of the yield curve, and are you worried that there might be some sort of policy mistake built into that that could slow the economy. And the last question, which is a bit of a valedictory, is one that everybody on Wall Street has wanted to ask you for four years.

Since this is your last press conference, can you tell us which dot is yours?

CHAIR YELLEN. Well, I can answer the last question first. The answer is no, I’ve never been willing to reveal which dot is mine, and I’m not going to change that now. So, you know, my assessment, and I think most participants’ assessments, as I said, of the impact of the tax policy on growth has been informed by work by the Joint Committee on Taxation and other analysts, and everyone recognizes that there’s uncertainty about what the economic effects would be, and I wouldn’t want to rule anything out. It is challenging, however, to achieve growth of the levels that you mentioned. Look, if the package were to stimulate growth of that magnitude, let me just say again, the Federal Reserve would welcome that. If it’s a favorable supply side developments that would be compatible with the attainment of our employment and inflation objectives, that’s something that would be very welcome, but it would be challenging to achieve numbers like that. Let’s see, I think you also then asked me about the yield curve, and I mean there is much discussion about yield curve inversions and whether or not a flattening yield curve could signal a recession. Is that the brunt of your question?

MICHAEL MCKEE. And whether the Fed has made, if there’s a policy mistake embedded in that.

CHAIR YELLEN. So this is something that we discussed and have looked at. The yield curve has flattened some as we have raised short rates. Mainly, the flattening yield curve mainly reflects higher short-term rates. The yield curve is not currently inverted, and I would say that the current slope is well within its historical range. Now there is a strong correlation historically between yield curve inversions and recessions, but let me emphasize that correlation is not causation, and I think that there are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed. And one reason for that is that longterm interest rates generally embody two factors. One is the expected average value of short rates over say ten years, and the second piece of it is a so-called term premium that often reflects things like inflation risk. Typically, the term premium historically has been positive. So when the yield curve has inverted historically, it meant that short-term rates were well above average expected short rates over the longer run. So with the positive term premium, that’s what it means. And typically that means that monetary policy is restrictive, sometimes quite restrictive, and some of those recessions were situations in which the Fed was consciously tightening monetary policy because inflation was high and trying to slow the economy. Well, right now the term premium is estimated to be quite low, close to zero, and that means that structurally, and this can be true going forward, that the yield curve is likely to be flatter than it’s been in the past. And so it could more easily invert if the Fed were to even move to a slightly restrictive policy stance you could see an inversion with a zero term premium. So, I think the fact the term premium is so low and the yield curve is generally flatter is an important factor to consider. Now, I think it’s also important to realize that market participants are not expressing heightened concern about the decline of the term premium, and when asked directly about the odds of recession, they see it as low, and I would concur with that judgment.

 

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2660.24 as this post is written

The December 2017 Wall Street Journal Economic Forecast Survey

The December 2017 Wall Street Journal Economic Forecast Survey was published on December 13, 2017.  The headline is “U.S. Economic Expansion Could Become Longest on Record.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the “Economist Q&A” section.

An excerpt:

Forecasters are increasingly optimistic the U.S. economic expansion could continue beyond the 2020 presidential election, aided by Republican tax legislation that is expected to lift growth over the next several years.

The slow-but-sturdy expansion that began in mid-2009 already is the third-longest in U.S. history and, if it continues into the second half of 2019, will exceed the 10-year record set by the 1990s economic boom.

Most of the private-sector economic forecasters surveyed in recent days by The Wall Street Journal said the odds of a new recession by late 2020 were below 50%. The average probability of a recession in the next year was 14%, with the odds creeping up to 29% in two years and 43% in three years.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 14.12%. The individual estimates, of those who responded, ranged from 0% to 33%.  For reference, the average response in November’s survey was 14.64%.

As stated in the article, the survey’s respondents were 62 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted December 8-11.

The current average forecasts among economists polled include the following:

GDP:

full-year 2017:  2.5%

full-year 2018:  2.6%

full-year 2019:  2.1%

full-year 2020:  2.0%

Unemployment Rate:

December 2017: 4.1%

December 2018: 3.9%

December 2019: 3.9%

December 2020: 4.2%

10-Year Treasury Yield:

December 2017: 2.42%

December 2018: 2.93%

December 2019: 3.26%

December 2020: 3.38%

CPI:

December 2017:  2.0%

December 2018:  2.1%

December 2019:  2.3%

December 2020:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2017: $56.25

for 12/31/2018: $56.20

for 12/31/2019: $56.30

for 12/31/2020: $57.98

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily 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 2667.0 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 December 7, 2017 update (reflecting data through December 1, 2017) is -1.575.

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 December 13, 2017 incorporating data from January 8, 1971 through December 8, 2017, on a weekly basis.  The December 8, 2017 value is -.91:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 13, 2017:

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

The ANFCI chart below was last updated on December 13, 2017 incorporating data from January 8,1971 through December 8, 2017, on a weekly basis.  The December 8 value is -.72:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 13, 2017:

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 site 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 2670.06 as this post is written

NFIB Small Business Optimism – November 2017

The November NFIB Small Business Optimism report was released today, December 12, 2017. The headline of the Small Business Economic Trends report is “Small Business Optimism Hits Near All-Time High.”

The Index of Small Business Optimism increased in November by 3.7 points to 107.5.

Here are some excerpts that I find particularly notable (but don’t necessarily agree with):

“We haven’t seen this kind of optimism in 34 years, and we’ve seen it only once in the 44 years that NFIB has been conducting this research,” said NFIB President and CEO Juanita Duggan. “Small business owners are exuberant about the economy, and they are ready to lead the U.S. economy in a period of robust growth.”

also:

LABOR MARKETS

After several solid quarters, job creation slowed in the small business sector as business owners reported a seasonally adjusted average employment change per firm of 0.0 workers. Thirteen percent (down 1 point) reported increasing employment an average of 3.0 workers per firm and 10 percent (down 1 point) reported reducing employment an average of 2.9 workers per firm (seasonally adjusted). Fifty-two percent reported hiring or trying to hire (down 7 points), but forty-four percent (85 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill.

Eighteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (down 2 points), second only to taxes. This is the top ranked problem for those in construction (33 percent) and manufacturing (22 percent), getting more votes than taxes and the cost of regulations. Thirty percent of all owners reported job openings they could not fill in the current period, down 5 points from the record-high level reached in July and October. Eleven percent reported using temporary workers, down 3 points. A seasonally adjusted net 24 percent plan to create new jobs, up 6 points to a record high reading. Hiring plans were strongest in professional services, manufacturing and construction.

also:

COMPENSATION AND EARNINGS

Reports of higher worker compensation were unchanged at a net 27 percent, historically very strong all year. Owners complain at record rates of labor quality issues, with 85 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions. Eighteen percent selected “finding qualified labor” as their top business problem, far more than cite weak sales. Plans to raise compensation fell 4 points in frequency to a net 17 percent, still a solid number, but a surprise as labor markets seem to be getting tighter. The frequency of reports of positive profit trends improved 2 points to a net negative 12 percent reporting quarter on quarter profit improvements, a solid reading historically, among the best since 2007.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the December 12 Doug Short post titled “NFIB Small Business Survey:  Index Near All-Time High“:

NFIB Small Business Optimism

Further details regarding small business conditions can be seen in the full November 2017 NFIB Small Business Economic Trends (pdf) report.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2667.31 as this post is written

Charts Indicating Economic Weakness – December 2017

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.  This post is the latest in a series of posts indicating U.S. economic weakness or a low growth rate.

While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.  The Gross Domestic Product Q3 2017 Second Estimate (pdf) of November 29, 2017 was 3.1%, and as seen in the November 2017 Wall Street Journal Economic Forecast Survey the consensus among various economists is for 2.5% GDP growth in 2017 & 2018.  However, there are other broad-based economic indicators that seem to imply a weaker growth rate.  As well, it should be remembered that GDP figures can be (substantially) revised.

Below are a small sampling of charts that depict greater degrees of weakness and/or other worrisome trends, and a brief comment for each:

Total Private Construction Spending

Various measures of construction continue to show weak growth and/or contraction.

Shown below is “Total Private Construction Spending,” through October with last value of $949,946 Million, displayed on a “Percent Change From Year Ago” basis with value 3.2%, last updated December 1, 2017:

Total Private Construction Spending

source:  U.S. Bureau of the Census, Total Private Construction Spending [TLPRVCONS], retrieved from FRED, Federal Reserve Bank of St. Louis accessed December 6, 2017:

https://fred.stlouisfed.org/series/TLPRVCONS

Total Federal Receipts

“Total Federal Receipts” growth continues to be intermittent in nature.

Shown below is “Total Federal Receipts,” through October with last value of $235,341 Million, displayed on a “Percent Change From Year Ago” basis with value 6.2%, last updated November 13, 2017:

Total Federal Receipts Percent Change From Year Ago

source:  U.S. Department of the Treasury. Fiscal Service, Total Federal Receipts [MTSR133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis December 6, 2017:

https://fred.stlouisfed.org/series/MTSR133FMS

Manufacturer’s New Orders – Durable Goods

Shown below is “Manufacturer’s New Orders -Durable Goods,” through October with last value of $237,375 Million, displayed on a “Percent Change From Year Ago” basis with value 1.6%, last updated December 4, 2017:

Durable Goods New Orders Percent Change From Year Ago

source:  U.S. Bureau of the Census, Manufacturers’ New Orders: Durable Goods [DGORDER], retrieved from FRED, Federal Reserve Bank of St. Louis December 6, 2017:

https://fred.stlouisfed.org/series/DGORDER

Commercial And Industrial Loans, All Commercial Banks

Shown below is “Commercial And Industrial Loans, All Commercial Banks” through October with last value of $2,122.6193 Billion, displayed on a “Percent Change From Year Ago” basis with value of 1.2%, last updated December 1, 2017:

Commercial And Industrial Loans Percent Change From Year Ago

source:  Board of Governors of the Federal Reserve System (US), Commercial and Industrial Loans, All Commercial Banks [BUSLOANS], retrieved from FRED, Federal Reserve Bank of St. Louis December 6, 2017:

https://fred.stlouisfed.org/series/BUSLOANS

The Yield Curve

Many people believe that the Yield Curve is a leading economic indicator for the United States economy.

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

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

Below is a yield-curve proxy chart showing the spread between the 10-Year Treasury and 2-Year Treasury using constant maturity securities.  This daily chart is from June 1, 1976 through December 7, 2017, with recessionary periods shown in gray. This chart shows a value of .57%:

T10Y2Y_12-8-17

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 December 10, 2017:

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

Population Growth

Shown below is a long-term chart of population growth on a “Percent Change From A Year Ago” basis with value .7%.  The declining nature of the growth rate is notable and may in itself may deserve consideration as an economic indicator:

Total Population Percent Change From Year Ago

source:  U.S. Bureau of the Census, Total Population: All Ages including Armed Forces Overseas [POP], retrieved from FRED, Federal Reserve Bank of St. Louis December 10, 2017:

https://fred.stlouisfed.org/series/POP

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2659.99 as this post is written

2018 Estimates For S&P500 Earnings & Price Levels

In the December 11, 2017 edition of Barron’s, the cover story is titled “2018 Outlook:  The Bull Market’s Next Act.”

Included in the story, 10 investment strategists give various forecasts for 2017 including S&P500 profits, S&P500 year-end price targets, GDP growth, and 10-Year Treasury Note Yields.

A couple of excerpts:

Given synchronized global growth and rising corporate profits, 2018 could be another good year for stocks, notwithstanding the bull’s advancing age. The S&P 500 could gain about 7%, mirroring similar gains in corporate profits, according to the consensus forecast of 10 investment strategists at major U.S. investment banks and money-management firms surveyed by Barron’s each December. The group’s predictions range from 2675 to 3100, with a mean estimate of about 2840.

Also:

OUR PROGNOSTICATORS EXPECT S&P 500 earnings to climb to $145 in 2018 from an expected $131.45 this year. Most estimates assume that global growth will spur earnings gains, with an additional boost coming from U.S. tax cuts. Depending on the final tax bill, they figure that lower corporate taxes could be worth 5% to 10% of earnings growth, or anywhere from $7 to $14 a share. But in the unlikely event that no tax cuts are passed, the market could drop sharply.

Industry analysts forecast S&P earnings of $146.20 for next year, not including tax cuts. If analysts revise their estimates higher in coming months to account for the positive impact of lower taxes, stocks could get a further boost.

As seen in the article, the investment strategists expect an average 2018 GDP growth of 2.595%.

_____

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 2658.04 as this post is written

“Not In Labor Force” Statistic – As Of December 2017

In the November 13, 2013 post (“Not In Labor Force Statistic“) I featured editorial commentary from the Wall Street Journal, as well as an accompanying long-term chart, with regard to the number of people not working.

Also, on February 9, 2015 I wrote another post titled “Unemployment And The ‘Not In Labor Force’ Statistic,” in which I discussed various facets of this measure.

Below is an updated chart regarding this statistic.  The current figure, last updated on December 8, 2017 depicting data through November 2017, is 95.483 million people (Not Seasonally Adjusted):

Not In Labor Force chart

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Not In Labor Force [LNU05000000] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 11, 2017;

http://research.stlouisfed.org/fred2/series/LNU05000000

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2651.50 as this post is written

Average Hourly Earnings Trends

I have written many blog posts concerning the worrisome trends in income and earnings.

Along these lines, one of the measures showing disconcerting trends is that of hourly earnings.

While the concept of hourly earnings can be defined and measured in a variety of ways, below are a few charts that I believe broadly illustrate problematic trends.

The first chart depicts Average Hourly Earnings Of All Employees: Total Private (FRED series CES0500000003)(current value = $26.55):

(click on chart to enlarge image)(chart last updated 12-8-17)

CES0500000003

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of All Employees:  Total Private [CES0500000003] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 8, 2017:

http://research.stlouisfed.org/fred2/series/CES0500000003

This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 12-8-17)

CES0500000003 Percent Change From Year Ago

There are slightly different measures available from a longer-term perspective. Pictured below is another measure, the Average Hourly Earnings of Production and Nonsupervisory Employees – Total Private (FRED series AHETPI)(current value = $22.24):

(click on chart to enlarge image)(chart last updated 12-8-17)

AHETPI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of Production and Nonsupervisory Employees:  Total Private [AHETPI] ; U.S. Department of Labor: Bureau of Labor Statistics;  accessed December 8, 2017:

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

Pictured below is this AHETPI measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 12-8-17)

AHETPI Percent Change From Year Ago

I will continue to actively monitor these trends, especially given the post-2009 dynamics.

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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2647.03 this post is written