The February 2016 Wall Street Journal Economic Forecast Survey

The February 2016 Wall Street Journal Economic Forecast Survey was published on February 11, 2016.  The headline is “WSJ Survey:  Economists Lower Growth Estimates Amid Rising Recession Risk.”  As indicated in the article, 69 economists were surveyed, although not every economist answered every question.

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.

Two excerpts:

The markets’ woes reflect investor fears that global economic growth is slowing sharply and that the U.S. will be unable to stay healthy when so many foreign economies are lagging.

also:

While the current economic expansion has been underwhelming, it has lasted a long time by historical standards. The economy has been gradually expanding—beginning from a several depressed level—since June 2009. The average economic expansion since World War II has lasted for slightly less than six years. The current expansion has lasted for more than 6½.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 21.25%; the average response in January’s survey was 16.93%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2015:  1.9%

full-year 2016:  2.3%

full-year 2017:  2.3%

full-year 2018:  2.2%

Unemployment Rate:

December 2016: 4.7%

December 2017: 4.6%

December 2018: 4.7%

10-Year Treasury Yield:

December 2016: 2.51%

December 2017: 3.02%

December 2018: 3.42%

CPI:

December 2016:  1.7%

December 2017:  2.3%

December 2018:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2016: $40.62

for 12/31/2017: $46.35

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

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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 necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1818.60 as post is written

The Yield Curve – February 11, 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 February 10, 2016.  The February 10, 2016 value is 1.00% (1.705% – .71%).   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)

10 year 2 year spread

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 to February 9, 2016, with recessionary periods shown in gray. This chart shows a value of 1.05%:

10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity

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 February 11, 2016:

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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1851.86 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 February 4, 2016 update (reflecting data through January 29) is -.484.

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 February 10, 2016 incorporating data from January 5,1973 to February 5, 2016, on a weekly basis.  The February 5, 2016 value is -.56:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 10, 2016:

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

The ANFCI chart below was last updated on February 10, 2016 incorporating data from January 5,1973 to February 5, 2016, on a weekly basis.  The February 5 value is -.06:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 10, 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 1870.26 as this post is written

The Employment-Population Ratio

In the August 11, 2010 post (“Employment-Population Ratio – Chart And Comments“) I featured a chart of the Employment-Population Ratio and brief commentary.

For those unaware of this measure, a description is seen in the February 3, 2014 Liberty Street Economics post titled “A Mis-Leading Labor Market Indicator“:

The employment-population (E/P) ratio frequently is used as an additional labor market measure. The E/P ratio is defined as the number of employed divided by the size of the working-age, noninstitutionalized population. An advantage of the E/P ratio over the unemployment rate is that it is not impacted by discouraged workers who stop looking for employment. The E/P ratio also dominates a measure focusing just on total employment in the economy, since it adjusts for changes in the size of the working-age population.

Additional commentary regarding the Employment-Population Ratio can be seen in various sources, including the May 27, 2015 Congressional Research Service document titled “An Overview of the Employment-Population Ratio.” (pdf)

Below is an updated chart (from January 1948 through January 2016) of the ratio, .  The January 2016 value is 59.6%:

employment-population ratio

source: US. Bureau of Labor Statistics, Civilian Employment-Population Ratio [EMRATIO], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed February 8, 2016;

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

_________

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 1852.21as this post is written

Monthly Changes In Total Nonfarm Payrolls

For reference purposes, below are three charts that display growth in payroll employment.

The first chart is from the Bureau of Labor Statistics (BLS) February 8, 2016 The Economics Daily (TED) post titled “Payroll employment up 151,000 in January 2016.”  It shows, as stated, “Over-the-month change in (total) payroll employment” from January 2006-January 2016:

change in payroll employment

The second chart shows the month-over-month change in total nonfarm payrolls in the 1990’s: (reports of January 1990-December 1999)

monthly change in nonfarm payrolls

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 8, 2016;

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

The third charts shows a long-term chart of the same month-over-month change in total nonfarm payrolls (reports of January 1939 to the present report of January 2016):

monthly change in nonfarm payroll

Lastly, the chart below shows the aggregate number of total nonfarm payrolls, from January 1939 – January 2016 (January 2016 value of 143.288 million):

total nonfarm payrolls

_________

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 1853.44 as this post is written

Building Financial Danger – February 8, 2016 Update

My overall analysis indicates a continuing elevated and growing level of financial danger which contains many worldwide and U.S.-specific “stresses” of a very complex nature. I have written numerous posts in this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.

Also of ongoing immense importance is the existence of various immensely large asset bubbles, a subject of which I have extensively written.  While all of these asset bubbles are wildly pernicious and will have profound adverse future implications, hazards presented by the bond market bubble are especially notable.

Predicting the specific timing and extent of a stock market crash is always difficult, and the immense complexity of today’s economic situation makes such a prediction even more challenging. With that being said, my analyses continue to indicate that a near-term exceedingly large (from an ultra-long term perspective) stock market crash – that would also involve (as seen in 2008) various other markets as well – will occur.

(note: the “next crash” and its aftermath has great significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts in the “Economic Depression” category)

As reference, below is a daily chart since 2008 of the S&P500 (through February 5, 2016 with a last price of 1880.02), depicted on a LOG scale, indicating both the 50dma and 200dma as well as price labels:

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

S&P500

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1880.02 as this post is written

Recession Probability Models – February 2016

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated February 5, 2016 using data through January) this “Yield Curve” model shows a 4.56% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 3.56% probability through December, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on February 1, 2016, currently shows a 3.84% probability using data through November.

Here is the FRED chart (last updated February 1, 2016):

probability of recession

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed February 7, 2016:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the January 14 post titled “The January 2016 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 16.93% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1880.02 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 = $25.39):

(click on chart to enlarge image)(chart last updated 2-5-16)

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 February 7, 2016:

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

This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis:

(click on chart to enlarge image)(chart last updated 2-5-16)

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 = $21.33):

(click on chart to enlarge image)(chart last updated 2-5-16)

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 February 7, 2016:

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 2-5-16)

AHETPI Percent Change From Year Ago

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1880.02 as this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of February 5, 2016

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective.  Both charts are from the St. Louis Fed site.  The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 4.9% unemployment rate:

(click on charts to enlarge images)(charts updated as of 2-5-16)

unemployment rate

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilian Unemployment Rate [UNRATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 5, 2016;

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

Here is the U-6 chart, currently showing a 9.9% unemployment rate:

U-6 unemployment rate

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons  [U6RATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 5, 2016;

http://research.stlouisfed.org/fred2/series/U6RATE

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1878.01 as this post is written

3 Critical Unemployment Charts – February 2016

As I have commented previously, as in the October 6, 2009 post (“A Note About Unemployment Statistics”), in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction; they serve to understate the severity of unemployment.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated unemployment (and, in the third chart, employment) situation.

The three charts below are from the St. Louis Fed site.  Here is the Median Duration of Unemployment (current value = 10.9 weeks):

(click on charts to enlarge images)(charts updated as of 2-5-16)

median duration of unemployment

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Median Duration of Unemployment [UEMPMED] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 5, 2016;

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

Here is the chart for Unemployed 27 Weeks and Over (current value = 2.089 million):

unemployed 27 weeks and over

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilians Unemployed for 27 Weeks and Over [UEMP27OV] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 5, 2016;

http://research.stlouisfed.org/fred2/series/UEMP27OV

Here is the chart for Total Nonfarm Payroll (current value = 143.288 million):

total nonfarm payroll

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 5, 2016;

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

Our unemployment problem is severe.  The underlying dynamics of the unemployment situation remain exceedingly worrisome.    These dynamics are numerous and complex, and greatly lack recognition and understanding.

My commentary regarding unemployment is generally found in the “Unemployment” category.  This commentary includes the April 24, 2012 five-part post titled “The Unemployment Situation Facing The United States”, which discusses various problematical issues concerning the present and future employment situation.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1875.93 as this post is written