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 November 22, 2017 update (reflecting data through November 17, 2017) is -1.553.

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 November 22, 2017 incorporating data from January 8, 1971 through November 17, 2017, on a weekly basis.  The November 17, 2017 value is -.93:

NFCI long-term chart

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 22, 2017:

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

The ANFCI chart below was last updated on November 22, 2017 incorporating data from January 8,1971 through November 17, 2017, on a weekly basis.  The November 17 value is -.77:

ANFCI long-term chart

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 22, 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 2599.19 as this post is written

The U.S. Economic Situation – November 22, 2017 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 November 17, 2017, with a last value of 23358.24):

(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 2598.00 as this post is written

Durable Goods New Orders – Long-Term Charts Through October 2017

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 October 2017, updated on November 22, 2017. This value is $236,006 ($ 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 November 22, 2017;

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 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 2597.47 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 November 17, 2017:

from page 24:

(click on charts to enlarge images)

S&P500 projected EPS trends

from page 25:

actual and projected S&P500 EPS

_____

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 2599.03 as this post is written

S&P500 EPS Forecasts Years 2017, 2018, 2019

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 23 of the “S&P500 Earnings Scorecard” (pdf) of November 21, 2017, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share, the Year 2015 value is $117.46, and the Year 2016 value is $118.10/share:

Year 2017 estimate:

$131.40/share

Year 2018 estimate:

$146.04/share

Year 2019 estimate:

$160.31/share

_____

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 2600.21 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2017 And 2018 – As Of November 16, 2017

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings tag)

For reference purposes, the most current estimates are reflected below, and are as of November 16, 2017:

Year 2017 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $125.15/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $114.97/share

Year 2018 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $144.10/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $132.89/share

_____

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 2598.96 as this post is written

Updates Of Economic Indicators November 2017

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 November 2017 Chicago Fed National Activity Index (CFNAI) updated as of November 21, 2017:

The CFNAI, with current reading of .65:

CFNAI 11-21-17 .65

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, November 21, 2017;

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

The CFNAI-MA3, with current reading of .28:

CFNAIMA3 11-21-17 .28

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis, November 21, 2017;

https://fred.stlouisfed.org/series/CFNAIMA3

The ECRI WLI (Weekly Leading Index):

As of November 17, 2017 (incorporating data through November 10, 2017) the WLI was at 145.6 and the WLI, Gr. was at 2.7%.

A chart of the WLI,Gr., from Doug Short’s ECRI update post of November 17, 2017:

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 November 11, 2017:

ADS Index

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

As per the November 20, 2017 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased in October” (pdf) the LEI was at 130.4, the CEI was at 116.2, and the LAG was 125.5 in October.

An excerpt from the release:

“The US LEI increased sharply in October, as the impact of the hurricanes dissipated,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.”

Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of November 20, 2017:

Conference Board LEI

_________

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 2599.42 as this post is written

Charts Indicating Economic Weakness – November 2017

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.

While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.

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

Overall Economic Activity

While the Gross Domestic Product Q3 2017 Advance Estimate (pdf) of October 27, 2017 was 3.0%, 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, 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.

Among the broad-based economic indicators that have been implying weaker growth or mild contraction is the Chicago Fed National Activity Index (CFNAI).

The Chicago Fed National Activity Index (CFNAI) updated as of October 23, 2017:

The CFNAI, with the October 23, 2017 reading of .17:

CFNAI 10-23-17 .17

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, November 16, 2017;

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

An ancillary measure of the Chicago Fed National Activity Index (CFNAI) – the Chicago Fed National Activity Diffusion Index (CFNAIDIFF) – updated as of October 23, 2017:

The CFNAIDIFF, with current reading of -.19:

CFNAIDIFF 10-23-17 -.19

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index:  Diffusion Index [CFNAIDIFF], retrieved from FRED, Federal Reserve Bank of St. Louis, November 16, 2017;

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

Rail Freight Carloads

Another notable measure is that of “Rail Freight Carloads,” as depicted below, through September with last value of 1,086,482, last updated November 16, 2017:

Rail Freight Carloads

source:  U.S. Bureau of Transportation Statistics, Rail Freight Carloads [RAILFRTCARLOADSD11], retrieved from FRED, Federal Reserve Bank of St. Louis;  November 16, 2017:

https://fred.stlouisfed.org/series/RAILFRTCARLOADSD11

Here is the same measure on a “Percent Change From Year Ago” basis:

Rail Freight Carloads Percent Change From Year Ago

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.

As an indication of the yield curve (i.e. a yield curve proxy), below is a weekly chart from January 1, 1990 through November 17, 2017.  The top two plots show the 10-Year Treasury and 2-Year Treasury yields.  The third plot shows the (yield) spread between the 10-Year Treasury and 2-Year Treasury, with the November 17, 2017 closing value of .62%.  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)

U.S. Yield Curve proxy

Domestic Auto Production

Another notable measure is that of “Domestic Auto Production,” defined in FRED as:

Domestic auto production is defined as all autos assembled in the U.S.

Here is “Domestic Auto Production,” depicted below on a “Percent Change From Year Ago” basis, through September with last value of -34.2 Percent, last updated October 30, 2017:

U.S. Domestic Auto Production Percent Change From Year Ago

source:  U.S. Bureau of Economic Analysis, Domestic Auto Production [DAUPSA], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed November 15, 2017:

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

Inflation/Deflation Trends

Current inflation levels and the possibility of deflation  is a vastly complex topic, and as such isn’t suitably discussed in a brief manner.  I have discussed the issue of deflation extensively as I continue to believe that prolonged and deep U.S. deflationary conditions are on the horizon, and that such deflationary conditions will cause, as well as accompany, inordinate economic hardship. [note: to clarify, for purposes of this discussion, when I mention “deflation” I am referring to the CPI going below zero. Also, I have been using the term “deflationary pressures” as a term to describe deflationary manifestations within an environment that is still overall inflationary but heading towards deflation.]

My latest commentary regarding deflationary pressures and future deflation can be found in the October 2 post titled “Charts Indicating Economic Weakness – October 2017.”

Other Indicators

As mentioned previously, many other indicators discussed on this site indicate economic weakness or economic contraction, if not outright (gravely) problematical economic conditions.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2578.85 as this post is written

Walmart’s Q3 2018 Results – Comments

I found various notable items in Walmart’s Q3 2018 management call transcript (pdf) dated November 16, 2017.  (as well, there is Walmart’s press release of the Q3 results and related presentation materials)

I view Walmart’s results and comments as particularly noteworthy given their retail prominence and focus on low prices.  I have previously commented on their quarterly management call comments; these previous posts are found under the “paycheck to paycheck” tag.

Here are various excerpts that I find most notable:

comments from Doug McMillon, President and CEO, page 4, wrt Walmart U.S.: 

We had a strong quarter with comp-sales growth of 2.7 percent and
comp traffic growth of 1.5 percent. While we recognize that there are some
incremental hurricane-related sales in these numbers, our core business is
performing well.

comments from Doug McMillon, President and CEO, page 4, wrt Walmart U.S.: 

Walmart U.S. eCommerce sales were up 50 percent this quarter, with
the majority of the increase through Walmart.com. Existing customers have
become advocates for popular initiatives like online grocery and free twoday
shipping, and as a result, new customers, suppliers and partnerships
are coming to Walmart. The expanded assortment on Walmart.com has
also contributed to growth. Over the past year, we’ve tripled the number of
items on Walmart.com to reach more than 70 million SKUs today. As you
heard last month, Marc’s team is making progress on hiring additional
category specialists focused on improving the customer experience and our
positioning with the top one million eCommerce items. The recent
agreement with Lord and Taylor is a great example of how we will be
creating specialty experiences that complement what we offer and serve
customers with the brands they want. We’re making good progress
attracting premium brands to the site such as KitchenAid and Bose.

comments from Brett Biggs, EVP & CFO, page 7:

We expect top line growth going forward to be led more by comp
sales and eCommerce with less emphasis on new units in the U.S. We
have good sales momentum and cost transformation is gaining traction.
This gives us confidence in our ability to operate with discipline and
leverage expenses. In terms of capital allocation, we’re prioritizing
eCommerce, technology, supply chain and store remodels over new stores
and clubs, which we believe will contribute to long-term value creation for
shareholders. We’re excited about the future of Walmart.

comments from Brett Biggs, EVP & CFO, page 9:

Walmart U.S. eCommerce continued its strong performance with net
sales growth of 50 percent. We began to lap the acquisition of Jet.com
mid-quarter, which impacted our overall growth. Walmart.com, including
online grocery, once again led the way and was responsible for the majority
of the growth in the period. Throughout this year we’ve talked a lot about
the speed at which we’re moving, and we continued that progress in the
third quarter. For example, we launched new partnerships with Google and
August Home – these are capital-light initiatives that expand convenience
for customers by enabling hands free voice shopping and unattended
delivery in the home. We also acquired Parcel, a technology-based, sameday,
last-mile delivery company focused on customers in New York City.

comments from Brett Biggs, EVP & CFO, page 10, wrt Walmart U.S.:  

Walmart U.S. had a strong quarter with comp sales growth of 2.7
percent led by a traffic increase of 1.5 percent. While difficult to quantify
precisely, we estimate hurricane-related impacts benefited comps by 30 to
50 basis points. On a two-year stacked basis, comp sales were up 3.9
percent and comp traffic increased 2.2 percent. This is the strongest
quarterly and two-year stacked comp performance in more than eight
years. The food business continued to accelerate with sales, traffic and
unit growth across categories. In fact, food categories delivered the
strongest quarterly comp sales performance in almost six years. Market
inflation was around or slightly less than what we saw in the second
quarter. All formats had positive comps and eCommerce contributed
approximately 80 basis points to the segment.

Gross margin rate declined 36 basis points in the quarter. The
margin rate decreased in part due to the continued execution of our price
investment strategy and the mix effects from our growing eCommerce
business. In addition, we estimate that hurricane-related impacts were
about one-third of the overall decline.

Operating expenses as a percentage of net sales decreased 10 basis
points, with stores leveraging at a higher level than that. The U.S. team
has made great progress while maintaining high customer service levels,
as associates are more efficient with improved technology, training and
processes.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2564.62 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 November 9, 2017 update (reflecting data through November 3, 2017) is -1.60.

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 November 15, 2017 incorporating data from January 8, 1971 through November 10, 2017, on a weekly basis.  The November 10, 2017 value is -.93:

NFCI_11-15-17 -.93

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 15, 2017:

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

The ANFCI chart below was last updated on November 15, 2017 incorporating data from January 8,1971 through November 10, 2017, on a weekly basis.  The November 10 value is -.75:

ANFCI_11-15-17 -.75

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 15, 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 2570.48 as this post is written