Monthly Archives: June 2014

Updates Of Economic Indicators June 2014

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 June 2014 Chicago Fed National Activity Index (CFNAI)(pdf) updated as of June 23, 2014:

CFNAI MA-3

The ECRI WLI (Weekly Leading Index):

As of June 20, 2014 (incorporating data through June 13, 2014) the WLI was at 135.4 and the WLI, Gr. was at 4.4%.

Here is a chart of the ECRI WLI,Gr., from Doug Short’s June 20, 2014 post titled “ECRI Recession Watch:  Weekly Update” :

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 June 14, 2014:

ADS Index

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the June 19, 2014 press release, the LEI was at 101.7 and the CEI was at 109.0 in May.

An excerpt from the June 19 release:

“May’s increase in the LEI, the fourth consecutive one, was broad based,” said Ataman Ozyildirim, Economist at The Conference Board. “Housing permits held the index back slightly but the LEI still points to an expanding economy and its pace may even pick up in the second half of the year.”

Here is a chart of the LEI from Doug Short’s blog post of June 19 titled “Conference Board Leading Economic Index Increased Again in May“ :

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 1960.90 as this post is written

Janet Yellen’s June 18, 2014 Press Conference – Notable Aspects

On Wednesday, June 18, 2014 Janet Yellen gave her scheduled press conference. (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 June 18, 2014, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2014“ (pdf).

From Janet Yellen’s opening comments:

Today’s policy actions reflect the Committee’s assessment that the economy is continuing to make progress toward our objectives of maximum employment and price stability.  In the labor market, conditions have improved further.  The unemployment rate, at 6.3 percent, is four-tenths lower than at the time of our March meeting, and the broader U-6 measure—which includes marginally attached workers and those working part time but preferring full-time work—has fallen by a similar amount.  Even given these declines, however, unemployment remains elevated, and a broader assessment of indicators suggests that underutilization in the labor market remains significant.

Although real GDP declined in the first quarter, this decline appears to have resulted mainly from transitory factors.  Private domestic final demand—that is, spending by domestic households and businesses—continued to expand in the first quarter, and the limited set of indicators of spending and production in the second quarter have picked up.  The Committee thus believes that economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter.  Overall, the Committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market.

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

YLAN MUI.  Hi. Ylan from the Washington Post. My question is sort of the flip side of Steve’s and it’s about your outlook for unemployment. Your predecessor has said that the Fed has been consistently too pessimistic about the level of the unemployment rate, and today, you guys lowered your outlook again. Can you tell me a little bit about how you see the unemployment rate evolving to meet your forecast? Why you believe the rate of decline will start to level off?

And what an unexpected drop might mean for the first-rate hike.

CHAIR YELLEN. So, it’s true that unemployment has declined by more than the committee expected and you do see a small downward revision in the committee’s projections, at least the central tendency for the unemployment rate. Now, first of all, I mean, the labor market I think has continued to broadly improve. We have seen continued job growth at a pace that is certainly sufficient to be diminishing labor market slack over time. Over the last three months for example, payroll employment has been rising around 230,000 jobs per month and we’re running close to 200,000 over the last year. So, it’s no way surprising to see it decline in the unemployment rate. That said, many of my colleagues and I would see a portion of the decline in the unemployment rate as perhaps not representing a diminution of slack in the labor market. We have seen labor force participation rate decline. And while I think most of us would agree that there has been and will continue to be secular decline in the labor force participation rate for demographic reasons, I think a portion of the decline we’ve seen in the unemployment rate probably reflects a kind of shadow unemployment or discouragement, a cyclical part of labor force participation. Now, if that’s correct, we may see that as the economy picks up steam and we see further recovery in the labor market, that those, let’s call them discouraged workers, will return either to unemployment or to employment. And as labor force participation begins to stabilize, the unemployment rate will come down less quickly. And I think for a number of people, that’s a component of the forecast. You asked about implications, for the path of policy and I would just say, the guidance that we’ve given, our forward guidance states that the timing of liftoff will depend on actual progress we see and the progress we expect to see going forward in terms of achieving both of our goals, namely maximum employment and our 2 percent inflation objective. So, we’re not going to look at any single indicator like the unemployment rate to assess how we’re doing on meeting our employment goal, we will look at broad range of indicators. That said, as I try to emphasize in my opening statement, there is uncertainty about monetary policy. The appropriate path of policy, the timing in pace of, interest rate increases, ought to and I believe will respond to unfolding economic developments. If those were to prove faster than the committee expects, it would be logical to expect a more rapid increase in the fed funds rate. But the opposite also holds true. If we don’t see the improvement that’s projected in the baseline outlook, that the opposite would be true and the pace of the timing pace of interest rate increases would be later and more gradual.

also:

JASON LANGE.  Good afternoon, Jason Lange with Reuters. Chair Yellen, the Fed has slashed its growth projections for this year and you’ve gone to pains to explain that there is uncertainty in the path of interest rates in the economy and yet, the Fed central tendency projections for 2015 and 2016 remain quite strong. Are you confident that the U.S. economy has entered a period of sustained above trend economic growth? Thank you.

CHAIR YELLEN. Well, when you say confident, I suppose the answer is no because there is uncertainty, but I think there are many good reasons why we should see a period of sustained growth in excess of the economy’s potential. We have a highly accommodative monetary policy. We have diminishing fiscal drag. We have easing credit conditions. We have households who are becoming more comfortable with their debt levels and more able to service that debt, an improving job market. We have rising home prices and rising equity prices and an improving global economy at least in my estimation. So, I think all of those things ought to be working to produce above trend growth and I think that’s what’s reflected in the forecast. But nevertheless as I said, of course there is uncertainty around that projection. You know, nevertheless, the labor market has continued to improve, and over a number of years in which admittedly growth has come in at a disappointing level, we’ve still seen the labor market broadly improve and I expect that to continue.

also:

PEDRO DA COSTA. Hi, I’m Pedro da Costa from Dow Jones Newswires. Thank you very much. Since we are currently having a World Cup, I thought it would be valid to ask a question about the world. And I’m surprised–a little surprised at the optimism of your forecast given some, you know, the darkening outlook overseas. You’ve got conflict in the Ukraine, escalation of war in Iraq with implications for oil prices that potentially have global economic impact. You have–excuse me–a European recovery that’s still fairly weak, and emerging markets that are slowing down sharply. Do you think the U.S. can be a lone engine of economic recovery globally? And if I could just follow up very quickly on Greg’s question, because you talked about the two sides of the mandate, but you didn’t quite answer the financial stability part. Do you think–is financial stability currently preventing the Fed from being more accommodative than it would like? And if not, when do you expect that to happen if at all? Thank you.

CHAIR YELLEN. So, let me–I’m sorry I didn’t answer the last part of Greg’s question and the last part of yours. Let me start there. With respect to financial stability, we monitor potential threats to financial stability very carefully, and we have spoken about some–I’ve spoken in recent congressional testimonies and speeches about some threats to financial stability that are on our radar screen that we are monitoring. Trends in leverage lending in the underwriting standards there, diminished risk spreads in lower-grade corporate bonds, high-yield bonds have certainly caught our attention. There is some evidence of reach for yield behavior. That’s one of the reasons I mentioned that this environment of low volatility is very much on my radar screen and would be a concern to me if it prompted an increase in leverage or other kinds of risk-taking behavior that could unwind in a sharp way and provoke a sharp, for example, jump in interest rates. And we’ve seen what effect that can have on the global economy, and I think it’s something that it’s important to avoid. But broadly speaking, if the question is: To what extent is monetary policy at this time being driven by financial stability concerns? I would say that–well, I would never take off the table that monetary policy should–could in some circumstances respond. I don’t see them shaping monetary policy in an important way right now. I don’t see a broad-based increase in leverage, rapid increase in credit growth or maturity transformation, the kinds of broad trends that would suggest to me that the level of financial stability risks has risen above a moderate level. And we are using supervisory tools and regulations both to make the financial system more robust and to pay particular attention to areas where we’ve spotted concerns like leverage lending, which is very much a focus of our supervision.

Now, let’s see. There was a first part to your question, and the first part was about global risks, and we always pay attention to global risks and the likely evolution of the global economy. You expressed a lot of pessimism about emerging markets, and I see it more likely that we’ll see moderate growth and a pickup there. Of course, there are geopolitical risks, the Middle East developments in Iraq, of course. They’re not only a humanitarian concern; they are a concern with respect potentially to energy supplies and prices, and so I would certainly list that as something in the category of risks to the outlook.

also:

PETER BARNES. Peter Barnes with Fox Business, ma’am. Can I–just to follow up a little bit on what Pedro asked about. Specifically, what about equity markets? I mean, right now, today, the S&P 500 is on track to close at a–another record high. You have said that you have not seen any evidence of bubbles in equity markets, and that they have been trading within historic norms. Is that still the case today? Thank you.

CHAIR YELLEN. So I don’t have a sense–the committee doesn’t try to gauge what is the right level of equity prices. But we do certainly monitor a number of different metrics that give us a feeling for where valuations are relative to things like earnings or dividends, and look at where these metrics stand in comparison with previous history to get a sense of whether or not we’re moving to valuation levels that are outside of historical norms, and I still don’t see that. I still don’t see that for equity prices broadly.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1959.48 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 June 12, 2014 update is -1.256.

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

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

The NFCI chart below was last updated on June 18, incorporating data from January 5,1973 to June 13, 2014, on a weekly basis.  The June 13, 2014 value is -.98:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 18, 2014:

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

The ANFCI chart below was last updated on June 18, incorporating data from January 5,1973 to June 13, 2014, on a weekly basis.  The June 13, 2014 value is -.26:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 18, 2014:

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 1941.16 as this post is written

Money Supply Charts Through May 2014

For reference purposes, below are four 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, last updated on 6-13-14, depicting data through May 2014, with value $12,508.1 Billion:

MZMSL chart

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 June 17, 2014:

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

The two charts below show 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, last updated on 6-12-14, depicting data through May 2014, with value $11,287.3 Billion:

M2 Seasonally Adjusted

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

M2 Seasonally Adjusted Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 17, 2014:

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1938.00 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – June 13, 2014 Update

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

The movement of the ECRI WLI and WLI, Gr. is particularly notable at this time, as ECRI publicly announced on September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these twelve sources :

Other past notable year 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order) on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:

Also, subsequent to May 2012:

__

Below are three long-term charts, from Doug Short’s blog post of June 13, 2014 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the June 13 release, indicating data through June 6, 2014.

Here is the ECRI WLI (defined at ECRI’s glossary):

ECRI WLI

This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

Dshort 6-13-14 - ECRI-WLI-YoY 3.2 percent

This last chart depicts, on a long-term basis, the WLI, Gr.:

ECRI WLI,Gr.

_________

I post various economic 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 1935.32 as this post is written

Markets During Periods Of Federal Reserve Intervention – June 13, 2014 Update

In the August 9, 2011 post (“QE3 – Various Thoughts“) I posted a chart that depicted the movements of the S&P500, 10-Year Treasury Yield and the Fed Funds rate spanning the periods of various Federal Reserve interventions since 2007.

For reference purposes, here is an updated chart from Doug Short’s blog post of June 13 (“ECRI Recession Watch:  Weekly Update“) :

(click on chart to enlarge image)

markets during Federal Reserve intervention

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1934.19 as this post is written

The June 2014 Wall Street Journal Economic Forecast Survey

The June Wall Street Journal Economic Forecast Survey was published on June 12, 2014.  The headline is “WSJ Survey:  Economists Optimistic Stage Is Set for Pickup in Wage Growth.”

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.

One excerpt:

Economists are increasingly looking for wage growth to pick up in coming months, a long-awaited development that would put more money in the pockets of consumers and could spur accelerated growth in the broader economy.

According to The Wall Street Journal’s monthly survey of 48 economists—not all of whom answered every question—real gross domestic product is growing at an annual rate of 3.5% this quarter after contracting at least 1% in the weather-hobbled first quarter. After that, the U.S. economy is projected to grow at a 3% pace in each of the year’s last two quarters.

As seen in the “Economic Indicators” section, the average response as to the odds of another recession starting within the next 12 months was 11.36%, roughly equal to that of May’s average response of approximately 12%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2014:  2.2%

full-year 2015:  2.9%

full-year 2016:  2.8%

Unemployment Rate:

December 2014: 6.1%

December 2015: 5.6%

December 2016: 5.4%

10-Year Treasury Yield:

December 2014: 3.16%

December 2015: 3.76%

December 2016: 4.15%

CPI:

December 2014:  2.1%

December 2015:  2.1%

December 2016:  2.4%

Crude Oil  ($ per bbl):

for 12/31/2014: $99.45

for 12/31/2015: $95.88

 

(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 blog 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 1930.11 as this post is written

June 2014 Duke/CFO Magazine Global Business Outlook Survey – Notable Excerpts

On June 11, 2014 the June Duke/CFO Magazine Global Business Outlook Survey (pdf) was released.  It contains a variety of statistics regarding how CFOs view business and economic conditions.

In this CFO Survey, I found the following to be the most notable excerpts:

Survey results show nearly 60 percent of U.S. financial executives think the business
environment has been harmed by a lack of public trust of business and governmental
leaders. An even larger percentage of CFOs in Africa (64 percent), Europe (68 percent), Asia
(71 percent) and Latin America (79 percent) believe public mistrust is creating a drag on
the economy.

also:

About one-third of European CFOs believe that deflation is already or soon will occur in the
Eurozone and two-thirds of these firms believe that deflation will continue for two or more
years. Most see the effects of deflation as damaging to the economy.

“These findings are particularly surprising because last week’s actions by the European
Central Bank (ECB) had been widely anticipated at the time of our survey. These European
CFOs are effectively saying that the ECB’s actions will not be sufficient to stave off
deflation.” Harvey said.

The CFO survey contains the Optimism Index chart, showing U.S. Optimism (with regard to the economy) at 61, as seen below:

Duke CFO Survey U.S. CFO Optimism

It should be interesting to see how well the CFOs predict business and economic conditions going forward.   I discussed various aspects of this, and the importance of these predictions, in the July 9, 2010 post titled “The Business Environment”.

(past posts on CEO and CFO Surveys can be found under the “CFO and CEO Confidence” tag)

_____

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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1944.65 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 June 5, 2014 update is -1.281.

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

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

The NFCI chart below was last updated on June 11, incorporating data from January 5,1973 to June 6, 2014, on a weekly basis.  The June 6, 2014 value is -.97:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 11, 2014:

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

The ANFCI chart below was last updated on June 11, incorporating data from January 5,1973 to June 6, 2014, on a weekly basis.  The June 6, 2014 value is -.24:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 11, 2014:

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 1944.44 as this post is written

NFIB Small Business Optimism – June 2014

The June NFIB Small Business Optimism report was released today, June 10.  The headline of the Press Release is “Small Business Sentiment – Improves a Bit But Is No Sign Of A Surge.”

The Index of Small Business Optimism increased 1.4 points in May to 96.6.

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

NFIB Optimism Index rose 1.4 points in May to 96.6, the highest reading since September 2007.  However, while May is the third up month in a row, the Index is still far below readings that have normally accompanied an expansion and there have been similar gains in the past that haven’t panned out in this recovery period. Five Index components improved, one was unchanged and four fell, although not by much.  

also:

•    Labor Markets.  NFIB owners increased employment by an average of 0.11 workers per firm in May (seasonally adjusted), the eighth positive month in a row and the best string of gains since 2006.  Seasonally adjusted, 11 percent of the owners (down 2 points) reported adding an average of 3.0 workers per firm over the past few months. 

also:

•    Credit Markets. Five percent of the owners reported that all their credit needs were not met, unchanged and 1 point over the record low.  Thirty percent reported all credit needs met, and 53 percent explicitly said they did not want a loan.  Only 3 percent reported that financing was their top business problem compared to 25 percent citing taxes, 20 percent citing regulations and red tape and 12 percent citing weak sales. Owners remain more concerned about taxes, regulations and health insurance costs.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the June 10 Doug Short post titled “Small Business Sentiment:  Third Month of Improvement“ :

NFIB Small Business Optimism

Further details regarding small business conditions can be seen in the Small Business Economic Trends document as well as the full June 2014 NFIB Small Business Economic Trends report (pdf).

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1951.27 as this post is written