Monthly Archives: August 2014

Standard & Poor’s S&P500 Earnings Estimates For 2014 & 2015 – As Of August 14, 2014

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 August 14, 2014:

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $119.25/share

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

-From a “top down” perspective, “as reported” earnings of $110.24/share

Year 2015 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $136.54/share

-From a “top down” perspective, operating earnings of $135.84/share

-From a “top down” perspective, “as reported” earnings of $132.30/share

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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1982.96 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the August 14, 2014 update (reflecting data through August 8) is -1.202.

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

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

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

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

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

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

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

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

The NFCI chart below was last updated on August 20, incorporating data from January 5,1973 to August 15, 2014, on a weekly basis.  The August 15, 2014 value is -.91:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 20, 2014:

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

The ANFCI chart below was last updated on August 20, incorporating data from January 5,1973 to August 15, 2014, on a weekly basis.  The August 15, 2014 value is -.52:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 20, 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 1983.31 as this post is written

“Hunger in America 2014” Report – Notable Excerpts

Yesterday (August 18, 2014) Feeding America released the “Hunger in America 2014” report.  As stated:

Hunger in America 2014 is the sixth and most comprehensive study undertaken. The 2014 study reveals that each year, the Feeding America network of food banks provides service to 46.5 million people in need across the United States, including 12 million children and 7 million seniors. Through a network of 58,000 pantries, meal service programs, and other charitable food programs, the Feeding America network reaches people in need in every community across the U.S.

Other excerpts I found notable, from the full “Hunger in America 2014” (pdf) report in the order they appear, include the following:

page 4:

The economy has experienced an unusually slow recovery since the deep recession in 2008 and 2009. The nation’s poverty rate reached 15.1 percent in 2010, the highest rate since 1993. The poverty rate remained at 15 percent in 2012 with 46.5 million people living in poverty. This is the largest number living in poverty since statistics were first published more than 50 years ago.  Sustained high poverty rates arise in part from high unemployment and falling household incomes. The U.S. unemployment rate exceeded 7.0 percent for five years between late 2008 and late 2013 (about 11 million people in any given month), the longest period of high unemployment in 70 years.  While the unemployment rate indicates that a large number of people cannot find jobs, many others are employed part time because they cannot find full-time work. The government’s measure of underemployment that includes all of these groups averaged 14 percent in fiscal year 2013, compared to a prerecession rate of 8.4 percent in 2007.  On average, about 24 million people were underemployed in 2013. Additionally, others may work full time but due to low wages their earnings do not lift them above the poverty line. Perhaps not surprisingly, real household income dropped 8.3 percent between 2007 and 2012.  Poverty, unemployment, and income, along with other demographic characteristics, are key drivers of individual and household food insecurity across the country.

These economic trends have contributed to rapid growth in the numbers of households seeking and receiving food assistance. The number of people participating in SNAP, the largest federal food assistance program, rose to a new high of 47.6 million in 2013, up from 33.5 million in 2009. While some of this growth can be attributed to changes in SNAP rules, recent studies conclude that the weak economy explains most of the increase. Other government programs that provided nutrition assistance in 2013 also saw high levels of enrollment. About 9 million people received WIC benefits in 2013. In the same year, 21.5 million children received free or reduced-price school lunches, and 11.2 million children received school breakfasts.

page 44:

Feeding America food banks and their partner agencies provide food and services to people in all 50 states, Washington, DC, and Puerto Rico. We estimate that the Feeding America network is currently serving 46.5 million unique individuals in 15.5 million households annually across the United States. The number of clients served and other findings from the Client Survey are further discussed in Chapters 4 and 5. Feeding America carries out this work through the coordinated efforts of its food banks, their partner agencies, and the food programs operated by those agencies. This chapter describes the structure of the network, characteristics of partner agencies in the network, the services the partner agencies provide, and the challenges they face in delivering charitable food assistance, as reported on the Agency Survey.

page 88:

Based solely on the unduplicated client counts, it appears that the Feeding America network has seen an increase over the past four years in the number of clients served annually. Estimates from the HIA 2010 study placed the annual unduplicated client count at that time at 37 million individuals. This apparent growth in unduplicated clients served by the network is likely the combination of changes in the scope and interpretation of the HIA study between 2010 and 2014, and actual growth in the network during that time. Some increase in the number of annual unduplicated clients is expected due to inclusion of additional programs not previously represented in the data.

page 131:

  • Across all client households, 84 percent are food insecure. In households with at least one child that number rises to 89 percent.
  • Client households report making spending tradeoffs between paying for food and paying for other necessities, such as medical care, housing, and utilities. Sixty-six percent of households report choosing between paying for food and medicine or medical care each year, and 31 percent do so every month. Fifty-seven percent of households choose between paying for food and housing annually, with 27 percent doing so on a monthly basis.
  • Sixty-three percent of households plan for charitable food assistance as a part of their monthly household budget.
  • More than half (55 percent) of client households receive monthly benefits from the federal Supplemental Nutrition Assistance Program (SNAP). Almost half of those not receiving SNAP benefits have never applied, most commonly because they did not think they were eligible. Seventy-two percent of households not receiving SNAP benefits may in fact be income eligible for SNAP.
  • Clients and their households often utilize multiple coping strategies to ensure they have enough food. More than 50 percent receive help from family or friends; 79 percent purchase inexpensive, unhealthy food; 40 percent water down food and drinks to make them last longer; and 23 percent grow food in a garden. Fifty-five percent of households report employing three or more coping strategies to get enough food each year.

Additional details and discussion can be found in the full “Hunger in America 2014” report mentioned above.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1976.70 as this post is written

Philadelphia Fed – 3rd Quarter 2014 Survey Of Professional Forecasters

The Philadelphia Fed Third Quarter 2014 Survey of Professional Forecasters was released on August 15, 2014.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following median expectations:

Real GDP: (annual average level)

full-year 2014 : 2.1%

full-year 2015:  3.1%

full-year 2016:  2.9%

full-year 2017:  2.8%

Unemployment Rate: (annual average level)

for 2014: 6.3%

for 2015: 5.7%

for 2016: 5.4%

for 2017: 5.3%

As for “the chance of a contraction in real GDP” in any of the next few quarters, mean estimates are 7.6%, 9.7%, 11.3%, 11.9% and 13.5% for each of the quarters from Q3 2014 through Q3 2015, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2023) with the median expected inflation (annualized) of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in the 1.5%-2.3% range.

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1952.70 as this post is written

Walmart’s Q2 2015 Results – Comments

I found various notable items in Walmart’s Q2 2015 management call transcript (pdf) dated May 14, 2014.  (as well, there is Walmart’s press release of the Q2 results)

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 conference call comments; these previous posts are found under the “paycheck to paycheck” tag.

Here are various excerpts that I find most notable:

comments from Greg Foran, president and CEO of Walmart U.S., page 9:

Let me provide some additional detail. In Q2, net sales for Walmart U.S. grew $1.9 billion. For the 13-week period ended August 1st, we delivered a flat sales comp; and this was despite a SNAP-related headwind of about 70 basis points. Ticket was up 1.1 percent, while traffic was down 1.1 percent, a 30 basis point improvement over Q1. Our e-commerce business, including store-fulfilled sales, delivered double-digit sales growth and contributed approximately 30 basis points to the total Walmart U.S. comp sales growth.

also:

For gross profit, we continued to invest in price, particularly in the categories of meat and health & wellness. That investment, blended with sales mix, resulted in a gross margin decline of 7 basis points versus last year.

comments from Greg Foran, president and CEO of Walmart U.S., page 10:

The combination of gross margin investment and expense deleverage resulted in an operating income decrease of 2.4 percent for Q2. We expect operating income to remain challenged for the balance of this fiscal year, given the increased health-care costs and our commitment to price investment and customer service.

also:

Neighborhood Markets continued to perform well and delivered an approximate 5.6 percent sales comp for the 13-week period. Sales were particularly strong in pharmacy, produce, meat, and adult beverages. Comp store traffic grew 4.1 percent. During Q2, we opened 22
Neighborhood Markets and remain on track to deliver 180 to 200 new units for the year.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1955.18 as this post is written

Recession Probability Models – August 2014

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 blog post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated August 12, 2014 using data through July) this “Yield Curve” model shows a 1.69% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 1.56% probability through June, and a chart going back to 1960 is seen at “Probability Of U.S. Recession Charts.” (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 August 4, 2014, currently shows a .36% probability using data through May.

Here is the FRED chart (last updated August 4, 2014) :

Probability of recession

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Marcelle Chauvet and Jeremy Piger; U.S. Recession Probabilities [RECPROUSM156N]; accessed August 13, 2014:

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 August 8 post titled “The August 2014 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 12.1% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1946.72 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the August 7, 2014 update (reflecting data through August 1) is -1.282.

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

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

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

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

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

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

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

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

The NFCI chart below was last updated on August 13, incorporating data from January 5,1973 to August 8, 2014, on a weekly basis.  The August 8, 2014 value is -.91:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 13, 2014:

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

The ANFCI chart below was last updated on August 13, incorporating data from January 5,1973 to August 8, 2014, on a weekly basis.  The August 8, 2014 value is -.59:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 13, 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 1947.42 as this post is written

NFIB Small Business Optimism – August 2014

The August NFIB Small Business Optimism report was released today, August 12.  The headline of the Press Release is “NFIB SBET: Small Business Optimism Ticks Up Slightly.”

The Index of Small Business Optimism increased .7 points in July to 95.7.

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

July’s Optimism Index technically rose 0.7 points to a reading of 95.7. There was little change in the 10 Index components other than outlook for expansion and business conditions which accounted for the small gain in the Index. Even though these improved, they still remain historically low.

also:

•    Sales.  The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months fell 1 point to a net negative 3 percent,  still one of the very best readings since 2007. Thirteen percent cited weak sales as their top business problem, one of the lowest readings since December, 2007, the peak of the expansion. Expected real sales volumes posted a 1 point decline, falling to a net 10 percent of owners expecting gains. 

also:

•    Credit Markets. Six percent of the owners reported that all their credit needs were not met, unchanged and only 2 points above the record low. Thirty percent reported all credit needs met, and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem compared to 22 percent citing taxes, 22 percent citing regulations and red tape and 13 percent citing weak sales. 

The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 5 percent; more owners expect that it will be “harder” to arrange financing than easier (a 2 point improvement). This is the most favorable reading about credit market conditions since 2006, occurring at a time when the Fed is terminating its aggressive QE3 policy.  

Here is a chart of the NFIB Small Business Optimism chart, as seen in the August 12 Doug Short post titled “Small Business Sentiment:  ‘Optimism Ticks Up Slightly’“ :

NFIB Small Business Optimism Index

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1930.33 as this post is written

Perceived Economic Conditions

In the February 24 post, titled “Economic Expansion, Recession Or Depression?”  I discussed whether the U.S. economy was then in an economic recovery, economic recession, or economic depression.

In that post, I highlighted the Marist Poll results of February 5, in which 61% of respondents believe that the U.S. economy is in a recession.

Recently, there have been another survey in which respondents were asked if they believe the U.S. is experiencing a recession.

This was the Wall Street Journal/NBC News poll, as seen in the August 5, 2014 Wall Street Journal article titled “WSJ/NBC Poll Finds Widespread Economic Anxiety.”  An excerpt:

The latest Journal poll of 1,000 adults, conducted between Wednesday and Sunday night, found some signs of improvement in American views of the economy. Half of those polled said the economy is improving, and 49% think the U.S. is still in a recession, down from 58% last summer and 77% in 2008.

As well, the Federal Reserve report released August 7, 2014, titled “Report on the Economic Well-Being of U.S. Households in 2013,” which was discussed in the previous post (“Financial Situation Experienced By Americans“) includes this finding, as seen on page 7, under the heading “Current Situation versus Five Years Ago” :

When asked to compare their current financial situation to their financial situation five years prior, 34 percent reported doing somewhat or much worse financially, 34 percent reported doing about the same financially, and 30 percent reported that they were either somewhat or much better off.  Given that respondents were being asked to compare their incomes to 2008, when the United States was in the depths of the financial crisis, the fact that over two-thirds of respondents reported being the same or worse off financially highlights the uneven nature of the recovery.

Additional details regarding the poll and survey results can be seen in the Wall Street Journal and Federal Reserve report mentioned above.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1936.81 as this post is written

Financial Situation Experienced By Americans

In the August 7, 2014 post (“Thoughts Concerning The Next Financial Crisis“) I mentioned a “widespread ‘paycheck to paycheck'” situation as well as other signs indicating widespread weak financial wherewithal.

Another recently released report provides details as to the financial situation experienced by Americans.  This report is the Federal Reserve report released August 7, 2014, titled “Report on the Economic Well-Being of U.S. Households in 2013.”  As described in the press release:

In its new Report on the Economic Well-Being of U.S. Households, the Federal Reserve Board provides a snapshot of the self-perceived financial and economic well-being of U.S. households and the issues they face, based on responses to the Board’s 2013 Survey of Household Economics and Decisionmaking. The report provides insight into numerous topics of current relevance to household finances, including: housing and living arrangements; credit access and behavior; education and student loan debt; savings; retirement; and health expenses.

I found many of the statistics contained in the report to be disconcerting, including this excerpt seen on page 18 of the report, contained within the “Emergency Savings” section:

Respondents were asked how they would pay for an emergency expense that came along and cost $400. Just under half (48 percent) reported that they could fairly easily
handle such an expense, paying for it entirely using cash, money currently in their checking/savings account, or on a credit card that they would pay in full at their next statement. The remainder indicated that such an expense would be more challenging to
handle: respondents indicated that they simply could not cover the expense (19 percent); would have to sell something (9 percent); or would have to rely on one or more means of borrowing to pay for at least part of the expense, including paying with a credit card that they pay off over time (17 percent), borrowing from friends or family (12 percent), or using a payday loan (4 percent).

Additional details are found in the report mentioned above.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1920.24 as this post is written