Category Archives: Economic Forecasts

The January 2018 Wall Street Journal Economic Forecast Survey

The January 2018 Wall Street Journal Economic Forecast Survey was published on January 11, 2018.  The headline is “Economists Credit Trump as Tailwind for U.S. Growth, Hiring and Stocks.”

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:

Asked to rate Mr. Trump’s policies and actions to date, a majority of economists said he had been somewhat or strongly positive for job creation, gross domestic product growth and the stock market. Most also said he had been either neutral or positive for the country’s long-term growth trajectory, while his influence on financial stability was seen as largely neutral.

also:

Looking forward, the economists surveyed in recent days had high hopes for 2018.

On average, the forecasters predicted GDP would expand a healthy 2.7% this year. They saw the unemployment rate, which was 4.1% in December, falling to 3.9% by midyear and 3.8% in December. The pace of hiring was expected to slow further, with monthly nonfarm payroll gains set to average 165,000 in 2018. Monthly job gains averaged 171,000 in 2017 and 187,000 in 2016, according to the Labor Department.

The probability of a recession in the next 12 months ticked down in January to 13%, the lowest average since September 2015. More than two-thirds of forecasters said they saw the risks to the growth outlook as tilted to the upside.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 13.11%. The individual estimates, of those who responded, ranged from 0% to 30%.  For reference, the average response in December’s survey was 14.12%.

As stated in the article, the survey’s respondents were 68 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted January 5 – January 9, 2018.

The current average forecasts among economists polled include the following:

GDP:

full-year 2017:  2.5%

full-year 2018:  2.7%

full-year 2019:  2.2%

full-year 2020:  2.0%

Unemployment Rate:

December 2018: 3.8%

December 2019: 3.8%

December 2020: 4.1%

10-Year Treasury Yield:

December 2018: 2.98%

December 2019: 3.31%

December 2020: 3.41%

CPI:

December 2017:  2.1%

December 2018:  2.1%

December 2019:  2.3%

December 2020:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2018: $58.31

for 12/31/2019: $57.46

for 12/31/2020: $58.91

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

_____

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2767.56 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 January 4, 2018 update (reflecting data through December 29, 2017) is -1.562.

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 January 10, 2018 incorporating data from January 8, 1971 through January 5, 2018, on a weekly basis.  The January 5, 2018 value is -.91:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 10, 2018:

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

The ANFCI chart below was last updated on January 10, 2018 incorporating data from January 8,1971 through January 5, 2018, on a weekly basis.  The January 5 value is -.76:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 10, 2018:

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 2745.52 as this post is written

The Yield Curve – January 10, 2018

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-stated 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 from January 1, 1990 through January 9, 2018.  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 January 9, 2018 closing value of .57%.  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)

Yield Curve proxy

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 through January 8, 2018 (updated January 9, 2018) with recessionary periods shown in gray. This chart shows a value of .53%:

T10Y2Y

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 January 10, 2018:

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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2751.29 as this post is written

CEO Confidence Surveys 4Q 2017 – Notable Excerpts

On January 4, 2018, The Conference Board released the 4th Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 63, up from 59 in the third quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this January 4 Press Release include:

CEOs’ assessment of current economic conditions improved considerably. Currently, 71 percent say conditions are better compared to six months ago, up from 56 percent in the third quarter. However, CEOs are moderately less optimistic in their appraisal of current conditions in their own industries. Now, 49 percent say conditions in their own industries have improved, down from 53 percent last quarter.

Looking ahead, CEOs’ expectations regarding the short-term outlook was significantly better. Now, 47 percent expect economic conditions to improve over the next six months, compared to just 39 percent last quarter. CEOs were also more upbeat about short-term prospects in their own industries over the next six months, with 41 percent anticipating conditions will improve, versus 36 percent in the third quarter of 2017.

The Business Roundtable last month also released its CEO Economic Outlook Survey for the 4th Quarter of 2017.   Notable excerpts from the December 5, 2017 release, titled “Business Roundtable CEO Economic Outlook Index Reaches Highest Level in Nearly Six Years“:

The Business Roundtable Q4 CEO Economic Outlook Index — a composite of CEO projections for sales and plans for capital spending and hiring over the next six months — increased to 96.8 for the fourth quarter of 2017, up from 94.5 in the third quarter.

The Index reached its highest level since the first quarter of 2012 (96.9). The Index has significantly exceeded its historical average of 80.3 for four quarters in a row and remains well above 50, suggesting that CEOs continue to expect the U.S. economy to expand at a healthy pace.

CEO plans for capital investment rose to their highest level since the second quarter of 2011. Expectations for sales picked up by 5.1 points. Hiring plans dipped 4.5 points from Q3, but remain near their highest level in four years.

In their first GDP estimate for 2018, CEOs project 2.5 percent GDP growth for the year.

Additional details can be seen in the sources mentioned above.

_____

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2747.71 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 January 4, 2018 update (reflecting data through December 29, 2017) is -1.562.

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 January 4, 2018 incorporating data from January 8, 1971 through December 29, 2017, on a weekly basis.  The December 29, 2017 value is -.89:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 4, 2018:

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

The ANFCI chart below was last updated on January 4, 2018 incorporating data from January 8,1971 through December 29, 2017, on a weekly basis.  The December 29 value is -.74:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 4, 2018:

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 2723.93 as this post is written

Deflation Probabilities – January 4, 2018 Update

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

As stated on the site:

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

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

As for the current weekly reading, the January 4, 2018 update states the following:

The 2017–22 deflation probability has been 0 percent since December 18. The 2016–21 deflation probability was 1 percent on January 3, up from 0 percent on December 20. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2016 and early 2017, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2016 and April 2017 and the 10-year TIPS issued in July 2011 and July 2012.

_________

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2724.39 as this post is written

Recession Probability Models – January 2018

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 January 3, 2018 using data through December) this “Yield Curve” model shows a 11.4585% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 10.9539% 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 January 3, 2018, currently shows a .04% probability using data through October.

Here is the FRED chart (last updated January 3, 2018):

RECPROUSM156N_1-3-18 .04 percent

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed January 4, 2018:

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 December 13 post titled “The December 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 14.12% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2713.06 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – December 29, 2017 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.

Below are three long-term charts, from Doug Short’s ECRI update post of December 29, 2017 titled “ECRI Weekly Leading Index…”  These charts are on a weekly basis through the December 29, 2017 release, indicating data through December 22, 2017.

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:

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 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 2685.19 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the December 21, 2017 update (reflecting data through December 15, 2017) is -1.527.

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

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

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

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

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

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

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

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

The NFCI chart below was last updated on December 28, 2017 incorporating data from January 8, 1971 through December 22, 2017, on a weekly basis.  The December 22, 2017 value is -.92:

NFCI_12-28-17 -.92

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 28, 2017:

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

The ANFCI chart below was last updated on December 28, 2017 incorporating data from January 8,1971 through December 22, 2017, on a weekly basis.  The December 22 value is -.74:

ANFCI_12-28-17 -.74

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 28, 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 2683.10 as this post is written

Updates Of Economic Indicators December 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 December 2017 Chicago Fed National Activity Index (CFNAI) updated as of December 21, 2017:

The CFNAI, with current reading of .15:

CFNAI_12-21-17 .15

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

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

The CFNAI-MA3, with current reading of .41:

CFNAIMA3_12-21-17 .41

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

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

The ECRI WLI (Weekly Leading Index):

As of December 15, 2017 (incorporating data through December 8, 2017) the WLI was at 147.5 and the WLI, Gr. was at 3.5%.

A chart of the WLI,Gr., from Doug Short’s ECRI update post of December 15, 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 December 16, 2017:

ADS Index

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

As per the December 21, 2017 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased Again” (pdf) the LEI was at 130.9, the CEI was at 116.5, and the LAG was 125.6 in November.

An excerpt from the release:

“The U.S. LEI rose again in November, suggesting that solid economic growth will continue into the first half of 2018,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “In recent months, unemployment insurance claims have returned to pre-hurricane levels. In addition, improving financial indicators, new orders in manufacturing and historically high consumer sentiment have propelled the U.S. LEI even higher.”

Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of December 21, 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 2687.63 as this post is written