Category Archives: Economic Forecasts

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 March 23, 2017 update (reflecting data through March 17, 2017) is -1.329.

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 March 29, 2017 incorporating data from January 5,1973 through March 24, 2017, on a weekly basis.  The March 24, 2017 value is -.78:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 29, 2017:

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

The ANFCI chart below was last updated on March 29, 2017 incorporating data from January 5,1973 through March 24, 2017, on a weekly basis.  The March 24 value is .01:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 29, 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 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 2362.73 as this post is written

The Yield Curve – March 29, 2017

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 March 28, 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 March 28, 2017 closing value of 1.12%.  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 since 1990

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 March 27, 2017, with recessionary periods shown in gray. This chart shows a value of 1.11%:

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 March 29, 2017:

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2358.57 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 March 16, 2017 update (reflecting data through March 10, 2017) is -1.360.

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 March 22, 2017 incorporating data from January 5,1973 through March 17, 2017, on a weekly basis.  The March 17, 2017 value is -.78:

NFCI_3-22-17 -.78

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

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

The ANFCI chart below was last updated on March 22, 2017 incorporating data from January 5,1973 through March 17, 2017, on a weekly basis.  The March 17 value is -.01:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 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 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 2340.21 as this post is written

Updates Of Economic Indicators March 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 March 2017 Chicago Fed National Activity Index (CFNAI) updated as of March 20, 2017:

The CFNAI, with current reading of .34:

CFNAI

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, March 20, 2017;

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

The CFNAI-MA3, with current reading of .25:

CFNAIMA3

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis, March 20, 2017;

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

The ECRI WLI (Weekly Leading Index):

As of March 17, 2017 (incorporating data through March 10, 2017) the WLI was at 145.5 and the WLI, Gr. was at 9.6%.

A chart of the WLI,Gr., from Doug Short’s ECRI update post of March17, 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 March 11, 2017:

ADS Index

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

As per the March 17, 2017 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased in February” (pdf) the LEI was at 126.2, the CEI was at 114.9, and the LAG was 123.5 in February.

An excerpt from the  release:

“After six consecutive monthly gains, the U.S. LEI is at its highest level in over a decade. Widespread gains across a majority of the leading indicators points to an improving economic outlook for 2017, although GDP growth is likely to remain moderate,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Only housing permits contributed negatively to the LEI in February, reversing gains over the previous two months.”

Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of March 17, 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 2376.00 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – March 17, 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 March 17, 2017 titled “ECRI Weekly Leading Index…”  These charts are on a weekly basis through the March 17, 2017 release, indicating data through March 10, 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 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 2380.05 as this post is written

March 2017 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On March 15, 2017 the March Duke/CFO Global Business Outlook 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 – although I don’t necessarily agree with them:

Results also show that CFOs are feeling the most confident about economic growth than they’ve been in more than a dozen years, and they strongly support several of the president’s initiatives.

These findings and detailed analysis of tax and economic reforms are from the Duke University/CFO Global Business Outlook. The survey has been conducted for 84 consecutive quarters and spans the globe, making it the world’s longest-running and most comprehensive research on senior finance executives. This quarter, nearly 900 CFOs responded to the survey, which ended March 10. Results are for the U.S. unless stated otherwise.

also:

The Optimism Index jumped this quarter to 69 (on a 100-point scale), the highest level in 14 years and much higher than the long-run average of 60.

“The jump in business optimism is leading to strong hiring and spending plans for 2017,” Graham said. “Our analysis of past forecasts shows that the Optimism Index is an accurate predictor of GDP growth and employment over the next year.”

Sixty-one percent of U.S. firms plan to increase their payrolls in 2017, with an average increase of about 3 percent (median 1 percent). Wage hikes are expected to average nearly 4 percent. Capital spending is expected to increase 6 percent on average (median 3 percent), a notable improvement from flat or negative spending plans for most of 2016.

“There’s a disconnect here,” said Duke finance professor Campbell R. Harvey, founding director of the CFO Survey. “Despite the optimism, the high rate of employment growth and wages, and the substantial possibility of both corporate and individual tax cuts, CFOs have very pessimistic growth forecasts, where only 16.8 percent believe we can hit 3 percent growth in 2017. That is surprising.”

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 69, as seen below:

Duke CFO Optimism March 2017

It should be interesting to see how well the CFOs predict business and economic conditions going forward.   I discussed past 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 2381.38 as this post is written

The March 2017 Wall Street Journal Economic Forecast Survey

The March 2017 Wall Street Journal Economic Forecast Survey was published on March 16, 2017.  The headline is “WSJ Survey Of Economists See Growth Climbing in 2017 and 2018, Then Dissipating.”

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:

On average, forecasters expect 2.4% growth in 2017, compared with 2.2% prior to the election. Their increase for 2018 was more significant. They now expect 2.5% growth that year, compared with 2% in pre-election forecasts.

also:

Most remain optimistic for now. The Wall Street Journal’s survey of 61 academic, financial and business economists was conducted from March 10 to March 13, and found that 62% believe it is more likely growth will outperform than underperform.

By contrast, just 23% see risks to the downside. The odds of a recession in the next 12 months are placed at just 14%, down from 20% during the same month last year.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 14.41%. The individual estimates, of those who responded, ranged from 0% to 33%.  For reference, the average response in February’s survey was 15.09%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2016:  1.9%

full-year 2017:  2.4%

full-year 2018:  2.5%

full-year 2019:  2.1%

Unemployment Rate:

December 2017: 4.5%

December 2018: 4.4%

December 2019: 4.5%

10-Year Treasury Yield:

December 2017: 2.94%

December 2018: 3.39%

December 2019: 3.65%

CPI:

December 2017:  2.4%

December 2018:  2.4%

December 2019:  2.4%

Crude Oil  ($ per bbl):

for 12/31/2017: $54.70

for 12/31/2018: $57.31

(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 2381.38 as 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 March 9, 2017 update (reflecting data through March 3, 2017) is -1.335.

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 March 15, 2017 incorporating data from January 5,1973 through March 10, 2017, on a weekly basis.  The March 10, 2017 value is -.77:

NFCI

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

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

The ANFCI chart below was last updated on March 15, 2017 incorporating data from January 5,1973 through March 10, 2017, on a weekly basis.  The March 10 value is -.04:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 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 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 2381.13 as this post is written

Deflation Probabilities – March 9, 2017 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 2021.

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 March 9, 2017 update states the following:

The 2015–20 and 2016–21 deflation probabilities have remained at 0 percent since November 3 and January 17, respectively. These 2015–20 and 2016–21 deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2015 and early 2016, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2015 and April 2016 and the 10-year TIPS issued in July 2010 and July 2011. We will continue updating the deflation probabilities file and chart weekly but will discontinue social media and update alerts until probabilities move above 0 percent.

_________

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 2372.60 this post is written

Recession Probability Models – March 2017

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 March 3, 2017 using data through February) this “Yield Curve” model shows a 4.1727% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 4.0601% probability through January, 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 March 1, 2017, currently shows a .26% probability using data through December.

Here is the FRED chart (last updated March 1, 2017):

U.S. Recession Probability

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed March 6, 2017:

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 February 9 post titled “The February 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 15.09% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2383.12 as this post is written