Just a quick administrative note…
For those unaware, I maintain a separate site that mirrors all of the blog posts found on this site. This second site can be accessed should there be problems accessing this site.
Here is the link to this second site:
http://economicgreenfield.blogspot.com/
In various past posts I have written of the challenges businesses face in pricing, given today’s economic environment. One aspect that I mentioned in the December 16, 2010 and April 25, 2011 posts was how the PPI (Producer Price Index) growth was significantly outpacing that of the CPI.
Since those posts, this PPI-CPI growth rate issue has remained notable. Doug Short, on his blog, has posted a few interesting charts illustrating this concept from a long-term historical viewpoint. Both of the charts shown below are from his January 20, 2012 post titled “Profit Margin Squeeze: New Update.”
First, here is a chart that shows the ratio, in the PPI, of Crude Goods to Finished Goods. The CPI is plotted below, in green. This situation, as depicted, is problematical for firms, and the overall economy, on a number of fronts:
(click on chart images to enlarge)
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Second, a chart that shows data from the Philadelphia Federal Reserve regarding Prices Paid vs. Prices Received, with Inflation (CPI) and Recession periods also shown:
I believe that what this chart depicts is notable in a variety of ways. As shown, we are experiencing a unique situation, and while the index level has recently subsided, we are near historical peaks for the 12-month moving average (MA) as shown.
I believe this data and its implications for businesses and the economy at large is of great concern. Seeing how this situation resolves will be very interesting. This is especially so given the vulnerability of the U.S. Dollar to a substantial decline, a topic that I have written extensively about.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1316 as this post is written
Recently Deloitte released their “CFO Signals” report for 4th Quarter 2011.
As seen in page 2 of the full (pdf) report, “Eighty four CFOs responded during the two weeks ended November 29. Over 70% are from public companies, and over 75% are from companies with more than $1B in annual revenue.”
Here are some excerpts that I found notable:
from page 6:
CFOs now project average sales gains of about 6.3%* (down from last quarter’s 6.8%* and a new low for this survey), but 87% do expect year-over-year gains. Earnings growth expectations rebounded from their 18-month low of 9.3%* last quarter to 10.1%* this quarter. Projections for U.S. firms were above average at 10.9%* (10.5%* last quarter), with Canada lower at 7.4%* (8%* last quarter).
from page 6:
Despite their pessimistic sentiment, many CFOs appear to expect a brighter future. Few CFOs see economic conditions improving by the middle of 2012, but nearly 90% expect their home economies to be in better shape three years from now.
from page 8:
From late 2010 through the first part of 2011, CFOs’ concerns about global and domestic economies took a back seat to worries about internal missteps and detrimental government policy as barriers to growth. But two quarters ago, apparently sparked by rising sovereign debt issues in Europe, economic concerns began to climb back to the top of CFOs most worrisome risks. Recent escalation of the euro-zone financial crisis has only fueled the climb.
from page 12, regarding “Top Company Challenges” :
Revenue from existing markets again tops this quarter’s list with 54% of all CFOs and six of eight sectors naming it the top challenge (Energy/Resources and Healthcare/ Pharma are the exceptions). Revenue from new markets rebounded to 27%, up from 20% last quarter. It is a top concern for Technology, T/M/E, and Services.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1315.38 as this post is written
On March 28, 2011 I wrote a post (“The STLFSI“) about the STLFSI (St. Louis Fed’s Financial Stress Index) which is supposed to measure stress in the financial system. Here is the most recent chart. This chart was last updated on January 19, incorporating data from 12-31-93 to 1-13-12 on a weekly basis. The present level is .64 :
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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.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1314.50 as this post is written
On January 18, Gallup published poll results titled “Half in U.S. Feel Worse Off Financially.”
The poll asked various questions, including this one :
Would you say that you are financially better off now than you were a year ago, or are you financially worse off now?
An excerpt from the results, as discussed in the aforementioned January 18 release:
Nearly half of U.S. adults, 49%, say they are worse off financially today than a year ago, while 29% say they are better off and 21% volunteer that their finances haven’t changed. The percentage rating their current finances negatively compared with a year ago is down from the high of 55% recorded twice in 2008, but is still among the highest in Gallup’s four decades of measuring this attitude.
The chart shown in the poll results shows that the “% Worse off” results are notably elevated since latter-2008, relative to the other results going back to 1976.
While the question asked is somewhat subjective, these poll results seem to further support other information (much of which has been highlighted in previous blog posts) that despite an economic recovery/economic expansion (as officially designated by NBER) since June 2009 a large percentage of people in the United States are not seeing their personal financial condition improve.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1310.79 as this post is written
The January Wall Street Journal Economic Forecast Survey was published on January 13, 2012. The headline is “Economists Split Over Additional Fed Action.”
The commentary largely focuses on when, and if, the Federal Reserve will do another round of “bond purchases.”
An excerpt from the article:
Of the 22 economists who expect more bond buying from the central bank, 19 forecast that it would take place before June. On average, they expect a new program would total less than $500 billion, making it the smallest one yet. The first round of bond buying, initiated by the Fed in 2008 and ended in 2010, totaled $1.25 trillion in mortgage-backed securities, $300 billion in Treasury bonds and $175 billion in federal agency debt. The second round ended in June 2011 and consisted of $600 billion in purchases of U.S. Treasurys.
Also, as seen in the Q&A section (in the spreadsheet), the economists put the probability of a U.S. recession in the next 12 months at 19%.
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The current average forecasts among economists polled include the following:
GDP:
full-year 2011 : 1.7%
full-year 2012: 2.4%
full-year 2013: 2.8%
full-year 2014: 3.1%
Unemployment Rate:
December 2012: 8.2%
December 2013: 7.7%
December 2014: 7.0%
10-Year Treasury Yield:
December 2012: 2.56%
December 2013: 3.21%
December 2014: 3.82%
CPI:
December 2012: 2.2%
December 2013: 2.4%
December 2014: 2.6%
Crude Oil ($ per bbl):
for 12/31/2012: $99.41
(note: I comment upon this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)
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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 necessarily 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 1293.67 as this post is written
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 that the U.S. was “tipping into recession.” I featured excerpts from their statement in the October 3 post (“ECRI Recession Statement Of September 30 – Notable Excerpts“)
Below is a long-term chart, on a weekly basis through January 13, of the ECRI WLI (defined at ECRI’s glossary) from Doug Short’s blog post of January 13 titled “ECRI Recession Call: Growth Index Contracts Further” :
(click on charts to enlarge images)
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This next chart depicts, on a long-term basis, the WLI, Gr. through January 13:
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1289.09 as this post is written
Starting on May 3, 2010 I have written posts concerning the notable divergence that has occurred between the S&P500 and Chinese (Shanghai Composite) stock markets.
The chart below illustrates this divergence; it shows the S&P500 vs. the Shanghai Composite on a daily basis, since 2006:
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
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It is notable that the Shanghai Composite led the SPX (S&P500) significantly in late ’08 – early ’09, yet it has been declining lately.
I continue to find this divergence between the S&P500 and Shanghai Composite to be notable and disconcerting, on an “all things considered” basis.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1292.48 as this post is written
On October 17 I wrote a post titled “Danger Signs In The Stock Market, Financial System And Economy.” This post is a brief fourth update to that post.
My overall analysis indicates a continuing elevated and growing level of danger.
I continue to believe the October 4 1074.77 low on the S&P500 will not be a “lasting bottom”, and the dynamics as described in the October 20 post (“Thoughts On The Next Stock Market Decline“) and the likelihood of longer-term substantial “downside” still apply.
Furthermore, as I mentioned in that October 17 post:
Of further concern is whether, and when, the above-mentioned problems might reach a point at which another (financial system) crash occurs. I am particularly concerned about the prospects of the next crash for a number of reasons, of which I will elaborate upon shortly.
(The elaboration on this “next crash” was subsequently addressed in the post of January 6, 2012 titled “The Next Crash And Its Significance.”)
Predicting the timing and extent of a stock market crash is always difficult, and the immense complexity of today’s economic situation makes such a prediction even more challenging. That being said, my analyses indicate that the danger inherent in the financial system has reached a level at which a stock market crash – that would also involve (as seen in 2008) various other markets as well – has reached a level at which a near-term crash is (at least) a significant concern.
As reference, below is a 1-year daily chart of the S&P500, indicating both the 50dma and 200dma:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1292.08 as this post is written
Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”
Of course, there are many other employment charts that can be displayed as well.
For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective. Both charts are from the St. Louis Fed site. The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:
Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.
Here is the U-3 chart, currently showing a 8.5% unemployment rate:
(click on charts to enlarge images)(charts updated as of 1-6-12)
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Here is the U-6 chart, currently showing a 15.2% unemployment rate:
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1277.81 as this post is written