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 6, 2018 update (reflecting data through November 30, 2018) is -.889.

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 12, 2018 incorporating data from January 8, 1971 through December 7, 2018, on a weekly basis.  The December 7 value is -.76:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 12, 2018:  
http://research.stlouisfed.org/fred2/series/NFCI

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The ANFCI chart below was last updated on December 12, 2018 incorporating data from January 8, 1971 through December 7, 2018, on a weekly basis.  The December 7 value is -.54:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 12, 2018:  
http://research.stlouisfed.org/fred2/series/ANFCI

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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 2666.89 as this post is written

NFIB Small Business Optimism – November 2018

The November NFIB Small Business Optimism report was released today, December 11, 2018. The headline of the Economic Trends report is “Small Business Optimism Remains Historically HIgh In November.”

The Index of Small Business Optimism decreased in November by 2.6 points to 104.8.

Here is an excerpt that I find particularly notable (but don’t necessarily agree with):

Small business optimism posted a modest decline in November with a reading of 104.8, while continuing its exceptionally strong two-year trend, according to the NFIB Small Business Optimism Index. Slightly more than half of the decline was attributable to Expected Business Conditions and Expected Real Sales. Increases in compensation tied a near 30-year high as owners seek to attract more qualified candidates. An increasing percentage of owners reported capital outlays and higher sales.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the December 11 Doug Short post titled “NFIB Small Business Survey…“:

NFIB Small Business Optimism Survey

Further details regarding small business conditions can be seen in the full November 2018 NFIB Small Business Economic Trends (pdf) report.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2646.95 as this post is written

Building Financial Danger – December 10, 2018 Update

My overall analysis indicates a continuing elevated and growing level of financial danger which contains many worldwide and U.S.-specific “stresses” of a very complex nature. I have written numerous posts in this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.

Also of ongoing immense importance is the existence of various immensely large asset bubbles, a subject of which I have extensively written.  While all of these asset bubbles are wildly pernicious and will have profound adverse future implications, hazards presented by the bond market bubble are especially notable.

Predicting the specific 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. With that being said, my analyses continue to indicate that a near-term exceedingly large (from an ultra-long term perspective) stock market crash – that would also involve (as seen in 2008) various other markets as well – will occur.

(note: the “next crash” and its aftermath has great significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts in the “Economic Depression” category)

As reference, below is a daily chart since 2008 of the S&P500 (through December 7, 2018 with a last price of 2633.08), depicted on a LOG scale, indicating both the 50dma and 200dma as well as price labels:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

S&P500 chart since 2008

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2631.23 as this post is written

Recession Probability Models – December 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 December 6, 2018 using data through November) this “Yield Curve” model shows a 15.7683% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 14.1197% probability through October, 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 December 3, 2018, currently shows a .58% probability using data through September.

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

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed December 10, 2018:  
http://research.stlouisfed.org/fred2/series/RECPROUSM156N

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The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the November 15, 2018 post titled “The November 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 19.55% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2633.08 as this post is written

“Not In Labor Force” Statistic – As Of December 2018

In the November 13, 2013 post (“Not In Labor Force Statistic“) I featured editorial commentary from the Wall Street Journal, as well as an accompanying long-term chart, with regard to the number of people not working.

Also, on February 9, 2015 I wrote another post titled “Unemployment And The ‘Not In Labor Force’ Statistic,” in which I discussed various facets of this measure.

Below is an updated chart regarding this statistic.  The current figure, last updated on December 7, 2018 depicting data through November 2018, is 96.043 million people (Not Seasonally Adjusted):

Not in Labor Force

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Not In Labor Force [LNU05000000] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018:
http://research.stlouisfed.org/fred2/series/LNU05000000

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2640.45 as this post is written

Average Hourly Earnings Trends

I have written many blog posts concerning the worrisome trends in income and earnings.

Along these lines, one of the measures showing disconcerting trends is that of hourly earnings.

While the concept of hourly earnings can be defined and measured in a variety of ways, below are a few charts that I believe broadly illustrate problematic trends.

The first chart depicts Average Hourly Earnings Of All Employees: Total Private (FRED series CES0500000003)(current value = $27.35):

(click on chart to enlarge image)(chart last updated 12-7-18)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of All Employees:  Total Private [CES0500000003] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018: 
http://research.stlouisfed.org/fred2/series/CES0500000003

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This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 12-7-18)

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There are slightly different measures available from a longer-term perspective. Pictured below is another measure, the Average Hourly Earnings of Production and Nonsupervisory Employees – Total Private (FRED series AHETPI)(current value = $22.95):

(click on chart to enlarge image)(chart last updated 12-7-18)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of Production and Nonsupervisory Employees:  Total Private [AHETPI] ; U.S. Department of Labor: Bureau of Labor Statistics;  accessed December 7, 2018: 
http://research.stlouisfed.org/fred2/series/AHETPI

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Pictured below is this AHETPI measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 12-7-18)

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I will continue to actively monitor these trends, especially given the post-2009 dynamics.

_________

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 2632.81 this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of December 7, 2018

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 3.7% unemployment rate:

(click on charts to enlarge images)(charts updated as of 12-7-18)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilian Unemployment Rate [UNRATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018: 
http://research.stlouisfed.org/fred2/series/UNRATE

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Here is the U-6 chart, currently showing a 7.6% unemployment rate:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons  [U6RATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018:  
http://research.stlouisfed.org/fred2/series/U6RATE

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2650.88 as this post is written

3 Critical Unemployment Charts – December 2018

As I have commented previously, as in the October 6, 2009 post (“A Note About Unemployment Statistics”), in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction; they serve to understate the severity of unemployment.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated unemployment (and, in the third chart, employment) situation.

The three charts below are from the St. Louis Fed site.  Here is the Median Duration of Unemployment (current value = 8.9 weeks):

(click on charts to enlarge images)(charts updated as of 12-7-18)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Median Duration of Unemployment [UEMPMED] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018:  
http://research.stlouisfed.org/fred2/series/UEMPMED

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Here is the chart for Unemployed 27 Weeks and Over (current value = 1.253 million):

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilians Unemployed for 27 Weeks and Over [UEMP27OV] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018: 
http://research.stlouisfed.org/fred2/series/UEMP27OV

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Here is the chart for Total Nonfarm Payrolls (current value = 149.893 million):

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018:  
https://research.stlouisfed.org/fred2/series/PAYEMS

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Our unemployment problem is severe.  The underlying dynamics of the current – and especially future – unemployment situation remain exceedingly worrisome.    These dynamics are numerous and complex, and greatly lack recognition and understanding.

My commentary regarding unemployment is generally found in the “Unemployment” category.  This commentary includes the page titled “U.S. Unemployment Trends,” which discusses various problematical issues concerning the present and future employment situation.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2652.37 as this post is written

Total Household Net Worth As Of 3Q 2018 – Two Long-Term Charts

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1945:Q4 through 2018:Q3).  The last value (as of the December 6, 2018 update) is $109.038604 Trillion:

(click on each chart to enlarge image)

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Also of interest is the same metric presented on a “Percent Change from a Year Ago” basis, with a current value of 8.2%:

Data Source: FRED, Federal Reserve Economic Data, Board of Governors of the Federal Reserve System; accessed December 6, 2018; 
http://research.stlouisfed.org/fred2/series/TNWBSHNO

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2695.95 as this post is written

Total Household Net Worth As A Percent Of GDP 3Q 2018

The following chart is from the CalculatedRisk post of December 6, 2018 titled “Fed’s Flow of Funds:  Household Net Worth increased in Q3.” It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from the Federal Reserve’s Z.1 report, “Financial Accounts of the United States“:

(click on chart to enlarge image)

 

U.S. Total Household Net Worth As A Percentage Of GDP

As seen in the above-referenced CalculatedRisk post:

The net worth of households and nonprofits rose to $109.0 trillion during the third quarter of 2018. The value of directly and indirectly held corporate equities increased $1.2 trillion and the value of real estate increased $0.2 trillion.

also:

The Fed estimated that the value of household real estate increased to $25.4 trillion in Q3. The value of household real estate is now above the bubble peak in early 2006 – but not adjusted for inflation, and this also includes new construction.

As I have written in previous posts concerning this Household Net Worth (as a percent of GDP) topic:

As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength.  The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.

also:

I could extensively write about various interpretations that can be made from this chart.  One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2664.37 as this post is written