Charts Indicating Economic Weakness – August 2018

U.S. Economic Indicators

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.  This post is the latest in a series of posts indicating U.S. economic weakness or a notably low growth rate.

While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.  As seen in the August 2018 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 3.0% GDP growth in 2018 and 2.4% GDP growth in 2019.  However,  there are other broad-based economic indicators that seem to imply a weaker growth rate.

As well, it should be remembered that GDP figures can be (substantially) revised.

Charts Indicating U.S. Economic Weakness

Below are a small sampling of charts that depict weak growth or contraction, and a brief comment for each:

Total Federal Receipts

“Total Federal Receipts” growth continues to be intermittent in nature since 2015.  As well, the level of growth does not seem congruent to the (recent) levels of economic growth as seen in aggregate measures such as Real GDP.

“Total Federal Receipts” through July had a last value of $225,266 Million.  Shown below is  the measure displayed on a “Percent Change From Year Ago” basis with value -2.9%, last updated August 10, 2018:

MTSR133FMS_8-10-18 225266 -2.9 Percent Change From Year Ago

source:  U.S. Department of the Treasury. Fiscal Service, Total Federal Receipts [MTSR133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed August 11, 2018:

https://fred.stlouisfed.org/series/MTSR133FMS

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Taxes On Corporate Income

Another measure that depicts weakness is that of “Federal government current tax receipts: Taxes on corporate income.”  Through the first quarter the value is $149.029 Billion.  Shown below is the chart, last updated July 27, 2018:

B075RC1Q027SBEA_7-27-18 149.029

source:  U.S. Bureau of Economic Analysis, Federal government current tax receipts: Taxes on corporate income [B075RC1Q027SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis;  accessed August 9, 2018:

https://fred.stlouisfed.org/series/B075RC1Q027SBEA

Here is a chart of the measure, on a “Percent Change From Year Ago” basis with value of -48.6%, through the first quarter, last updated July 27, 2018:

B075RC1Q027SBEA Percent Change From Year Ago

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The Aruoba-Diebold-Scotti Business Conditions Index (ADS Index)

While the 2nd quarter GDP (Advance Estimate)(pdf) was 4.1%, there are other broad-based economic indicators that seem to imply a weaker growth rate.

Among the broad-based economic indicators that imply weaker growth is that of the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index.)  Below is a two-year chart of the index through August 4, 2018, with a value of .047, as of the August 8 update:

ADS Index

source:  Federal Reserve Bank of Philadelphia, Aruoba-Diebold-Scotti Business Conditions Index (ADS Index)

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Total Construction Spending:  Commercial

“Total Private Construction Spending: Commercial” is a measure of construction exhibiting weak YoY growth.   This measure through June had a last value of $90,991 Million.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with a value of 1.1%, last updated August 1, 2018:

TLCOMCONS_8-1-18 90991 1.1 Percent Change From Year Ago

source:  U.S. Bureau of the Census, Total Construction Spending: Commercial [TLCOMCONS], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed August 9, 2018:

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

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Real Hourly Earnings

The level and growth rates of wages and household earnings continues to be (highly) problematical.  I have extensively discussed these worrisome trends in income and earnings.

As seen in many measures the problem is chronic (i.e long-term) in nature.

Shown below is a chart depicting the 12-month percent change in real average hourly and weekly earnings for private sector employees from June 2008 – June 2018.  (July 2018 was unchanged from June 2018, and it decreased .2% YoY (i.e. compared to July 2017.))  As seen in the chart below, growth in this measure over the time period depicted has been intermittent, volatile, and, especially since 2017, weak:

Real Average Hourly Earnings

source:  Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily, Real average hourly earnings unchanged from June 2017 to June 2018 on the Internet at https://www.bls.gov/opub/ted/2018/real-average-hourly-earnings-unchanged-from-june-2017-to-june-2018.htm(visited August 10, 2018).

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate economic weakness or economic contraction, if not outright (gravely) problematical economic conditions.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2833.28 as this post is written

The August 2018 Wall Street Journal Economic Forecast Survey

The August 2018 Wall Street Journal Economic Forecast Survey was published on August 9, 2018.  The headline is “Growth Seen Hitting 3% in 2018, but Risks to Outlook Mount After This Year.”

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.

An excerpt:

The average forecast for growth in 2019 was 2.4%, little changed in recent months. By 2020, the average forecaster projects economic growth will slow to 1.8%. That is down from estimates earlier this year of 2%.

Trump administration officials disagree with these projections. The White House has said 3% growth or better can be sustained. Other government forecasters, including the Federal Reserve, Congressional Budget Office and International Monetary Fund all project a slowdown from the growth rate of 2018. The Fed, for example, sees 2% growth in 2020 and 1.8% growth in the long run.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 18.3%. The individual estimates, of those who responded, ranged from 1% to 50%.  For reference, the average response in July’s survey was 17.71%.

As stated in the article, the survey’s respondents were 57 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted August 3 – August 7, 2018.

The current average forecasts among economists polled include the following:

GDP:

full-year 2018:  3.0%

full-year 2019:  2.4%

full-year 2020:  1.8%

Unemployment Rate:

December 2018: 3.7%

December 2019: 3.6%

December 2020: 3.9%

10-Year Treasury Yield:

December 2018: 3.17%

December 2019: 3.46%

December 2020: 3.50%

CPI:

December 2018:  2.5%

December 2019:  2.4%

December 2020:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2018: $69.91

for 12/31/2019: $67.52

for 12/31/2020: $65.66

(note: I highlight 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 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 2833.28 as this post is written

Philadelphia Fed – 3rd Quarter 2018 Survey Of Professional Forecasters

The Philadelphia Fed 3rd Quarter 2018 Survey of Professional Forecasters was released on August 10, 2018.  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 2018:  2.8%

full-year 2019:  2.8%

full-year 2020:  1.8%

full-year 2021:  1.5%

Unemployment Rate: (annual average level)

for 2018: 3.9%

for 2019: 3.6%

for 2020: 3.7%

for 2021: 4.0%

Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 6.6%, 10.5%, 13.2%, 16.4% and 19.6% for each of the quarters from Q3 2018 through Q3 2019, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2027) 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 2.0% to 2.5% range.

_____

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 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 2826.21 as this post is written

Deflation Probabilities – August 9, 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 August 9, 2018 update states the following:

The 2018–23 deflation probability was 5 percent on August 8, unchanged from August 1. The 2017–22 deflation probability was 3 percent on August 8, down from 4 percent on August 1. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2017 and early 2018, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2017 and April 2018 and the 10-year TIPS issued in July 2012 and July 2013.

_________

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 2858.16 as this post is written

Building Financial Danger – August 9, 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 August 8, 2018 with a last price of 2857.70), 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 since 2008

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2857.70 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 2, 2018 update (reflecting data through July 27, 2018) is -1.208.

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 8, 2018 incorporating data from January 8, 1971 through August 3, 2018, on a weekly basis.  The August 3, 2018 value is -.84:

NFCI_8-8-18 -.84

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 8, 2018:

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

The ANFCI chart below was last updated on August 8, 2018 incorporating data from January 8,1971 through August 3, 2018, on a weekly basis.  The August 3 value is -.60:

ANFCI_8-8-18 -.60

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 8, 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 2857.70 as this post is written

Recession Probability Models – August 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 August 2, 2018 using data through July) this “Yield Curve” model shows a 13.5994% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 12.5063% probability through June, 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 August 1, 2018, currently shows a 1.70% probability using data through May.

Here is the FRED chart (last updated August 1, 2018):

RECPROUSM156N

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed August 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 July 12 post titled “The July 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 17.71% 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 2850.40 as this post is written

Monthly Changes In Total Nonfarm Payrolls – August 3, 2018 Update

For reference purposes, below are five charts that display growth in payroll employment, as depicted by the Total Nonfarm Payrolls measures (FRED data series PAYEMS).

PAYEMS, which is seasonally adjusted, is defined in Financial Reserve Economic Data [FRED] as:

All Employees: Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed. This measure accounts for approximately 80 percent of the workers who contribute to Gross Domestic Product (GDP).

This measure provides useful insights into the current economic situation because it can represent the number of jobs added or lost in an economy. Increases in employment might indicate that businesses are hiring which might also suggest that businesses are growing. Additionally, those who are newly employed have increased their personal incomes, which means (all else constant) their disposable incomes have also increased, thus fostering further economic expansion.

Generally, the U.S. labor force and levels of employment and unemployment are subject to fluctuations due to seasonal changes in weather, major holidays, and the opening and closing of schools. The Bureau of Labor Statistics (BLS) adjusts the data to offset the seasonal effects to show non-seasonal changes: for example, women’s participation in the labor force; or a general decline in the number of employees, a possible indication of a downturn in the economy. To closely examine seasonal and non-seasonal changes, the BLS releases two monthly statistical measures: the seasonally adjusted All Employees: Total Nonfarm (PAYEMS) and All Employees: Total Nonfarm (PAYNSA), which is not seasonally adjusted.

The series comes from the ‘Current Employment Statistics (Establishment Survey).’

The source code is: CES0000000001

The first chart shows the monthly change in Total Nonfarm Payrolls from the year 2000 through the current July 2018 report, with a value of 157,000:

(click on charts to enlarge images)

PAYEMS_8-3-18 157 change

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 August 3, 2018;

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

The second chart shows a longer-term chart of the same month-over-month change in Total Nonfarm Payrolls (reports of January 1940 through the present report of July 2018):

PAYEMS monthly change since 1940

The third chart shows the aggregate number of Total Nonfarm Payrolls, from January 1939 – July 2018 (July 2018 value of 149.128 million):

PAYEMS_8-3-18 149128

The fourth chart shows this same aggregate number of Total Nonfarm Payrolls measure as seen above but presented on a LOG scale:

PAYEMS_8-3-18 149128 LOG scale

Lastly, the fifth chart shows the Total Nonfarm Payrolls number on a “Percent Change from Year Ago” basis from January 1940 – July 2018: (July 2018 value of 1.6%)

PAYEMS_8-3-18 149128 1.6 Percent Change From Year Ago

_________

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 2840.35 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 = $27.05):

(click on chart to enlarge image)(chart last updated 8-3-18)

CES0500000003

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 August 3, 2018:

http://research.stlouisfed.org/fred2/series/CES0500000003

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 8-3-18)

CES0500000003 Percent Change From Year Ago

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 = $22.65):

(click on chart to enlarge image)(chart last updated 8-3-18)

AHETPI

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 August 3, 2018:

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

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 8-3-18)

AHETPI Percent Change From Year Ago

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 2835.97 this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of August 3, 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 3.9% unemployment rate:

(click on charts to enlarge images)(charts updated as of 8-3-18)

unemployment rate

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 August 3, 2018;

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

Here is the U-6 chart, currently showing a 7.5% unemployment rate:

U-6 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 August 3, 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 2832.93 as this post is written