Total Household Net Worth As Of 2Q 2018 – Two Long-Term Charts

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1945:Q4 through 2018:Q2).  The last value (as of the September 20, 2018 update) is $106.929235 Trillion:

(click on each chart to enlarge image)

U.S. Total Household Net Worth

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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%:

U.S. Total Household Net Worth Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Board of Governors of the Federal Reserve System; accessed September 21, 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 2932.84 as this post is written

Total Household Net Worth As A Percent Of GDP 2Q 2018

The following chart is from the CalculatedRisk post of September 20, 2018 titled “Fed’s Flow of Funds:  Household Net Worth increased in Q2.” 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)

Total Household Net Worth As A Percent Of GDP

As seen in the above-referenced CalculatedRisk post:

The net worth of households and nonprofits rose to $106.9 trillion during the second quarter of 2018. The value of directly and indirectly held corporate equities increased $0.8 trillion and the value of real estate increased $0.6 trillion.

also:

The Fed estimated that the value of household real estate increased to $25.4 trillion in Q2. 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 2930.31 as this post is written

Deloitte “CFO Signals” Report Q3 2018 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2018.

As seen in page 2 of the report, there were 137 survey respondents.  As stated:

“Each quarter (since 2Q10), CFO Signals has tracked the thinking and actions of CFOs representing many of North America’s largest and most influential companies.

All respondents are CFOs from the US, Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. For a summary of this quarter’s response demographics, please see the sidebars and charts on this page. For other information about participation and methodology, please contact nacfosurvey@deloitte.com.”

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the current/future status of the North American, European, and Chinese economies? Perceptions of North America declined, with 89% of CFOs rating current conditions as good (down from the survey high of 94% last quarter), and 45% expecting better conditions in a year (down from 52% and lowest in two years). Perceptions of Europe declined significantly to 32% and 23%, from 47% and 36%, respectively, and China declined to 37% and 27% from 55% and 31%. Page 6.

What is your perception of the capital markets? Seventy-three percent of CFOs say debt financing is attractive (same as last quarter). Attractiveness of equity financing increased for public company CFOs (from 36% to 42%) and for private company CFOs (from 45% to 53%). Seventy-one percent of CFOs now say US equities are overvalued—up from last quarter’s 63%. Page 7.

Sentiment

Overall, what risks worry you the most? CFOs express strong external concerns about geopolitical and economic events (especially around trade policy and interest rates). Similar to last quarter, they cite pressures to execute on their growth plans, voicing growing internal concerns about driving initiatives, and finding talent. Page 8.

Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index fell from last quarter’s +39 to +36 this quarter. Forty-eight percent of CFOs express rising optimism (same as last quarter), and 12% express declining optimism. Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a declining bias toward revenue growth over cost reduction (59% vs. 20%) and a slightly lower bias toward investing cash over returning it (56% vs. 19%). The bias toward current offerings over new ones shifted back to current offerings this quarter (43% vs. 37%), and the bias toward current geographies over new ones increased somewhat (67% vs. 16%). Page 10.

Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months? Revenue growth expectations declined from 6.3% to 6.1%. Earnings growth declined from 10.3% to 8.1%. Capital investment slid from 10.4% to 9.4%. Domestic hiring fell from 3.2% to 2.7%. Dividend growth rose sharply from 4.8% to 7.4% (highest level in eight years). Page 11.

from page 9:

Sentiment

Optimism regarding own-companies’ prospects

After hitting a new survey high in 1Q18, net optimism fell for the second consecutive quarter—despite a sharp increase in optimism in Mexico; Services and Healthcare/Pharma improved, and Technology declined sharply.

Own-company optimism

Net optimism declined for the second straight quarter after hitting a new high in 1Q18. This quarter’s net optimism declined to +36 from +39, reaching its lowest level since 3Q17. CFOs expressing rising optimism remained unchanged from last quarter (48%), while CFOs citing pessimism increased to 12% (up from 9%).

Net optimism for the US declined from +42 last quarter to +35 this quarter, below the two-year average. Canada declined from +33 to +27, while Mexico rose sharply from zero to +67—the highest level in four years.

Sentiment was particularly strong in Services (+75, a new high) and T/M/E (+50).

Healthcare/Pharma rose sharply from -33 to +33, while Technology declined sharply from +52 to +17.

Please see the full report for charts specific to individual industries and countries.

from page 11:

Expectations

Growth in key metrics, year-over-year

Coming off multi-year highs, most key growth metrics declined, but remained strong. Mexico led growth expectations (similar to last quarter), and Canada lagged. Dividends rose sharply, driven largely by Retail/Wholesale and Energy/Resources.

Revenue growth declined from 6.3% to 6.1%, but remains at one of the highest levels in the last four years.

Earnings growth declined from 10.3% to 8.1%, the lowest level this year. The US declined, falling below its two-year average. Canada fell sharply to its lowest this year; Mexico also fell sharply, in line with its three-year average. Technology and Retail/Wholesale are highest; Energy/Resources and Services are lowest.

Capital investment declined from 10.4% to 9.4%, the second consecutive decline, but remains above the two-year average. The US fell from recent highs, but remains above its two-year average. Canada rose sharply and is above its twoyear average; Mexico rose sharply to its third highest level in the last six years. Energy/Resources and Retail/Wholesale are highest, Healthcare/Pharma and T/M/E are lowest.

Domestic personnel growth fell from 3.2% to 2.7%, but remains above its two-year average.

Dividend growth rose sharply from 4.8% to 7.4%, the highest level in eight years. The US rose to an eight-year high; Mexico rose to a four-year high; and Canada remained the same. Retail/Wholesale and Energy/Resources lead; Technology and T/M/E trail.

Please see the full report for charts specific to individual industries and countries.

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Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” on page 9 and “Economic Optimism” found on page 6.

_____

I post various business and economic surveys 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 surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2925.07 as this post is written

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of September 14, 2018:

from page 24:

(click on charts to enlarge images)

S&P500 earnings estimates 2018 & 2019

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from page 25:

S&P500 EPS 2008-2019

_____

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 2907.95 as this post is written

S&P500 EPS Forecasts For Years 2018, 2019, And 2020

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings tag)

The following estimates are from Exhibit 24 of the “S&P500 Earnings Scorecard” (pdf) of September 19, 2018, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share, the Year 2015 value is $117.46, the Year 2016 value is $118.10/share, and the Year 2017 value is $132.00/share:

Year 2018 estimate:

$162.21/share

Year 2019 estimate:

$178.85/share

Year 2020 estimate:

$194.56/share

_____

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 2907.65 as this post is written

Standard & Poor’s S&P500 EPS Estimates 2018 2019 – September 13, 2018

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings tag)

For reference purposes, the most current estimates are reflected below, and are as September 13, 2018:

Year 2018 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $157.74/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $143.01/share

Year 2019 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $177.03/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $163.43/share

_____

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 2904.31 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 September 13, 2018 update (reflecting data through August 7, 2018) is -1.267.

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 September 19, 2018 incorporating data from January 8, 1971 through September 14, 2018, on a weekly basis.  The September 14 value is -.86:

NFCI_9-19-18 -.86

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 19, 2018:

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

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The ANFCI chart below was last updated on September 19, 2018 incorporating data from January 8,1971 through September 14, 2018, on a weekly basis.  The September 14 value is -.71:

ANFCI_9-19-18 -.71

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 19, 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 2904.31 as this post is written

September 2018 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On September 12, 2018 the September 2018 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 press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

The proportion of firms indicating they are having difficulty hiring and retaining qualified employees is at a two-decade high, with 53 percent of CFOs calling it a top four concern. That’s up sharply from the 41 percent who said the same thing last quarter.  “The tight labor market continues to put upward pressure on wages,” said Chris Schmidt, senior editor at CFO Research. “Wage inflation is now a top five concern of U.S. CFOs.” Employees are willing to leave their jobs for greener pastures. Over the past 12 months, U.S. CFOs report they had to replace 14 percent of their workforces, compared to 13 percent turnover in 2016.  Among companies that list hiring as a top concern, 56 percent have increased salaries to improve their chances of hiring and retaining workers; 31 percent have increased HR budgets to better advertise positions; 29 percent have increased vacation or flex hours; and 21 percent have improved health care benefits.

also:

The Optimism Index about the U.S. economy declined to 70 this quarter, compared to an all-time high of 71 last quarter, on a 100-point scale. CFO optimism about their own firms’ financial prospects increased to 71.4, the highest level since 2007. Optimism fell in Africa, Europe, and Latin America and held steady in Asia. The survey’s CFO Optimism Index is an accurate predictor of future hiring and overall GDP growth.

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 70, as seen below:

Duke CFO Optimism

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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 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 2893.98 as this post is written

Charts Indicating Economic Weakness – September 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 September 2018 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 3.1% 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.

Among the broad-based economic indicators that have been implying weaker growth or mild contraction is the Chicago Fed National Activity Index (CFNAI).

The August 2018 Chicago Fed National Activity Index (CFNAI) updated as of August 27, 2018:

The CFNAI, with current reading of .13:

CFNAI_8-27-18 .13

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, August 27, 2018;

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

The CFNAI-MA3, with current reading of .05:

CFNAIMA3_8-27-18 .05

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis, August 27, 2018;

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

Another broad-based economic indicator that implies a weaker growth is that of the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index.)  Below is a two-year chart of the index through September 8, 2018, with a value of .1034, as of the September 13 update:

ADS Index 9-8-18 .1034

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

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Other Charts Indicating U.S. Economic Weakness

Below are a small sampling of other 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 August had a last value of $219,115 Million.  Shown below is  the measure displayed on a “Percent Change From Year Ago” basis with value -3.2%, last updated September 13, 2018:

MTSR133FMS_9-13-18 219115 -3.2 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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Federal Government Current Tax Receipts:  Personal Current Taxes

Another measure that depicts weakness is that of “Federal government current tax receipts: Personal Current Taxes.”  Through the second quarter the value is $1605.803 Billion Seasonally Adjusted Annual Rate (SAAR).  Shown below is the chart, displayed on a “Percent Change From Year Ago” basis with value of 0%, last updated August 29, 2018:

A074RC1Q027SBEA_8-29-18 1605.803 0 Percent Change From Year Ago

source:  U.S. Bureau of Economic Analysis, Federal government current tax receipts: Personal current taxes [A074RC1Q027SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 10, 2018:

https://fred.stlouisfed.org/series/A074RC1Q027SBEA

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The Yield Curve

Many people believe that the Yield Curve is a leading economic indicator for the United States economy.

On March 1, 2010, I wrote a post on the issue, titled “The Yield Curve As A Leading Economic Indicator.”

While I continue to have the stated reservations regarding the “yield curve” as an indicator, I do believe that it should be monitored.

As an indication of the yield curve (i.e. a yield curve proxy), below is a weekly chart from January 1, 1990 through September 13, 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 September 13, 2018 closing value of .21%.  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 as of 9-13-18

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Auto Sales

Auto sales have experienced significant growth over the post-2009 period. The current reading (through August, updated on September 7) is 16.596 million vehicles SAAR:

Light Weight Vehicle Sales: Autos and Light Trucks

source:  U.S. Bureau of Economic Analysis, Light Weight Vehicle Sales: Autos and Light Trucks [ALTSALES], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 10, 2018:

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

Here is the same measure on a “Percent Change From Year Ago” basis, with value .9%:

Light Weight Vehicle Sales: Autos and Light Trucks Percent Change From Year Ago

I believe that many factors indicate that auto sales have peaked.  While this peaking will have vast economic implications, there are many other factors concerning auto sales that are worrisome.  While an exhaustive discussion of the topic would be exceedingly lengthy, various notable factors include the degree to which (ultra-) cheap financing and relaxed financing terms are aiding sales, as well as various aspects of pricing and discounting.

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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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2904.18 as this post is written

The September 2018 Wall Street Journal Economic Forecast Survey

The September 2018 Wall Street Journal Economic Forecast Survey was published on September 13, 2018.  The headline is “Most Economists See Tariff Effects on U.S. Economy As Limited.”

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:

Around two-thirds of respondents commented that trade or tariffs were the biggest risks to their economic growth forecasts in the next 12 months.

also:

Back in the January survey, half of economists said the tax cuts signed into law by Mr. Trump in December would boost the economy’s long-run trend at least modestly, while the other half said it would have no effect or leave growth somewhat below its current trajectory.

Nine months later, 35.2% said they would boost the long-run growth outlook modestly, while 44.4% expected the tax cuts would have “little impact” on the long-run growth outlook and 11.1% said the tax cuts would hamper the long-run outlook.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 17.73%. The individual estimates, of those who responded, ranged from 0% to 45%.  For reference, the average response in August’s survey was 18.3%.

As stated in the article, the survey’s respondents were 59 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted September 7 – September 11, 2018.

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The current average forecasts among economists polled include the following:

GDP:

full-year 2018:  3.1%

full-year 2019:  2.4%

full-year 2020:  1.8%

full-year 2021:  1.9%

Unemployment Rate:

December 2018: 3.7%

December 2019: 3.6%

December 2020: 3.9%

December 2021: 4.0%

10-Year Treasury Yield:

December 2018: 3.13%

December 2019: 3.42%

December 2020: 3.41%

December 2021: 3.44%

CPI:

December 2018:  2.40%

December 2019:  2.30%

December 2020:  2.20%

December 2021:  2.10%

Crude Oil  ($ per bbl):

for 12/31/2018: $69.37

for 12/31/2019: $67.47

for 12/31/2020: $64.53

for 12/31/2021: $64.76

(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 2902.52 as this post is written