Monthly Archives: May 2011

Standard & Poors S&P500 Earnings Estimates For 2011 & 2012

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

Currently, their estimates for 2011 add to the following:

-From a “bottom up” perspective, operating earnings of $98.06/share

-From a “top down” perspective, operating earnings of $94.89/share

-From a “top down” perspective, “as reported” earnings of $95.69/share

Currently, their estimates for 2012 add to the following:

-From a “bottom up” perspective, operating earnings of $111.79/share

-From a “top down” perspective, operating earnings of $101.21/share

-From a “top down” perspective, “as reported” earnings of $100.97/share

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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 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 1331.10 as this post is written

The Economic Future For Young Americans

On May 2 Gallup had a release titled “In U.S., Optimism About Future for Youth Reaches All-Time Low.”

Although the entire release is worth reading, I found the following excerpts to be particularly notable:

Forty-four percent of Americans believe it is likely that today’s youth will have a better life than their parents, even fewer than said so amid the 2008-2009 recession, and the lowest on record for a trend dating to 1983.

also:

Gallup uses the same question other survey organizations have asked intermittently over a longer period of time. Selected trends from CBS News, New York Times, and Roper Organization polls reveal that Americans currently express greater pessimism about what the future holds for today’s youth than any of these organizations found in surveys from 1983 to 2003. The most positive result occurred in a December 2001 CBS News/New York Times poll in which 71% said American youth would have a better life than their parents.

also, from the concluding paragraphs:

Confidence in the traditional American dream — that each generation can work its way up in the world and have a better life than the previous generation — appears to be slipping away. Americans are less likely to believe this to be true today than at any time on record, including during the worst of the recent economic crisis.

Fewer than 4 in 10 high-income Americans — who presumably have the greatest access to opportunity and resources to gauge what the markets will do going forward — believe today’s youth will be better off than their parents. This level of pessimism may also reflect the massive destruction of wealth that high-income Americans experienced from the economic meltdown.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1325.69 as this post is written

Americans’ Financial Capacity

Recently a NBER Working Paper (#17072) was released titled “Financially Fragile Households:  Evidence and Implications.”

There are various notable statistics and findings in the paper.  From the abstract:

This paper examines households’ financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis survey, we document widespread financial weakness in the United States: Approximately one quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans. If we consider the respondents who report being certain or probably not able to cope with an ordinary financial shock of this size, we find that nearly half of Americans are financially fragile.

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My comments:

I find this research, as summarized above, disconcerting.

In fact, it almost seems rather unbelievable, until one considers other recent data (some found in posts tagged “paycheck to paycheck” as well as a variety of others found in the “Uncategorized” Category) that seems to confirm a rather strained “financial capacity” among a substantial percentage of Americans.

Needless to say, $2000 does not “go far” with regard to many common expected and unexpected outlays, especially those concerning medical expenses.

As disconcerting as this paper’s findings are, one can only expect this “financial capacity” to further deteriorate if/when economic conditions worsen.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1320.20 as this post is written

Updates On Economic Indicators May 2011

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

The May Chicago Fed National Activity Index (CFNAI)(pdf) updated as of May 23, 2011:

The Consumer Metrics Institute Contraction Watch:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the March 23 Press Release, titled “Economic index forecasts stronger growth” :

“The March update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing to 3.7% to 3.8% during the summer months. Gains in manufacturing, capital spending and exports are fueling the growth. Consumer spending and employment are expected to continue improving, though at a moderate pace.”

The ECRI WLI (Weekly Leading Index):

As of 5/13/11 the WLI was at 128.7 and the WLI, Gr. was at 5.3%.  A chart of the growth rates of the Weekly Leading and Weekly Coincident Indexes:

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of May 2 was at 46.6, as seen below:

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

Here is the latest chart, depicting 5-14-09 to 5-14-11:

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the May 19 release, the LEI was at 114.0 and the CEI was at 102.8 in April.

An excerpt from the May 19 Press Release:

Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI has been rising since March 2009, with only a brief one-month interruption in June 2010, and now, in April 2011. The U.S. CEI, a monthly measure of current economic conditions, continued to increase, supported by improving employment figures. Overall, the composite indexes still point to strengthening business conditions in the near term, although the path may be uneven.”

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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.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1316.28 as this post is written

When Will The Next Recession Occur?

On May 17, CNBC had an article titled “Goldman’s Hatzius: The Next US Recession Is ‘Years Away'”

An excerpt:

“There’s still a long way to go. The unemployment rate is still 9 percent, we’re nowhere close to a really tight labor market that usually predicates a recession, so I think we’re still be in a recovery for a few years,” Jan Hatzius told CNBC Tuesday,

“The underlying trend is still above-trend growth. That’s not going to be true in every indicator, but the best evidence for that is probably the fact that the unemployment been trending down, Hatzius said.

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This view, that a recession is “years away,” seems to be widely held among economists and other professional forecasters.  Last week I posted three sets of forecasts, each indicating sustained economic growth for years, as well as other favorable accompanying conditions such as low inflation.  Also of note is that various long-term government projections forecast the same trends.

Very little is seen in these various forecasts that would indicate the possibility of recession, or worse.  In fact, in the Philadelphia Fed Survey Of Professional Forecasters, which I featured in the May 18 post, the following was indicated:

As for “the chance of a contraction in real GDP in any of the next four quarters,” estimates range from 7-12.2% for each of the quarters through Q2 2012.

Will these economic forecasts prove accurate?  While it may be pleasant to think that we will be experiencing economic expansion for years into the future, with little chance of pronounced economic weakness, my analysis continues to indicate that such a scenario will not prove accurate, unfortunately.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1317.37 as this post is written

New College Graduates And The Job Market

On May 18 The New York Times had a story titled “Many With New College Degree Find the Job Market Humbling.”

While I think the entire article is worthwhile reading, two excerpts are particularly notable:

“What’s more, only half of the jobs landed by these new graduates even require a college degree, reviving debates about whether higher education is “worth it” after all.”

also:

“The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.”

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my comment:

This situation of recent college graduates unable to find (suitable) jobs is very problematical and pernicious on many levels.  The negative impacts of the situation far transcend the college graduates involved.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1333.27 as this post is written

Walmart’s Q12012 Results – Comments

I found various notable items in Walmart’s Q1 conference call transcript (pdf) dated May 17, 2011.  I view Walmart’s results as particularly noteworthy given their retail prominence and focus on low prices.  I have previously commented on their quarterly results.

Here are various excerpts that I find most notable:

comments from Mike Duke, from page 7:

“Despite improvements in some areas of the economy, core Walmart U.S. customers are still stretched. They remain concerned about rising prices for gas, energy and food, as well as employment issues. Customers trust us to be their ally in fighting rising gas prices and inflation.”

comments from Bill Simon, p. 28:

“The paycheck cycle remains pronounced.  During the quarter, we saw continued pressure from ongoing macro economic conditions, as customers continued to trade down to opening price points and some private label products.”

comments from Bill Simon, p. 32:

Rising gas prices, high unemployment and increasing inflation continue to be the most important issues facing our customers today.  One in five Walmart moms list gasoline as a top expense behind housing and car payments.  We continue to be prepared to help her with low prices and broad assortment during this time of uncertainty.

Last year during the second quarter, Walmart had the deep rollbacks that drove our unit sales of some items, but did not deliver the intended traffic and basket lift we were looking for.  We will not repeat these programs this year.”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1343.60 as this post is written

Federal Reserve Economic Projections To 2013 And Beyond – As Of April 2011

The following is from the Minutes of The Federal Open Market Committee of April 26-27, 2011, the Summary of Economic Projections.  As stated:

“In conjunction with the April 26-27, 2011, Federal Open Market Committee (FOMC) meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, submitted projections for growth of real output, the unemployment rate, and inflation for the years 2011 to 2013 and over the longer run. The projections were based on information available through the end of the meeting and on each participant’s assumptions about factors likely to affect economic outcomes, including his or her assessment of appropriate monetary policy.”

Among the commentary and detail is this summary table:

Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, April 2011

Percent

Variable Central tendency1 Range2
2011 2012 2013 Longer run 2011 2012 2013 Longer run
Change in real GDP 3.1 to 3.3 3.5 to 4.2 3.5 to 4.3 2.5 to 2.8 2.9 to 3.7 2.9 to 4.4 3.0 to 5.0 2.4 to 3.0
January projection 3.4 to 3.9 3.5 to 4.4 3.7 to 4.6 2.5 to 2.8 3.2 to 4.2 3.4 to 4.5 3.0 to 5.0 2.4 to 3.0
Unemployment rate 8.4 to 8.7 7.6 to 7.9 6.8 to 7.2 5.2 to 5.6 8.1 to 8.9 7.1 to 8.4 6.0 to 8.4 5.0 to 6.0
January projection 8.8 to 9.0 7.6 to 8.1 6.8 to 7.2 5.0 to 6.0 8.4 to 9.0 7.2 to 8.4 6.0 to 7.9 5.0 to 6.2
PCE inflation 2.1 to 2.8 1.2 to 2.0 1.4 to 2.0 1.7 to 2.0 2.0 to 3.6 1.0 to 2.8 1.2 to 2.5 1.5 to 2.0
January projection 1.3 to 1.7 1.0 to 1.9 1.2 to 2.0 1.6 to 2.0 1.0 to 2.0 0.7 to 2.2 0.6 to 2.0 1.5 to 2.0
Core PCE inflation3 1.3 to 1.6 1.3 to 1.8 1.4 to 2.0 1.1 to 2.0 1.1 to 2.0 1.2 to 2.0
January projection 1.0 to 1.3 1.0 to 1.5 1.2 to 2.0 0.7 to 1.8 0.6 to 2.0 0.6 to 2.0

 

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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 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 1340.68 as this post is written

Philadelphia Fed – 2nd Quarter 2011 Survey Of Professional Forecasters

The Philadelphia Fed Second Quarter 2011 Survey of Professional Forecasters was released on May 13.  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 expectations:

GDP:

full-year 2011 : 2.7%

full-year 2012 : 3.0%

full-year 2013 : 2.8%

full-year 2014 : 3.3%

Unemployment Rate: (annual average level)

for 2011: 8.7%

for 2012: 8.1%

for 2013: 7.5%

for 2014: 7.0%

As for “the chance of a contraction in real GDP in any of the next four quarters,” estimates range from 7-12.2% for each of the quarters through Q2 2012.

As well, there are also a variety of time frames shown (present through the year 2020) with the expected inflation 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 1.4-3.5% range.

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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 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 1328.98 as this post is written

The May 2011 Wall Street Journal Economic Forecast Survey

The May Wall Street Journal Economic Forecast Survey was published May 16, 2011.  The headline is “Economists in Survey Discount Inflation.”

Most of the article discusses inflation expectations, although raising the debt ceiling and other topics are touched upon as well.

The current average forecasts among economists polled include the following:

GDP:

full-year 2011 : 2.9%

full-year 2012:  3.2%

Unemployment Rate:

December 2011: 8.4%

December 2012: 7.7%

10-Year Treasury Yield:

December 2011: 3.87%

December 2012: 4.47%

CPI:

December 2011:  3.0%

December 2012:  2.3%

Crude Oil  ($ per bbl):

for 6/30/2011: $101.39

for 12/31/2011: $97.78

(note: I comment upon this 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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1329.47 as this post is written