Monthly Archives: September 2013

Deloitte “CFO Signals” Report 3Q 2013 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2013.

As seen in page 2 of the report, “One hundred and twenty-four CFOs responded during the two-week period ending August 23. Seventy-three percent of the respondents are from public companies, and 77% are from companies with more than $1B in annual revenue.”

Here are some of the excerpts that I found notable:

from page 3 :

How do CFOs regard the current and future health of some of the world’s major economies?

CFOs are still feeling reasonably good about North America, but expectations for Europe are low, and expectations for China have fallen.  Nearly 38% rate North America’s economies as more good than bad (up from 30%), and more than half expect the economy to be stronger in a year. By comparison, only 26% regard China’s economy as good, and just 27% expect it to be better in a year; the numbers are 3% and 14% respectively for Europe.

What is the business focus for companies over the next year?

Companies still appear very focused on growth, but more appear to be reassessing their strategies. The vast majority of CFOs say their companies are focused on pursuing opportunity over limiting risk, and much more on growing and scaling than on contracting and rationalizing. Notable this quarter is an increasing bias toward planning over execution and toward direct-cost-reduction over indirectcost-reduction.

also:

How do companies expect performance, spending, and hiring to change over the next 12 months?

Growth and profitability expectations fell substantially this quarter, with sales growth expectations falling to just 5.0%* (well below the 7% long-term average) and earnings growth hitting a new low at just 8.0%* (well below the 12.3% historical average). Capital spending growth expectations fell sharply to just 4.9%*, and domestic hiring growth expectations declined to 1.3%*.

How does CFOs’ optimism regarding their companies’ prospects compare to last quarter?

CFO optimism has been high throughout 2013 and remains high this quarter – bucking a trend that typically sees a steep drop in the second and/or third quarters each year. Forty-two percent of CFOs express improved optimism about their companies’ prospects, and 24% express declining optimism.

from page 5 :

What’s next?

CFOs worsening expectations for key measures, such as sales, earnings, capital investment, and hiring are certainly a cause for concern. Add to this marked uncertainty around governments’ future responses to slow economic growth and geopolitical events, and it is difficult to see the pace of recovery quickening anytime soon.

from page 14:

Domestic hiring is expected to rise 1.3%—well below last quarter’s peak, but still above most recent quarters. The median is again 0%, but this quarter’s variability of responses is much lower than last quarter’s. Forty-seven percent of CFOs expect year-over-year gains (comparatively high), and 22% expect cuts (comparatively low).

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I post various business and economic surveys 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 surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1688.07 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – September 27, 2013 Update

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, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these seven sources :

Other past notable 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order)  on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:

Also, subsequent to May 2012:

Below are three long-term charts, from Doug Short’s blog post of September 27 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the September 27 release, indicating data through September 20, 2013.

Here is the ECRI WLI (defined at ECRI’s glossary):

(click on charts to enlarge images)

Dshort 9-27-13 ECRI-WLI 132.9

This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

Dshort 9-27-13 ECRI-WLI-YoY 5.6 percent

This last chart depicts, on a long-term basis, the WLI, Gr.:

Dshort 9-27-13 ECRI-WLI-growth-since-1965 4.9

_________

I post various economic 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 1692.28 as this post is written

St. Louis Financial Stress Index – September 26, 2013 Update

On March 28, 2011 I wrote a post (“The STLFSI“) about the  St. Louis Fed’s Financial Stress Index (STLFSI) which is supposed to measure stress in the financial system.  For reference purposes, the most recent chart is seen below.  This chart was last updated on September 26, incorporating data from December 31,1993 to September 20, 2013, on a weekly basis.  The September 20, 2013 value is -.572:

(click on chart to enlarge image)

STLFSI_9-26-13 -.572

Here is the STLFSI chart from a 1-year perspective:

STLFSI_9-26-13 -.572 1-year

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 26, 2013:

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

_________

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 1695.61 as this post is written

Median Household Income Chart

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

Doug Short, in his September 25 blog post, titled “Real Median Household Incomes:  ‘Stagnation Without Any Clear Trend’” produced the chart below.  It is based upon data from Sentier Research, and it shows both nominal and real median household incomes since 2000, as depicted.  As one can see, post-recession real median household income (seen in the blue line since 2009) is especially worrisome.

(click on chart to enlarge image)

Dshort 9-25-13 - household-income-monthly-median-since-2000

As Doug mentions in his aforementioned blog post:

As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are in worse shape than they were four years ago when the recession ended.

Among other items seen in his blog post is a chart depicting each of the two (nominal and real household incomes) data series’ percent change over time since 2000.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1702.97 as this post is written

Total Household Net Worth As Of 2Q 2013 – Two Long-Term Charts

In the last post (“Total Household Net Worth As A Percent Of GDP 2Q 2013“) I displayed a long-term chart depicting Total Household Net Worth as a percentage of GDP.

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1949:Q4 to 2013:Q2).  The last value (as of September 25, 2013) is $74.82094 Trillion:

(click on each chart to enlarge image)

TNWBSHNO_9-25-13 74820.94

Also of interest is the same metric presented on a “Percent Change from a Year Ago” basis:

TNWBSHNO_9-25-13 74820.94 Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Board of Governors of the Federal Reserve System; accessed September 26, 2013:

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

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1692.77 as this post is written

Total Household Net Worth As A Percent Of GDP 2Q 2013

The following chart is from the CalculatedRisk blog post of September 25, 2013 titled “Fed’s Q2 Flow of Funds:  Household Mortgage Debt down $1.3 Trillion from Peak, Record Household Net Worth.” It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from the Federal Reserve Flow of Funds 2Q 2013 report:

(click on chart to enlarge image)

CR 9-25-13 - FFNetGDPQ22013

As seen in the above-referenced CalculatedRisk blog post:

According to the Fed, household net worth increased in Q2 compared to Q1, and is at a new record. Net worth peaked at $69.0 trillion in Q3 2007, and then net worth fell to $55.6 trillion in Q1 2009 (a loss of $13.4 trillion). Household net worth was at $74.8 trillion in Q2 2013 (up $19.2 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $18.6 trillion in Q2 2013. The value of household real estate is still $4.0 trillion below the peak in early 2006.

My comments:

As I have written in previous posts on 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.

As seen on the chart, the Total Household Net Worth is making an upturn, but is significantly below the prior 2007 peak.

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 1692.77 as this post is written

Durable Goods New Orders – Long-Term Charts Through August 2013

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through August, last updated on September 25.  This value is 224,916 ($ Millions) :

(click on charts to enlarge images)

DGORDER_9-25-13 224916

Here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:

DGORDER_9-25-13 224916 Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER] ; U.S. Department of Commerce: Census Bureau ; accessed September 25, 2013;

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

_________

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 1694.25 as this post is written

Consumer Confidence Surveys – As Of September 24, 2013

Doug Short had a blog post of September 24 (“Consumer Confidence Comes in a Bit Below Expectations“) in which he presents the latest Conference Board Consumer Confidence and Thomson/Reuters University of Michigan Consumer Sentiment Index charts.  They are presented below:

(click on charts to enlarge images)

Dshort 9-24-13 Conference-Board-consumer-confidence-index

Dshort 9-24-13 Michigan-consumer-sentiment-index

There are a few aspects of the above charts that I find highly noteworthy.  Of course, the continuing subdued absolute levels of these two surveys is disconcerting.

Also, I find the “behavior” of these readings to be quite disparate as compared to the other post-recession periods, as shown in the charts between the gray shaded areas (the gray areas denote recessions as defined by the NBER.)

While I don’t believe that confidence surveys should be overemphasized, I find these readings to be very problematical, especially in light of a variety of other highly disconcerting measures highlighted throughout this blog.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1704.25 as this post is written

Updates Of Economic Indicators September 2013

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 September 2013 Chicago Fed National Activity Index (CFNAI)(pdf) updated as of September 23, 2013:

cfnai_monthly_MA3 9-23-13

The ECRI WLI (Weekly Leading Index):

As of 9/20/13 (incorporating data through 9/13/13) the WLI was at 132.4 and the WLI, Gr. was at 4.5%.

A chart of the WLI, Gr. since 2000, from Doug Short’s blog of September 20 titled “ECRI Recession Watch:  Weekly Update” :

Dshort 9-20-13 ECRI-WLI-growth-since-2000 4.5

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

Here is the latest chart, depicting 12-31-07 through 9-14-13:

ads_12-31-07 through 9-14-13

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

As per the September 19 press release, the LEI was at 96.6 and the CEI was at 106.3 in August.

An excerpt from the September 19 release:

“After a brief pause, the U.S. LEI rose sharply in July and August, resuming its upward trend,” said Ataman Ozyildirim, Economist at The Conference Board. “If the LEI’s six-month growth rate, which has nearly doubled, continues in the coming months, economic growth should gradually strengthen through the end of the year. Despite weakness in residential construction, consumer expectations, and the stock market, improvements in the LEI’s labor market and financial components, as well as new manufacturing orders, drove this month’s gain.”

Here is a chart of the LEI from Doug Short’s blog post of September 19 titled “Conference Board Leading Economic Index Continued to Rise in August” :

Dshort 9-19-13 CB-LEI

_________

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 1701.84 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 20, 2013:

from page 16:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 

FactSet Earnings Insight 9-20-13 CY2013 and CY2014

from page 17:

Calendar Year Bottom-Up EPS Actuals & Estimates

FactSet Earnings Insight 9-20-13 CY2000-CY2014

_____

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 1702.85 as this post is written