Monthly Archives: July 2016

Velocity Of Money – Charts Updated Through July 29, 2016

Here are three charts from the St. Louis Fed depicting the velocity of money in terms of the MZM, M1 and M2 money supply measures.

All charts reflect quarterly data through the 2nd quarter of 2016, and were last updated as of July 29, 2016.  As one can see, two of the three measures are at an all-time low for the periods depicted:

Velocity of MZM Money Stock, current value = 1.302:

MZMV_7-29-16 1.302

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 29, 2016:

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

Velocity of M1 Money Stock, current value = 5.741:

M1V_7-29-16 5.741

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 29, 2016:

http://research.stlouisfed.org/fred2/series/M1V

Velocity of M2 Money Stock, current value = 1.448:

M2V_7-29-16 1.448

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 29, 2016:

http://research.stlouisfed.org/fred2/series/M2V

_________

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 2174.27 as this post is written

Employment Cost Index (ECI) – Second Quarter 2016

While the concept of Americans’ incomes can be defined in a number of ways, many prominent measures continue to show disconcerting trends.

One prominent measure is the Employment Cost Index (ECI).

Here is a description from the BLS document titled “The Employment Cost Index:  what is it?“:

The Employment Cost Index (ECI) is a quarterly measure of the change in the price of labor, defined as compensation per employee hour worked. Closely watched by many economists, the ECI is an indicator of cost pressures within companies that could lead to price inflation for finished goods and services. The index measures changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. As a fixed-weight, or Laspeyres, index, the ECI controls for changes occurring over time in the industrial-occupational composition of employment.

On July 29, 2016, the ECI for the second quarter was released.  Here is an excerpt from the July 29, 2016 Wall Street Journal article titled “U.S. Employment Costs Up .6 Percent in Second Quarter“:

The employment-cost index, a broad measure of workers’ wages and benefits, grew a seasonally adjusted 0.6% during the second quarter of 2016, the Labor Department said Friday. Economists surveyed by The Wall Street Journal had forecast the 0.6% rise.

The first-quarter gain was unrevised at 0.6%.

Wages and salaries, reflecting more than two-thirds of compensation costs, advanced 0.6% last quarter. Benefits rose 0.5%.

From a year earlier, total compensation increased 2.3%, a slight acceleration from the 1.9% annual gain recorded in the prior quarter.

Below are three charts, updated on July 29, 2016 that depict various aspects of the ECI, which is seasonally adjusted (SA):

The first depicts the ECI, with a value of 126.7:

ECIALLCIV_7-29-16 126.7

source: US. Bureau of Labor Statistics, Employment Cost Index: Total compensation: All Civilian[ECIALLCIV], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed July 29, 2016:

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

The second chart depicts the ECI on a “Percent Change from Year Ago” basis:

ECIALLCIV_7-29-16 Percent Change From Year Ago

The third chart depicts the ECI on a “Percent Change” (from last quarter) basis:

ECIALLCIV_7-29-16 Percent Change From Last Quarter

_________

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 2176.24 as this post is written

Consumer Confidence Surveys – As Of July 29, 2016

Doug Short had a blog post of July 29, 2016 (“Michigan Consumer Sentiment:  July Final Slightly Worse Than Expected“) 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)

Conference Board Consumer Confidence

Michigan Consumer Sentiment

There are a few aspects of the above charts that I find highly noteworthy.  Of course, until the recent sudden upswing, the continued subdued absolute levels of these two surveys was 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 site.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2170.06 as this post is written

Real GDP Chart Since 1947 With Trendline – 2nd Quarter 2016

For reference purposes, below is a chart from Doug Short’s “Q2 GDP Advance Estimate:  A Major Downside Surprise” post of July 29, 2016, depicting Real GDP, with a trendline, as depicted.  This chart reflects the Gross Domestic Product Q2 2016 Advance Estimate (pdf) of July 29, 2016:

Real GDP chart

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2172.89 as this post is written

Durable Goods New Orders – Long-Term Charts Through June 2016

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

For reference, below are two charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through June 2016, updated on July 27, 2016. This value is $219,754 ($ Millions):

(click on charts to enlarge images)

Durable Goods New Orders

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

Durable Goods New Orders 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 July 27, 2016;

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 2169.02 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 July 21, 2016 update (reflecting data through July 15) is -1.141.

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 July 27, 2016 incorporating data from January 5,1973 to July 22, 2016, on a weekly basis.  The July 22, 2016 value is -.65:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 27, 2016:

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

The ANFCI chart below was last updated on July 27, 2016 incorporating data from January 5,1973 to July 22, 2016, on a weekly basis.  The July 22 value is .11:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 27, 2016:

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 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 2166.94 as this post is written

The Bond Bubble – July 2016 Update

In previous posts I have discussed the Bond Bubble and its many facets, as my analyses indicates that the overall bond market is an exceedingly large asset bubble with immensely large and wide-ranging economic implications.

Since my last post on the Bond Bubble (the June 24, 2014 post titled “The Bond Bubble – June 2014 Update“) I have written various posts about interest rates and associated dynamics.

It should be noted that current rates on 10-Year Treasury Yields, from a (ultra) long-term historical view, remain extremely depressed.  Of note, recent yields have reached all-time lows, as mentioned in the July 6, 2016 post titled “10-Year Treasury Yields – Two Long-Term Charts As Of July 6, 2016.”

This can be seen in the following chart of 10-Year Treasury Constant Maturity Yields:

10-Year Treasury Constant Maturity

Data Source: FRED, Board Of Governors Of The Federal Reserve System; accessed July 27, 2016:

https://research.stlouisfed.org/fred2/series/DGS10

Here is another chart of the 10-Year Treasury Yield, from 1980 on a LOG scale, with a long-term trendline.  The current yield is 1.563%:

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

10-Year Treasury Yields

As seen in practically all economic forecasts, the belief that the ultra-low interest rate environment will continue to be sustained is widespread.

There are various highly notable aspects of the Bond Bubble that lack general awareness.  While a comprehensive discussion can’t be done in a brief manner, many of my previous posts have discussed certain aspects.

Of particular concern is the financial and economic impact resulting from the “bursting” of the Bond Bubble.  As I mentioned in my post of February 6, 2013 (“The Bond Bubble – February 2013 Update“) my expectation at that time – and what I continue to believe – is that after the bursting of the Bond Bubble the rate on the 10-Year Treasury will be far higher than it has been in recent years.  As stated in that post:

While I have not spent considerable effort trying to ascertain the level of this “natural” interest rate, I have little doubt that such a “natural” rate on the 10-Year Treasury would be at least 5%-10% and most likely considerably higher (possibly multiples thereof).  Of course, such rates would have massive implications on a number of fronts.

The prospects of such a large increase in interest rates – which, due to many dynamics of the bursting of this particular bubble – will likely happen in a short period of time.  Overall, this situation is of tremendous concern on many levels, including the impact such rising interest rates will have on other immensely large asset bubbles, including the stock market.

As I stated in the aforementioned February 6, 2013 post;

The perils of this bond bubble and its future “bursting” can hardly be overstated.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2169.18 as this post is written

Money Supply Charts Through June 2016

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the MZM (Money Zero Maturity), defined in FRED as the following:

M2 less small-denomination time deposits plus institutional money funds.
Money Zero Maturity is calculated by the Federal Reserve Bank of St. Louis.

Here is the “MZM Money Stock” (seasonally adjusted) chart, updated on July 22, 2016 depicting data through June 2016, with a value of $14,249.9 Billion:

MZMSL

Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis:

MZMSL percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 25, 2016:

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

The second set shows M2, defined in FRED as the following:

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on July 21, 2016, depicting data through June 2016, with a value of $12,809.3 Billion:

M2SL

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis:

M2SL percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 25, 2016:

https://research.stlouisfed.org/fred2/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2175.03 as this post is written

The U.S. Economic Situation – July 25, 2016 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.

I have written extensively about this peril, including in the following:

Building Financial Danger” (ongoing updates)

A Special Note On Our Economic Situation

Forewarning Pronounced Economic Weakness

Thoughts Concerning The Next Financial Crisis

Was A Depression Successfully Avoided?

Has the Financial System Strengthened Since the Financial Crisis?

The Next Crash And Its Significance

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through July 22, 2016, with a last value of 18570.85):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

DJIA since 1900

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2175.03 as this post is written

Broad-Based Indicators Of Economic Activity

The Chicago Fed National Activity Index (CFNAI) and the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index) are two broad-based economic indicators that I regularly feature in this site.

The short-term and long-term trends of each continue to be notable.

Doug Short, in his blog post of July 22, 2016, titled “The Philly Fed ADS Index Business Conditions Index Update” displays both the CFNAI MA-3 (3-month Moving Average) and ADS Index (91-Day Moving Average) from a variety of perspectives.

Of particular note, two of the charts, shown below, denote where the current levels of each reading is relative to the beginning of past recessionary periods, as depicted by the red dots.

The CFNAI MA-3:

(click on charts to enlarge images)

CFNAI-MA3

The ADS Index, 91-Day MA:

ADS Index

Also shown in the Doug Short’s aforementioned post is a chart of each with a long-term trendline (linear regression) as well as a chart depicting GDP for comparison purposes.

_________

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 2172.42 as this post is written