Monthly Archives: June 2017

June 2017 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On June 13, 2017 the June 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, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

Uncertainty about regulatory policy and health care costs is causing chief financial officers in the United States to hold back investment plans, a new survey finds.

also:

The survey has been conducted for 85 consecutive quarters and spans the globe, making it the world’s longest-running and most comprehensive research on senior finance executives. This quarter, nearly 750 CFOs responded to the survey, which ended June 9. Results are for the U.S. unless stated otherwise.

Almost 40 percent of CFOs indicated uncertainty is currently higher than normal. Among those companies, about 60 percent said that uncertainty has caused them to delay new projects and investments.

also:

The Optimism Index fell slightly this quarter to 67 on a 100-point scale. That’s two points lower than last quarter but still far above the long-run average of 60.

“CFOs remain optimistic not only about the overall economy but about their own firms too,” Graham said. “Our analysis of past results shows the CFO Optimism Index is an excellent predictor of the future, especially hiring plans and overall GDP growth.”

Hiring plans are stronger than one year ago and U.S. companies expect to pay higher wages, with median wage growth of about 3 percent over the next 12 months, even greater in the construction and tech industries.

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 67, as seen below:

Duke CFO Survey Optimism chart

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)

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2428.11 as this post is written

Consumer Confidence Surveys – As Of June 30, 2017

Doug Short had a blog post of June 30, 2017 (“Michigan Consumer Sentiment:  June Final Slips, But Still Optimistic“) 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 sudden upswing in 2014, 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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2427.45 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 June 22, 2017 update (reflecting data through June 16, 2017) is -1.565.

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 June 28, 2017 incorporating data from January 5,1973 through June 23, 2017, on a weekly basis.  The June 23, 2017 value is -.89:

NFCI_6-28-17_-.89

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 28, 2017:

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

The ANFCI chart below was last updated on June 28, 2017 incorporating data from January 5,1973 through June 23, 2017, on a weekly basis.  The June 23 value is -.36:

ANFCI_6-28-17 -.36

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 28, 2017:

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 2440.69 as this post is written

The Yield Curve – June 28, 2017

Many people believe that the Yield Curve is an important economic indicator.

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

An excerpt from that post:

On the NY Fed link above, they have posted numerous studies that support the theory that the yield curve is a leading indicator.   My objections with using it as a leading indicator, especially now, are various.  These objections include: I don’t think such a narrow measure is one that can be relied upon;  both the yields at the short and long-end of the curve have been overtly and officially manipulated, thus distorting the curve; and, although the yield curve may have been an accurate leading indicator in the past, this period of economic weakness is inherently dissimilar in nature from past recessions and depressions in a multitude of ways – thus, historical yardsticks and metrics probably won’t (and have not) proven appropriate.

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

As an indication of the yield curve, below is a weekly chart from January 1, 1990 through June 27, 2017.  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 June 27, 2017 closing value of .83%.  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)

U.S. Yield Curve with components

Additionally, below is a chart showing the same spread between the 10-Year Treasury and 2-Year Treasury, albeit with a slightly different measurement, using constant maturity securities.  This daily chart is from June 1, 1976 through June 26, 2017, with recessionary periods shown in gray. This chart shows a value of .78%:

U.S. Yield Curve proxy

source:  Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 28, 2017:

https://research.stlouisfed.org/fred2/series/T10Y2Y

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2419.38 as this post is written

Durable Goods New Orders – Long-Term Charts Through May 2017

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 May 2017, updated on June 26, 2017. This value is $228,180 ($ Millions):

(click on charts to enlarge images)

DGORDER_6-26-17

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

DGORDER 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 June 26, 2017;

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 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 2439.66 as this post is written

Updates Of Economic Indicators June 2017

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

The June 2017 Chicago Fed National Activity Index (CFNAI) updated as of June 26, 2017:

The CFNAI, with current reading of -.26:

CFNAI_6-26-17

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, June 26, 2017;

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

The CFNAI-MA3, with current reading of .04:

CFNAI-MA3_6-26-17

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis, June 26, 2017;

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

The ECRI WLI (Weekly Leading Index):

As of June 23, 2017 (incorporating data through June 16, 2017) the WLI was at 143.7 and the WLI, Gr. was at 3.4%.

A chart of the WLI,Gr., from Doug Short’s ECRI update post of June 23, 2017:

ECRI WLI,Gr.

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

Here is the latest chart, depicting the ADS Index from December 31, 2007 through June 17, 2017:

ADS Index

The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):

As per the June 22, 2017 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased in May” (pdf) the LEI was at 127.0, the CEI was at 115.3, and the LAG was 124.2 in May.

An excerpt from the release:

“The U.S. LEI continued on its upward trend in May, suggesting the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2 percent growth for the remainder of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The improvement was widespread among the majority of the leading indicators except for housing permits, which declined again. And, the average workweek in manufacturing has recently shown no sign of improvement.”

Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of June 22, 2017:

Conference Board LEI

_________

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 2439.97 as this post is written

The U.S. Economic Situation – June 26, 2017 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 June 23, 2017, with a last value of 21394.76):

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

DJIA since 1900

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2438.30 as this post is written

Deloitte “CFO Signals” Report Q2 2017 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 2nd Quarter of 2017.

As seen in page 2 of the report, there were 132 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, Chinese, and European economies? Perceptions of North America declined slightly, with 65% of CFOs rating current conditions as good (near the four-year high) and 58% expecting better conditions in a year. Perceptions of Europe improved to 17% and 30%, while China rose strongly to 28% and 32%. Page 6.

What is your perception of the capital markets? Eighty-five percent of CFOs say debt financing is attractive (up from 81% last quarter), while attractiveness of equity financing held steady for public company CFOs (at 42%) and rose for private company CFOs (from 38% to 46%). Seventy-eight percent of CFOs now say US equities are overvalued—just below last quarter’s survey high. Page 7.

Expectations

What is your company’s business focus for the next year? CFOs indicate a strong bias toward revenue growth over cost reduction (63% vs. 18%), and investing cash over returning it (62% vs. 16%). They shifted back to a bias toward existing offerings over new ones (46% vs. 32%), and again increased their bias toward current geographies over new ones (72% vs. 14%). 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 rose from 4.3% to 5.6% and are above their two-year average. Earnings growth rose to 8.7%, up from 7.3% and well above the two-year average. Capital spending growth, which skyrocketed last quarter, slipped from 10.5% to a still high 9.0%. Domestic hiring growth held steady at 2.1%. Page 11.

from page 9:

Sentiment

Coming off a survey high last quarter, own-company optimism remains strong on very high optimism in the US and Mexico; Manufacturing and Services are high, and Energy/Resources rebounded.

This quarter’s net optimism declined from last quarter’s survey-high +50 to a still-high +44. Nearly 55% of CFOs expressed rising optimism (down from 60%), and 11% cited declining optimism (up from 10%).

Net optimism for the US declined from last quarter’s +58 to +47 this quarter. Canada fell from +40 to +20, while optimism in Mexico bounced back very strongly from -71 to +50.

Manufacturing and Services are again above +50, while Energy/Resources rose significantly to +47. Technology and Financial Services declined significantly, but both are still strong by historical standards. T/M/E is negative, but the sample size is very low this quarter.

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

from page 11:

Expectations

Key growth metrics remain relatively strong, bolstered by Canada and Mexico; the outlook for Energy/Resources and Healthcare/Pharma improved significantly.

Revenue growth expectations rose from 4.3% to 5.6% and are above their two-year average. US expectations continued to rise. Canada rose to a five-year high and Mexico bounced back from a two-year low. Energy/Resources rose to its survey high, and Healthcare/Pharma bounced back from last quarter’s survey low.

Earnings growth expectations are up to 8.7% from last quarter’s 7.3% and hit a twoyear high. All geographies improved significantly. Manufacturing is at its highest level in two years; Healthcare/Pharma bounced back strongly from last quarter’s three-year low.

Capital investment growth expectations fell to 9.0% from 10.5%, but still sit at their secondhighest level in five years. Canada and Mexico nearly doubled, but US expectations fell. Energy/Resources is again near its survey high. Healthcare/Pharma and Services are both up sharply; Technology declined significantly.

Domestic hiring growth held steady at 2.1%.  Canada bounced back from last quarter, and the US declined slightly. Healthcare/Pharma is highest of the industries, with Manufacturing the lowest (despite sitting near its two-year high).

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 2435.61 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 June 15, 2017 update (reflecting data through June 9, 2017) is -1.589.

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 June 21, 2017 incorporating data from January 5,1973 through June 16, 2017, on a weekly basis.  The June 16, 2017 value is -.89:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 21, 2017:

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

The ANFCI chart below was last updated on June 21, 2017 incorporating data from January 5,1973 through June 16, 2017, on a weekly basis.  The June 16 value is -.38:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 21, 2017:

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 2437.39 as this post is written

Money Supply Charts Through May 2017

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 June 16, 2017 depicting data through May 2017, with a value of $14,892.7 Billion:

MZMSL_6-16-17

Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 5.1%:

MZMSL percent change from a year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 21, 2017:

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 June 15, 2017, depicting data through May 2017, with a value of $13,495.5 Billion:

M2SL

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 5.9%:

M2SL percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 21, 2017:

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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2437.43 as this post is written