Author Archives: Ted Kavadas

Disturbing Charts (Update 32)

I find the following charts to be disturbing.   These charts would be disturbing at any point in the economic cycle; that they (on average) depict such a tenuous situation now – 112 months after the official (as per the September 20, 2010 NBER BCDC announcement) June 2009 end of the recession – is especially notable.

These charts raise a lot of questions.  As well, they highlight the “atypical” nature of our economic situation from a long-term historical perspective.

All of these charts are from the Federal Reserve, and represent the most recently updated data.

(click on charts to enlarge images)

Housing starts (last updated September 19, 2018):

Housing Starts

US. Bureau of the Census, Housing Starts: Total: New Privately Owned Housing Units Started [HOUST], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/HOUST/, October 15, 2018.

The Federal Deficit (last updated March 27, 2018):

U.S. Federal Deficit

US. Office of Management and Budget, Federal Surplus or Deficit [-] [FYFSD], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/FYFSD/, October 15, 2018.

Federal Net Outlays (last updated March 27, 2018):

U.S. Federal Net Outlays

US. Office of Management and Budget, Federal Net Outlays [FYONET], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/FYONET/, October 15, 2018.

State & Local Personal Income Tax Receipts (% Change from Year Ago)(last updated July 27, 2018):

ASLPITAX Percent Change From Year Ago

US. Bureau of Economic Analysis, State and local government current tax receipts: Personal current taxes: Income taxes [ASLPITAX], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/ASLPITAX/, October 15, 2018.

Total Loans and Leases of Commercial Banks (% Change from Year Ago)(last updated October 12, 2018):

TOTBKCR Percent Change From Year Ago

Board of Governors of the Federal Reserve System (US), Bank Credit of All Commercial Banks [TOTBKCR], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TOTBKCR/, October 15, 2018.

Bank Credit – All Commercial Banks (% Change from Year Ago)(last updated October 12, 2018):

TOTBKCR

Board of Governors of the Federal Reserve System (US), Bank Credit of All Commercial Banks [TOTBKCR], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TOTBKCR/, October 15, 2018.

M1 Money Multiplier (last updated October 11, 2018):

M1 Money Multiplier

Federal Reserve Bank of St. Louis, M1 Money Multiplier [MULT], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/MULT/, October 15, 2018.

Median Duration of Unemployment (last updated October 5, 2018):

Median Duration Of Unemployment

US. Bureau of Labor Statistics, Median Duration of Unemployment [UEMPMED], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/UEMPMED/, October 15, 2018.

Labor Force Participation Rate (last updated October 5, 2018):

Labor Force Participation Rate

US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate [CIVPART], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CIVPART/, October 15, 2018.

The Chicago Fed National Activity Index (CFNAI) 3-month moving average (CFNAI-MA3)(last updated September 24, 2018):

CFNAIMA3

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CFNAIMA3/, October 15, 2018.

I will continue to update these charts on an intermittent basis as they deserve close monitoring…

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2750.79 as this post is written

Charts Indicating Economic Weakness – October 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 October 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,  as discussed below, 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.

One GDP-based measure that is notable is that of the GDPplus measure from the Federal Reserve Bank of Philadelphia.

Shown below is the most recent update (from September 27, reflecting the GDP release for the 2nd Quarter of 2018, 3rd Estimate).  Of note is the divergence between the Real GDP (4.1%*, shown in orange) and the GDPplus measure (2.0%*, shown in light blue):

GDPplus

* the quarter-over-quarter growth rate in continuously compounded annualized percentage points

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Other Charts Indicating U.S. Economic Weakness

Below are a small sampling of charts that depict weak growth or contraction, and a brief comment for each:

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

While the 2nd quarter GDP (3rd Estimate)(pdf) was 4.2%, there are other broad-based economic indicators that seem to imply a weaker growth rate.

Among the broad-based economic indicators that imply weaker growth is that of the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index.)  Below is a two-year chart of the index through October 6, 2018, with a value of -.0323, as of the October 11 update:

ADS Index 2 years as of 10-11-18 update

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

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Auto Sales

As discussed in previous posts, I believe that many factors indicate that auto sales have peaked.  While this peaking will have extensive 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.

Shown below is a 3-year chart showing the performance of various auto stocks.  As one can see, there has been consistent weakness in these stocks (generally) since the beginning of 2018:

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

auto stocks price charts 3 years

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Vehicle Miles Traveled

I continue to find the flagging growth trend in the “Vehicle Miles Traveled” (NSA) measure since 2015 to be notable.

“Vehicle Miles Traveled” through August had a last value of 286,654 Million.  Shown below is  the measure displayed on a “Percent Change From Year Ago” basis with value 1.2%, last updated October 12, 2018:

TRFVOLUSM227NFWA_10-12-18 286654 1.2 Percent Change From Year Ago

source:   U.S. Federal Highway Administration, Vehicle Miles Traveled [TRFVOLUSM227NFWA], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 12, 2018:

https://fred.stlouisfed.org/series/TRFVOLUSM227NFWA

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Underperformance Of Consumer Staples Stocks

In the March 23, 2017 post (“‘Hidden’ Weakness In Consumer Spending?“) I wrote of various indications that consumer spending may be (substantially) less than what is depicted by various mainstream indicators, including overall retail sales.

One recent development that appears to be an indication of problems in consumer spending is the performance of the consumer staples stocks.  As one can see in the chart below, there has been a marked relative weakness in these stocks (with the XLP serving as a proxy).  The chart shows a 10-year daily depiction of the XLP (top plot), the S&P500 (middle plot) and XLP:S&P500 ratio (bottom plot.)  While there can be various interpretations and reasons for this underperformance, it does appear to represent a “red flag” especially considering other problematical indications concerning consumer spending:

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

XLP v SPX 10 years

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2767.13 as this post is written

The October 2018 Wall Street Journal Economic Forecast Survey

The October 2018 Wall Street Journal Economic Forecast Survey was published on October 11, 2018.  The headline is “WSJ Survey:  Economists Increasingly Confident of Fed Rate Hikes.”

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.

An excerpt:

Private economists have continued to raise their projections for interest rates through next year, showing greater agreement with the Federal Reserve’s expectations, according to The Wall Street Journal’s latest survey.

All 57 respondents expected the Fed to raise its benchmark federal-funds rate once more this year. Looking further ahead, 42% forecast three central-bank rate rises in 2019, while 21% project four. In last month’s survey, the shares were 41% and 17%, respectively.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 17.64%. The individual estimates, of those who responded, ranged from 0% to 50%.  For reference, the average response in September’s survey was 17.73%.

As stated in the article, the survey’s respondents were 57 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted October 5 – October 9, 2018.

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:  1.8%

Unemployment Rate:

December 2018: 3.7%

December 2019: 3.6%

December 2020: 3.8%

December 2021: 4.1%

10-Year Treasury Yield:

December 2018: 3.24%

December 2019: 3.50%

December 2020: 3.47%

December 2021: 3.53%

CPI:

December 2018:  2.50%

December 2019:  2.30%

December 2020:  2.30%

December 2021:  2.20%

Crude Oil  ($ per bbl):

for 12/31/2018: $73.72

for 12/31/2019: $70.86

for 12/31/2020: $68.27

for 12/31/2021: $66.33

(note: I highlight this WSJ Economic Forecast 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 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 2744.12 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 October 11, 2018 update (reflecting data through October 5, 2018) is -1.263.

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 October 11, 2018 incorporating data from January 8, 1971 through October 5, 2018, on a weekly basis.  The October 5 value is -.89:

NFCI_10-11-18 -.89

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 11, 2018:

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

The ANFCI chart below was last updated on October 11, 2018 incorporating data from January 8,1971 through October 5, 2018, on a weekly basis.  The October 5 value is -.76:

ANFCI_10-11-18 -.76

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 11, 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 2764.40 as this post is written

Building Financial Danger – October 10, 2018 Update

My overall analysis indicates a continuing elevated and growing level of financial danger which contains many worldwide and U.S.-specific “stresses” of a very complex nature. I have written numerous posts in this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.

Also of ongoing immense importance is the existence of various immensely large asset bubbles, a subject of which I have extensively written.  While all of these asset bubbles are wildly pernicious and will have profound adverse future implications, hazards presented by the bond market bubble are especially notable.

Predicting the specific timing and extent of a stock market crash is always difficult, and the immense complexity of today’s economic situation makes such a prediction even more challenging. With that being said, my analyses continue to indicate that a near-term exceedingly large (from an ultra-long term perspective) stock market crash – that would also involve (as seen in 2008) various other markets as well – will occur.

(note: the “next crash” and its aftermath has great significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts in the “Economic Depression” category)

As reference, below is a daily chart since 2008 of the S&P500 (through October 9, 2018 with a last price of 2880.34), depicted on a LOG scale, indicating both the 50dma and 200dma as well as price labels:

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

S&P500 since 2008

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2880.35 as this post is written

CEO Confidence Surveys 3Q 2018 – Notable Excerpts

On October 4, 2018, The Conference Board released the 3rd Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 55, down from 63 in the second quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this October 4 Press Release include:

CEOs’ assessment of current economic conditions is less positive, with 49 percent saying conditions are better compared to six months ago, down from 74 percent last quarter. However, 43 percent of CEOs say conditions have remained the same, and only 8 percent say conditions are worse. CEOs were also less optimistic about current conditions in their own industries compared to six months ago. Now, about 31 percent say conditions are better compared to 51 percent last quarter.

Looking ahead, CEOs’ expectations regarding the economic outlook are also less optimistic than last quarter. Now, just 23 percent expect economic conditions to improve over the next six months, compared to 48 percent in the second quarter. About 22 percent expect economic conditions will worsen, compared to 14 percent last quarter. CEOs’ expectations regarding short-term prospects in their own industries over the next six months were also less optimistic. Now, only 22 percent anticipate an improvement in conditions, down from 42 percent last quarter. Some 19 percent expect conditions to worsen, up from just 9 percent in the second quarter.

Last month, The Business Roundtable also released its CEO Economic Outlook Survey for the 3rd Quarter of 2018.   Notable excerpts from the release, titled “Business Roundtable CEO Economic Outlook Index Remains Strong, Declines Slightly in Q3“:

The Q3 2018 CEO Economic Outlook Index was 109.3, a decline of 1.8 points from 111.1 in the second quarter of 2018. At 109.3, the Q3 Index is the fifth-highest in the survey’s 16-year history and well above the historical average of 81.6. This is the seventh straight quarter where the Index has exceeded its historical average, signaling a continued positive direction for the U.S. economy.

also:

In their fourth estimate of 2018 U.S. GDP growth, CEOs projected 2.8 percent growth for the year, up slightly from their 2.7 percent estimate in the second quarter.

Additional details can be seen in the sources mentioned above.

_____

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 2888.02 as this post is written

Deflation Probabilities – October 4, 2018 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”

As stated on the site:

Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2022.

A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the October 4, 2018 update states the following:

The 2017–22 and 2018–23 deflation probabilities were 5 percent on October 3, unchanged from their readings on September 26. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2017 and early 2018, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2017 and April 2018 and the 10-year TIPS issued in July 2012 and July 2013.

_________

I post various economic 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 2901.61 as this post is written

Recession Probability Models – October 2018

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated October 2, 2018 using data through September) this “Yield Curve” model shows a 14.5054% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 14.6145% probability through August, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on October 1, 2018, currently shows a .30% probability using data through July.

Here is the FRED chart (last updated October 1, 2018):

RECPROUSM156N

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed October 4, 2018:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the September 13, 2018 post titled “The September 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 17.73% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2925.51 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 27, 2018 update (reflecting data through September 21, 2018) is -1.304.

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 October 3, 2018 incorporating data from January 8, 1971 through September 28, 2018, on a weekly basis.  The September 28 value is -.86:

NFCI_10-3-18 -.86

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 3, 2018:

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

The ANFCI chart below was last updated on October 3, 2018 incorporating data from January 8,1971 through September 28, 2018, on a weekly basis.  The September 28 value is -.73:

ANFCI_10-3-18 -.73

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 3, 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 2923.43 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000 – October 2, 2018 Update

For reference purposes, below are two charts of the VIX from year 2000 through Monday’s (October 1, 2018) close, which had a closing value of 12.00.

Here is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:

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

VIX weekly chart from 1980

Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red lines, respectively:

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

VIX monthly chart since 1980

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2924.59 as this post is written