Author Archives: Ted Kavadas

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – December 14, 2018 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.

Below are three long-term charts, from the Doug Short site’s ECRI update post of December 14, 2018 titled “ECRI Weekly Leading Index Update:  ‘Inflation Cycles Down as Fed Stays Starstruck’.”  These charts are on a weekly basis through the December 14, 2018 release, indicating data through December 7, 2018.

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

ECRI, WLI

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

ECRI WLI YoY of the Four-Week Moving Average

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

ECRI WLI,Gr.

_________

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 2599.95 as this post is written

Charts Indicating Economic Weakness – December 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 December 2018 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 3.1% GDP growth in 2018 and 2.3% GDP growth in 2019.  However,  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.

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:

Total Federal Receipts

“Total Federal Receipts” growth continues to be intermittent in nature since 2015.  As well, the level of growth does not seem congruent to the (recent) levels of economic growth as seen in aggregate measures such as Real GDP.

“Total Federal Receipts” through November had a last value of $205,961 Million.  Shown below is  the measure displayed on a “Percent Change From Year Ago” basis with value -1.5%, last updated December 13, 2018:

source:  U.S. Department of the Treasury. Fiscal Service, Total Federal Receipts [MTSR133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed December 13, 2018:  
https://fred.stlouisfed.org/series/MTSR133FMS

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

While the 3rd quarter GDP (Second Estimate)(pdf) was 3.5%, there are other broad-based economic indicators that seem to imply a weaker growth rate.

Among the broad-based economic indicators that seem to imply subdued or intermittent growth is that of the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index.)  Below is a chart of the index from the year 2000 through December 8, 2018, with a value of .0405, as of the December 13 update:

ADS Index

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

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Total Construction Spending:  Commercial

“Total Private Construction Spending: Commercial” is a measure of construction exhibiting weak YoY growth.   This measure through October had a last value of $88,686 Million.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with a value of 1.6%, last updated December 3, 2018:

Total Construction Spending: Commercial YoY

source:  U.S. Bureau of the Census, Total Construction Spending: Commercial [TLCOMCONS], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed December 13, 2018:  
https://fred.stlouisfed.org/series/TLCOMCONS

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The Yield Curve

Many people believe that the Yield Curve is a leading economic indicator for the United States economy.

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

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

As an indication of the yield curve (i.e. a yield curve proxy), below is a weekly chart from January 1, 1990 through December 13, 2018.  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 December 13, 2018 closing value of .16%.  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)

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Loan Demand And Related Measures

As seen in previous updates, various aspects of lending growth and related measures have shown a marked slowing in the growth rate.  Shown below is a measure, Net Percentage of Domestic Banks Reporting Stronger Demand for Commercial and Industrial Loans from Large and Middle-Market Firms, that shows a decline.  The current value is -14.5% as of the November 14, 2018 quarterly update:

DRSDCILM 11-14-18

source:  Board of Governors of the Federal Reserve System (US), Net Percentage of Domestic Banks Reporting Stronger Demand for Commercial and Industrial Loans from Large and Middle-Market Firms [DRSDCILM], retrieved from FRED, Federal Reserve Bank of St. Louis;  accessed December 11, 2018:  
https://fred.stlouisfed.org/series/DRSDCILM

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The ECRI WLI (Weekly Leading Index):

The ECRI WLI,Gr. measure has been declining and now is at -4.1% as of the December 7, 2018 update, reflecting data through November 30, 2018.

A chart of the WLI,Gr., with an overlay of U.S. GDP, from the Doug Short’s site ECRI update post of December 7, 2018:

ECRI WLI,Gr.

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate weak economic growth 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 2650.54 as this post is written

The December 2018 Wall Street Journal Economic Forecast Survey

The December 2018 Wall Street Journal Economic Forecast Survey was published on December 13, 2018.  The headline is “Economists See U.S.-China Trade War as Biggest Threat in 2019.”

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.

Two excerpts:

Nearly half of economists who responded to a survey by The Wall Street Journal, 47.3%, said they viewed the U.S. dispute with Beijing as the No. 1 risk for 2019. Some 20% cited financial market disruptions and 12.7% pointed to a slowdown in business investment.

also:

Just 7.3% of economists, or four respondents in total, agreed that Fed rate increases were the biggest threat to the economy in 2019.

A couple of private-sector economists cited other risks, such as excessive federal spending. Just over 9% pointed to slowing global growth as the biggest threat.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 22.02%. The individual estimates, of those who responded, ranged from 0% to 50%.  For reference, the average response in November’s survey was 19.55%.

As stated in the article, the survey’s respondents were 60 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted December 7 – December 11, 2018.

The current average forecasts among economists polled include the following:

GDP:

full-year 2018:  3.1%

full-year 2019:  2.3%

full-year 2020:  1.7%

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: 3.00%

December 2019: 3.35%

December 2020: 3.38%

December 2021: 3.36%

CPI:

December 2018:  2.20%

December 2019:  2.30%

December 2020:  2.10%

December 2021:  2.20%

Crude Oil  ($ per bbl):

for 12/31/2018: $54.95

for 12/31/2019: $59.21

for 12/31/2020: $59.43

for 12/31/2021: $60.42

(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 2644.29 as this post is written

December 2018 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On December 12, 2018 the December 2018 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 press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

Nearly half (48.6 percent) of U.S. CFOs believe that the nation’s economy will be in recession by the end of 2019, and 82 percent believe that a recession will have begun by the end of 2020. 

also:

In 2019, CFOs expect sub-3% growth for the U.S. economy, with accompanying capital spending and employment growth of about 3 percent. 

also:

Moreover, their forecasts are skewed to the downside, with a one-in-ten chance that annual real growth will be a meager 0.6 percent. In this worst-case scenario, CFOs would expect their capital spending to fall by 1.3 percent and for hiring to remain flat.

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 66, as seen below:

CFO Optimism

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)

_____

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 2664.75 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 December 6, 2018 update (reflecting data through November 30, 2018) is -.889.

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 December 12, 2018 incorporating data from January 8, 1971 through December 7, 2018, on a weekly basis.  The December 7 value is -.76:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 12, 2018:  
http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on December 12, 2018 incorporating data from January 8, 1971 through December 7, 2018, on a weekly basis.  The December 7 value is -.54:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 12, 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 2666.89 as this post is written

NFIB Small Business Optimism – November 2018

The November NFIB Small Business Optimism report was released today, December 11, 2018. The headline of the Economic Trends report is “Small Business Optimism Remains Historically HIgh In November.”

The Index of Small Business Optimism decreased in November by 2.6 points to 104.8.

Here is an excerpt that I find particularly notable (but don’t necessarily agree with):

Small business optimism posted a modest decline in November with a reading of 104.8, while continuing its exceptionally strong two-year trend, according to the NFIB Small Business Optimism Index. Slightly more than half of the decline was attributable to Expected Business Conditions and Expected Real Sales. Increases in compensation tied a near 30-year high as owners seek to attract more qualified candidates. An increasing percentage of owners reported capital outlays and higher sales.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the December 11 Doug Short post titled “NFIB Small Business Survey…“:

NFIB Small Business Optimism Survey

Further details regarding small business conditions can be seen in the full November 2018 NFIB Small Business Economic Trends (pdf) report.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2646.95 as this post is written

Building Financial Danger – December 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 December 7, 2018 with a last price of 2633.08), 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 chart since 2008

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2631.23 as this post is written

Recession Probability Models – December 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 December 6, 2018 using data through November) this “Yield Curve” model shows a 15.7683% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 14.1197% probability through October, 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 December 3, 2018, currently shows a .58% probability using data through September.

Here is the FRED chart (last updated December 3, 2018):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed December 10, 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 November 15, 2018 post titled “The November 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 19.55% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2633.08 as this post is written

“Not In Labor Force” Statistic – As Of December 2018

In the November 13, 2013 post (“Not In Labor Force Statistic“) I featured editorial commentary from the Wall Street Journal, as well as an accompanying long-term chart, with regard to the number of people not working.

Also, on February 9, 2015 I wrote another post titled “Unemployment And The ‘Not In Labor Force’ Statistic,” in which I discussed various facets of this measure.

Below is an updated chart regarding this statistic.  The current figure, last updated on December 7, 2018 depicting data through November 2018, is 96.043 million people (Not Seasonally Adjusted):

Not in Labor Force

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Not In Labor Force [LNU05000000] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018:
http://research.stlouisfed.org/fred2/series/LNU05000000

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2640.45 as this post is written

Average Hourly Earnings Trends

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

Along these lines, one of the measures showing disconcerting trends is that of hourly earnings.

While the concept of hourly earnings can be defined and measured in a variety of ways, below are a few charts that I believe broadly illustrate problematic trends.

The first chart depicts Average Hourly Earnings Of All Employees: Total Private (FRED series CES0500000003)(current value = $27.35):

(click on chart to enlarge image)(chart last updated 12-7-18)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of All Employees:  Total Private [CES0500000003] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed December 7, 2018: 
http://research.stlouisfed.org/fred2/series/CES0500000003

This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 12-7-18)

There are slightly different measures available from a longer-term perspective. Pictured below is another measure, the Average Hourly Earnings of Production and Nonsupervisory Employees – Total Private (FRED series AHETPI)(current value = $22.95):

(click on chart to enlarge image)(chart last updated 12-7-18)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of Production and Nonsupervisory Employees:  Total Private [AHETPI] ; U.S. Department of Labor: Bureau of Labor Statistics;  accessed December 7, 2018: 
http://research.stlouisfed.org/fred2/series/AHETPI

Pictured below is this AHETPI measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 12-7-18)

I will continue to actively monitor these trends, especially given the post-2009 dynamics.

_________

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 2632.81 this post is written