Author Archives: Ted Kavadas

The April 2017 Wall Street Journal Economic Forecast Survey

The April 2017 Wall Street Journal Economic Forecast Survey was published on April 13, 2017.  The headline is “Forecasters Lower Growth Outlook as Hopes for Quick Stimulus Fade.”

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:

A growing number of forecasters are beginning to reconsider their bullish outlook for the U.S. economy as doubts grow over the extent to which President Donald Trump will be able to implement his agenda.

also:

Growth forecasts for the first quarter have come down. In December, the average forecast called for 2.3% growth in the first quarter. That had fallen to 1.9% in March and dipped again to 1.4% in this month’s survey.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 15.79%. The individual estimates, of those who responded, ranged from 0% to 38%.  For reference, the average response in March’s survey was 14.41%.

As stated in the article, the survey’s respondents were 61 academic, financial and business economists.  Not every economist answered every question.  The survey occurred on April 7, 2017 to April 11, 2017.

The current average forecasts among economists polled include the following:

GDP:

full-year 2017:  2.3%

full-year 2018:  2.5%

full-year 2019:  2.1%

Unemployment Rate:

December 2017: 4.4%

December 2018: 4.3%

December 2019: 4.5%

10-Year Treasury Yield:

December 2017: 2.84%

December 2018: 3.32%

December 2019: 3.65%

CPI:

December 2017:  2.4%

December 2018:  2.4%

December 2019:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2017: $54.42

for 12/31/2018: $56.40

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)

_____

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 2338.52 as 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 April 6, 2017 update (reflecting data through March 31, 2017) is -1.363.

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 April 12, 2017 incorporating data from January 5,1973 through April 7, 2017, on a weekly basis.  The April 7, 2017 value is -.78:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 12, 2017:

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

The ANFCI chart below was last updated on April 12, 2017 incorporating data from January 5,1973 through April 7, 2017, on a weekly basis.  The April 7 value is -.16:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 12, 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 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 2344.33 as this post is written

Charts Indicating Economic Weakness – April 12, 2017

Throughout this site there are many charts of economic indicators.  At this time, the readings of various indicators are especially notable.  While many are still indicating economic growth, others depict (or imply) various degrees of weakness.

Below are a small sampling of charts that depict greater degrees of weakness and/or other worrisome trends, and a brief comment for each:

Consumer Spending

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.  There are widespread consequences for the U.S. economy, including the implications regarding the substantial number of retail store closures.

Auto Sales

One aspect of consumer spending, auto sales, have experienced significant growth over the post-2009 period, and the current reading (through March) is 16.529 million vehicles:

Light vehicle sales

source:  U.S. Bureau of Economic Analysis, Light Weight Vehicle Sales: Autos and Light Trucks [ALTSALES], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 10, 2017:

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

While some believe that auto sales have peaked, what is more worrisome is various underlying dynamics of these sales.  While an exhaustive discussion of such dynamics 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 the current amount of discounting and various new- and used-car inventory levels.  In essence, the current business model for the entire automotive industry appears vulnerable, with wide-ranging, substantial economic implications.

Heavy Truck Sales

Another area of vehicle sales which continues to indicate disconcerting trends is sales of Heavy Trucks, defined as trucks with more than 14,000 pounds gross vehicle weight.  Below is a chart of the sales trend since 1968, with a value of .366 million SAAR through March 2017 as of the April 10 update:

Heavy Truck Sales

source:  U.S. Bureau of Economic Analysis, Motor Vehicle Retail Sales: Heavy Weight Trucks [HTRUCKSSAAR], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed April 10, 2017:

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

A chart depicting this measure on a “Percent Change From Year Ago” basis:

Heavy Truck Sales Percent Change From Year Ago

GDP Estimates

While there are many GDP forecasts indicating GDP growth exceeding 2% for 2017, the first quarter GDP estimate provided by the Federal Reserve Bank of Atlanta “GDP Now” is distinctly different than the consensus.  As of the April 7, 2017 update, the estimate for the 1st Quarter of 2017 is .6%.

What is notable in this estimate is the persistent and significant degree of decline.

While I don’t believe in putting undue emphasis on one estimate, it does serve as yet another indication that economic activity may be (substantially) below the consensus estimates.

“Reflation”

One aspect of the U.S. economy that has been widely discussed since the November 2016 elections is that of “reflation.”

While, on an aggregate basis, some “reflation” appears to have recently occurred, it appears to be muted in nature.  In addition, various factors indicate that such “reflation” will be transitory in nature.

Indications of the above are various, and include the persistently subdued 10-Year Treasury Yield (at 2.361% as of the April 10 close) and the levels seen in the yield curve.

Here is a chart of the 10-Year Treasury Yield, from 1990:

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

10-Year Treasury Yield since 1990

The level of current inflation and the possibility of deflation (when the CPI goes below zero) is a vastly complex topic, and as such isn’t suitably discussed in a brief manner.  I have discussed the issue of deflation extensively as I continue to believe that outright sustained deflation will occur.  As I have stated in past commentaries, I don’t believe that surveys or “market-based” measures concerning deflation will provide adequate “advance warning” of impending deflation.

Other Indicators

As well, many other indicators – including vastly problematical conditions in current and especially future employment – and other areas mentioned on this site indicate economic weakness if not outright (substantially) problematical economic conditions.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2353.78 as this post is written

Building Financial Danger – April 10, 2017 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 April 7, 2017 with a last price of 2355.54), 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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2355.54 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 = $26.14):

(click on chart to enlarge image)(chart last updated 4-7-17)

CES0500000003

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 April 7, 2017:

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 4-7-17)

CES0500000003 percent change from year ago

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 = $21.90):

(click on chart to enlarge image)(chart last updated 4-7-17)

AHETPI

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 April 7, 2017:

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 4-7-17)

AHETPI percent change from year ago

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 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 2359.45 this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of April 7, 2017

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective.  Both charts are from the St. Louis Fed site.  The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 4.5% unemployment rate:

(click on charts to enlarge images)(charts updated as of 4-7-17)

U.S. unemployment rate

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilian Unemployment Rate [UNRATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed April 7, 2017;

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

Here is the U-6 chart, currently showing a 8.9% unemployment rate:

U-6 rate

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons  [U6RATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed April 7, 2017;

http://research.stlouisfed.org/fred2/series/U6RATE

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2357.98 as this post is written

3 Critical Unemployment Charts – April 2017

As I have commented previously, as in the October 6, 2009 post (“A Note About Unemployment Statistics”), in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction; they serve to understate the severity of unemployment.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated unemployment (and, in the third chart, employment) situation.

The three charts below are from the St. Louis Fed site.  Here is the Median Duration of Unemployment (current value = 10.3 weeks):

(click on charts to enlarge images)(charts updated as of 4-7-17)

median duration of unemployment

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Median Duration of Unemployment [UEMPMED] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed April 7, 2017;

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

Here is the chart for Unemployed 27 Weeks and Over (current value = 1.687 million):

unemployed 27 weeks and over

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilians Unemployed for 27 Weeks and Over [UEMP27OV] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed April 7, 2017;

http://research.stlouisfed.org/fred2/series/UEMP27OV

Here is the chart for Total Nonfarm Payrolls (current value = 145.858 million):

Total Nonfarm Payrolls

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed April 7, 2017;

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

Our unemployment problem is severe.  The underlying dynamics of the current – and especially future – unemployment situation remain exceedingly worrisome.    These dynamics are numerous and complex, and greatly lack recognition and understanding.

My commentary regarding unemployment is generally found in the “Unemployment” category.  This commentary includes the April 24, 2012 five-part post titled “The Unemployment Situation Facing The United States”, which discusses various problematical issues concerning the present and future employment situation.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2357.71 as this post is written

CEO Confidence Surveys 1Q 2017 – Notable Excerpts

On April 6, 2017, The Conference Board released the 1st Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 68, up from 65 in the fourth quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this April 6 Press Release include:

CEOs’ assessment of current economic conditions improved further, with 71 percent saying conditions were better compared to six months ago, up from 59 percent in the final quarter of 2016. Business leaders were also considerably more positive in their assessment of current conditions in their own industries. Now, 60 percent state conditions in their own industries have improved versus 46 percent in the fourth quarter.

CEOs’ optimism regarding the short-term outlook for the economy eased slightly, but remains rather strong. Currently, 65 percent expect economic conditions to improve over the next six months, compared to approximately 67 percent last quarter. The outlook for their own industries, however, was more favorable, with 67 percent of CEOs anticipating an improvement over the next six months, up from 58 percent in the fourth quarter of 2016.

The Business Roundtable last month also released its CEO Economic Outlook Survey for the 1st Quarter of 2017.   Notable excerpts from the March 14, 2017 release, titled “Business Leaders Positive on Economy:  Expectations for Sales, Hiring & Investment Make Sharp Rise“:

The Business Roundtable CEO Economic Outlook Index — a composite of CEO projections for sales and plans for capital spending and hiring over the next six months — made its largest increase since the fourth quarter of 2009.

The Index jumped 19.1 points, from 74.2 in the fourth quarter of last year to 93.3 in the current quarter. For the first time in seven quarters, the Index has risen above its historical average of 79.8. Its highest level over the past 10 years was 113, reached in Q1 2011.

CEO plans for hiring increased by 18 points from the previous quarter, while expectations for sales and capital expenditures increased by 21 and 18.4 points, respectively, over the previous quarter.

CEOs project 2.2 percent GDP growth in 2017, a 0.2 percent increase over their projection for 2017 made last December.

_____

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 2359.47 as this post is written

Stock Market Capitalization To GDP – Through Q4 2016 – Update

“Stock market capitalization to GDP” is a notable and important metric regarding stock market valuation.  In February of 2009 I wrote of it in “Does Warren Buffett’s Market Metric Still Apply?

Doug Short has recently published a post depicting this “stock market capitalization to GDP” metric.

As seen in his April 4, 2017 post titled “Market Cap to GDP:  An Updated Look at the Buffett Valuation Indicator” he shows two different versions, varying by the definition of stock market capitalization. (note:  additional explanation is provided in his post.)

For reference purposes, here is the first chart, with the stock market capitalization as defined by the Federal Reserve:

(click on charts to enlarge images)

Stock Market Capitalization To GDP

Here is the second chart, with the stock market capitalization as defined by the Wilshire 5000:

Market Capitalization To GDP

As one can see in both measures depicted above, “stock market capitalization to GDP” is at notably high levels from a long-term historical perspective.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2352.95 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 March 30, 2017 update (reflecting data through March 24, 2017) is -1.32.

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 April 5, 2017 incorporating data from January 5,1973 through March 31, 2017, on a weekly basis.  The March 31, 2017 value is -.76:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 5, 2017:

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

The ANFCI chart below was last updated on April 5, 2017 incorporating data from January 5,1973 through March 31, 2017, on a weekly basis.  The March 31 value is -.17:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 5, 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 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 2374.87 as this post is written