Category Archives: Economic Forecasts

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 12, 2018 update (reflecting data through April 6, 2018) is -.896.

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 18, 2018 incorporating data from January 8, 1971 through April 13, 2018, on a weekly basis.  The April 13, 2018 value is -.75:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 18, 2018:

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

The ANFCI chart below was last updated on April 18, 2018 incorporating data from January 8,1971 through April 13, 2018, on a weekly basis.  The April 13 value is -.47:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 18, 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 2717.03 as this post is written

April 2018 IMF Report – Probabilities Of Recession And Deflation

The International Monetary Fund (IMF) recently published the April 2018 “World Economic Outlook.”  The subtitle is ”Cyclical Upswing, Structural Change.”

One area of the report is Figure 1.22 on page 24.  While I do not agree with the current readings of the two measures presented – Probability of Recession and the Probability of Deflation – I do find them to be notable, especially as one can compare these estimates across various global economies.

As one can see, the report states that the U.S. is estimated to have a roughly 18% probability of recession and roughly a 2% probability of deflation for the periods indicated.

_________

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 2706.39 this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – April 13, 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 Doug Short’s ECRI update post of April 13, 2018 titled “ECRI Weekly Leading Index.”  These charts are on a weekly basis through the April 13, 2018 release, indicating data through April 6, 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:

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 2662.92 as this post is written

The April 2018 Wall Street Journal Economic Forecast Survey

The April 2018 Wall Street Journal Economic Forecast Survey was published on April 12, 2018.  The headline is “Powerful Forces Seen Restraining U.S. Pay Growth.”

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:

A majority of the 60 economists surveyed this month by the Journal said three factors are meaningfully holding down readings on wage growth: low productivity growth, demographic changes, and foreign competition and globalization. Other possible explanations, such as hidden slack in the labor market or government regulation, were cited by fewer than half of forecasters.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 15.33%. The individual estimates, of those who responded, ranged from 0% to 35%.  For reference, the average response in March’s survey was 13.66%.

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 April 6 – April 10, 2018.

The current average forecasts among economists polled include the following:

GDP:

full-year 2018:  2.8%

full-year 2019:  2.5%

full-year 2020:  2.0%

Unemployment Rate:

December 2018: 3.8%

December 2019: 3.6%

December 2020: 3.9%

10-Year Treasury Yield:

December 2018: 3.18%

December 2019: 3.49%

December 2020: 3.62%

CPI:

December 2018:  2.3%

December 2019:  2.3%

December 2020:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2018: $62.06

for 12/31/2019: $61.20

for 12/31/2020: $61.54

(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 2663.99 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 April 5, 2018 update (reflecting data through March 30, 2018) is -.919.

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 11, 2018 incorporating data from January 8, 1971 through April 6, 2018, on a weekly basis.  The April 6, 2018 value is -.73:

Chicago Fed National Financial Conditions Index

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

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

The ANFCI chart below was last updated on April 11, 2018 incorporating data from January 8,1971 through April 6, 2018, on a weekly basis.  The April 6 value is -.47:

Adjusted National Financial Conditions Index

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 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 2653.73 as this post is written

The Yield Curve – April 11, 2018

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 April 10, 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 April 10, 2018 closing value of .48%.  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)

Yield Curve with Subcomponents

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 April 9, 2018 (updated April 10, 2018) with recessionary periods shown in gray. This chart shows a value of .49%:

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 April 11, 2018:

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2656.87 as this post is written

CEO Confidence Surveys 1Q 2018 – Notable Excerpts

On April 5, 2018, The Conference Board released the 1st Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 65, up from 63 in the fourth quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this April 5 Press Release include:

CEOs’ assessment of current economic conditions was slightly more positive, with 75 percent saying conditions are better compared to six months ago, up from 71 percent in the fourth quarter of last year. CEOs were also moderately more optimistic in their appraisal of current conditions in their own industries. Now, 51 percent say conditions in their own industries have improved, up from 49 percent last quarter.

Looking ahead, CEOs’ expectations regarding the short-term outlook was significantly better. Now, 63 percent expect economic conditions to improve over the next six months, compared to just 47 percent last quarter. CEOs, however, were only slightly more upbeat about short-term prospects in their own industries over the next six months, with 43 percent anticipating conditions will improve, versus 41 percent last quarter.

The Business Roundtable last month also released its CEO Economic Outlook Survey for the 1st Quarter of 2018.   Notable excerpts from the March 13, 2018 release, titled “Business Roundtable CEO Economic Outlook Index Reaches Highest Level in Survey’s 15-Year History“:

The Business Roundtable Q1 2018 CEO Economic Outlook Index – a composite of CEO projections for sales and plans for capital spending and hiring over the next six months – increased to 118.6 in the first quarter of 2018, the highest level since the survey began in the fourth quarter of 2002. The survey was conducted between February 7 and February 26, 2018. Results reflect renewed CEO optimism and confidence following passage of the Tax Cuts and Jobs Act, but do not capture effects of President Trump’s March 8, 2018, announcement of steel and aluminum tariffs.

The Q1 2018 Index exceeded its previous high point of 113 in 2011. The Index has significantly surpassed its historical average level of 81.2.

All three components of the Index reached record highs, signaling a positive direction for the U.S economy.

  • CEO plans for hiring rose to 98.5, up 22.8 from the previous quarter.
  • Plans for capital investment rose to 115.4, up 22.7 from Q4 2017.
  • Expectations for sales reached 141.9, an increase of 19.9 from the last quarter.

In their second estimate for GDP in 2018, CEOs project 2.8 percent GDP growth for the year, compared to the previous quarter’s estimate of 2.5 percent for the year.

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 2662.84 as this post is written

Deflation Probabilities – April 5, 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 April 5, 2018 update states the following:

The 2017–22 deflation probability was 0.8 percent on April 4, up from 0.4 percent on March 28. The 2016–21 deflation probability was 2.5 percent on April 4, up from 2.0 percent on March 28. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2016 and early 2017, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2016 and April 2017 and the 10-year TIPS issued in July 2011 and July 2012.

_________

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 2662.84 as this post is written

Recession Probability Models – April 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 April 5, 2018 using data through March) this “Yield Curve” model shows a 10.8366% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 9.1421% probability through February, 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 April 2, 2018, currently shows a 1.54% probability using data through January.

Here is the FRED chart (last updated April 2, 2018):

U.S. Recession Probability

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed April 5, 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 March 15 post titled “The March 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 13.66% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2663.57 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 29, 2018 update (reflecting data through March 23, 2018) is -.956.

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 4, 2018 incorporating data from January 8, 1971 through March 30, 2018, on a weekly basis.  The March 30, 2018 value is -.74:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 4, 2018:

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

The ANFCI chart below was last updated on April 4, 2018 incorporating data from January 8,1971 through March 30, 2018, on a weekly basis.  The March 30 value is -.48:

ANFCI_4-4-18 -.48

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 4, 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 2631.08 as this post is written