Wednesday, December 7, 2016

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 December1, 2016 update (reflecting data through November 25) is -1.126.
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:
Below are the most recently updated charts of the NFCI and ANFCI, respectively.
The NFCI chart below was last updated on December 7, 2016 incorporating data from January 5,1973 through December 2, 2016, on a weekly basis.  The December 2, 2016 value is -.75:
NFCI_12-7-16 -.75
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 7, 2016:
The ANFCI chart below was last updated on December 7, 2016 incorporating data from January 5,1973 through December 2, 2016, on a weekly basis.  The December 2 value is -.22:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 2, 2016:
_________
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 2213.75 as this post is written

Zillow Q4 2016 Home Price Expectations Survey – Summary & Comments

On December 6, 2016, the Zillow Q4 2016 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.
An excerpt from the Press Release:
Overall, the experts surveyed – which include economists and researchers -- said they expect home price appreciation to be at almost 5 percent by the end of 2016, and slow down to 3.6 percent by the end of next year. Zillow forecasts rents across the U.S. to appreciate 1.6 percent from October 2016 to October 2017.
"More than 90 percent of the 111 panelists who participated in this quarter's survey expect home value growth to be slower next year, and more than 85 percent of them foresee home value appreciation rates flat or lower compared to 2016 in every year through 2021," said Pulsenomics founder Terry Loebs.  "While those figures represent a clear consensus that home value growth will moderate in the coming years, there is no consensus concerning the pace of the expected deceleration.  For example, the most optimistic experts project that U.S. home value appreciation will average more than 4 percent annually through 2021, while the most pessimistic expect an average annual rate of just 1.1 percent for 2017 and beyond."
Various Q4 2016 Zillow Home Price Expectations Survey charts are available, including that seen below:
Zillow U.S. Home Price Expectations chart
As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index, will continually climb.
The detail of the Q4 2016 Home Price Expectations Survey (pdf) is interesting.  Of the 111 survey respondents, only two (of the displayed responses) forecasts a cumulative price decrease through 2021, and only one of those two forecasts is for a double-digit percentage decline.  That forecast is from Mark Hanson, who foresees a 24.47% cumulative price decrease through 2021.
The Median Cumulative Home Price Appreciation for years 2016-2021 is seen as 4.90%, 8.88%, 12.24%, 15.30%, 18.76%, and 22.32% respectively.
For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Mark Hanson’s above-referenced forecast) will prove too optimistic in hindsight.  From a longer-term historical perspective, such a decline is very mild in light of the wild excesses that occurred over the “bubble” years.
I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post titled “What’s Ahead For The Housing Market – A Look At The Charts.”
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2212.23 as this post is written

Recession Probability Models – December 2016

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, 2016 using data through November) this “Yield Curve” model shows a 5.4934% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 7.5585% 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 1, 2016, currently shows a .74% probability using data through September.
Here is the FRED chart (last updated December 1, 2016):
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 December 6, 2016:
The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the November 14 post titled “The November 2016 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 18.54% 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 2212.83 as this post is written

Monday, December 5, 2016

“Not In Labor Force” Statistic – As Of December 2016

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 2, 2016 depicting data through November 2016, is 95.089 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 5, 2016;
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2191.95 as this post is written

Friday, December 2, 2016

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 = $25.89):
(click on chart to enlarge image)(chart last updated 12-2-16)
average hourly earnings
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 2, 2016:
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 12-2-16)
Average Hourly Earnings 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 = $21.73):
(click on chart to enlarge image)(chart last updated 12-2-16)
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 December 2, 2016:
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 12-2-16)
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 2194.86 this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of December 2, 2016

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 4.6% unemployment rate:
(click on charts to enlarge images)(charts updated as of 12-2-16)
U-3 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 December 2, 2016;
Here is the U-6 chart, currently showing a 9.3% unemployment rate:
U-6 unemployment 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 December 2, 2016;
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2194.07 as this post is written

3 Critical Unemployment Charts – December 2016

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 = 10.1 weeks):
(click on charts to enlarge images)(charts updated as of 12-2-16)
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 December 2, 2016;
Here is the chart for Unemployed 27 Weeks and Over (current value = 1.856 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 December 2, 2016;
Here is the chart for Total Nonfarm Payroll (current value = 145.128 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 December 2, 2016;
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” label.  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.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2195.40 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000 – December 2, 2016 Update

For reference purposes, below are two charts of the VIX from year 2000 through Thursday's (December 1, 2016) close, which had a closing value of 14.07.
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 LOG
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
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2191.08 as this post is written