Tuesday, June 28, 2016

Consumer Confidence Surveys – As Of June 28, 2016

Doug Short had a blog post of June 28, 2016 (“Consumer Confidence Rebounds in June“) in which he presents the latest Conference Board Consumer Confidence and Thomson/Reuters University of Michigan Consumer Sentiment Index charts.  They are presented below:
(click on charts to enlarge images)
Conference Board Consumer Confidence
Michigan Consumer Sentiment
There are a few aspects of the above charts that I find highly noteworthy.  Of course, until the recent sudden upswing, the continued subdued absolute levels of these two surveys was disconcerting.
Also, I find the “behavior” of these readings to be quite disparate as compared to the other post-recession periods, as shown in the charts between the gray shaded areas (the gray areas denote recessions as defined by the NBER.)
While I don’t believe that confidence surveys should be overemphasized, I find these readings to be very problematical, especially in light of a variety of other highly disconcerting measures highlighted throughout this site.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2019.34 as this post is written

U.S. Deflation – June 28, 2016 Update

This post provides an update to various past posts discussing deflation and “deflationary pressures,” including the most recent post, that of January 27, 2016 titled “U.S. Deflation – January 27, 2016 Update.”   I have extensively written of “deflationary pressures” and deflation as I continue to believe that prolonged and deep U.S. deflationary conditions are on the horizon, and that such deflationary conditions will cause, as well as accompany, inordinate economic hardship. [note: to clarify, for purposes of this discussion, when I mention “deflation” I am referring to the CPI going below zero. Also, I have been using the term “deflationary pressures” as a term to describe deflationary manifestations within an environment that is still overall inflationary but heading towards deflation.]
The subject of deflation contains many complex aspects, and accordingly no short discussion can even begin to be a comprehensive discussion of such.  However, in this post I would like to highlight some recent notable developments.
Of note, the shortfall between the Federal Reserve’s stated inflation target (2% on the PCE Price Index) and the actual inflation reading continues.  This 2% inflation target has been “missed” (inflation has been less than 2%) for well over three years.  For reference, here is a chart of the PCE Price Index from Doug Short’s post of June 1, 2016, titled “Minimal Change in the April PCE Price Index“:
PCE Price Index
These readings can be compared against the CPI figures.  As one can see, "core" CPI remains somewhat higher than the "core" PCE Price Index:
CPI
Janet Yellen briefly commented about inflation in the June 15, 2016 FOMC Press Conference:
Our inflation outlook also rests importantly on our judgment that longer-run inflation expectations remain reasonably well anchored. However, we can’t take the stability of longer-run inflation expectations for granted. While most survey measures of longer-run inflation expectations show little change, on balance, in recent months, financial market-based measures of inflation compensation have declined. Movements in these indicators reflect many factors and therefore may not provide an accurate reading on changes in the inflation expectations that are most relevant for wages and prices. Nonetheless, in considering future policy decisions, we will continue to carefully monitor actual and expected progress toward our inflation goal.
Trying to assess and/or predict the possibility of U.S. deflation is very challenging for many reasons.  Among these reasons is that there are many different measures that are supposed to predict and/or depict the possibility of deflation, and they can show apparently contradictory readings.  Among these measures are both survey-based as well as market-based measures.
Another challenge is that deflation in the U.S. has been relatively non-existent since the beginning of the 20th Century.  As such, knowledge and "practical experience" with deflation is lacking.  As seen in the below chart (from Doug Short's June 16, 2016 post titled "A Long-Term Look at Inflation") with the exception of The Great Depression prolonged periods of pronounced deflation have practically been nonexistent, especially after 1950:
Long-term inflation
However, there are many reasons that I believe that U.S. deflation of a pronounced and lasting nature will occur.  Among the reasons are the following:
  • As mentioned above, the continuing inability to "create" inflation to rise above the 2% goal.
  • Prolonged and pronounced economic low- and no-growth levels experienced globally.   While there is widespread consensus that U.S. economic growth will remain positive for the foreseeable future, my analyses indicates that the economy continues to have many highly problematical areas and that the widespread consensus concerning current and future economic growth is (substantially) incorrect.  Substantial economic weakness (i.e. contraction) and deflation often occur simultaneously.
  • A continued "flattening" of the Yield Curve, as discussed in the June 21, 2016 post "The Yield Curve - June 21, 2016."
  • Continual indications of "deflationary pressures."  I have written extensively concerning these persistent "deflationary pressures," which have manifested in a variety of areas.
  • Worrisome trends in various "market-based" (and to a lesser extent "survey-based") inflationary expectations.  While there are many of these measures, one is the “10-Year Breakeven Inflation Rate.”  It is described in FRED as:
    The breakeven inflation rate represents a measure of expected inflation derived from 10-Year Treasury Constant Maturity Securities (http://research.stlouisfed.org/fred2/series/DGS10 ) and 10-Year Treasury Inflation-Indexed Constant Maturity Securities (http://research.stlouisfed.org/fred2/series/DFII10 ). The latest value implies what market participants expect inflation to be in the next 10 years, on average.
    Here is the long-term chart, with a reading of 1.50 percent as of the June 23, 2016 reading:
    T10YIE
source:  Federal Reserve Bank of St. Louis, 10-Year Breakeven Inflation Rate [T10YIE], retrieved from FRED, Federal Reserve Bank of St. Louis, June 27, 2016:  https://research.stlouisfed.org/fred2/series/T10YIE/
  • Disconcerting readings and trends from the State Street PriceStats Inflation Series.
  • An additional concern is the seemingly (very) high levels of inventory, as seen in various measures, such as Total Business:  Inventories to Sales Ratio (currently seen at 1.40 as of the April 2016 reading, updated as of June 14, 2016.)  While, for many reasons, it is difficult to know how much of a future problem this seemingly elevated inventory level is, it definitely has the potential to be highly problematical and a substantial "driver" of future price deflation, especially during an economic contraction.
It should be noted that there are many other measures of current and future inflation that imply little or no worrisome trends.  However, as I have mentioned previously, the methods in which deflation "plays out" is not necessarily incongruent with various indicators seemingly indicating little chance of deflation prior to a deflationary period.
In conclusion, I continue to believe that significant (in extent and duration) U.S. deflation is on the horizon.  As discussed in the November 14, 2013 post (“Thoughts Concerning Deflation”) deflation often accompanies financial system distress.  My analyses continue to show an exceedingly complex and difficult future financial condition in which an immensely large “financial system crash” will occur, during and after which outright deflation will both accompany and exacerbate economic and financial conditions.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2000.54 as this post is written

Friday, June 24, 2016

Durable Goods New Orders – Long-Term Charts Through May 2016

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.
For reference, below are two charts depicting this measure.
First, from the St. Louis Fed site (FRED), a chart through May 2016, updated on June 24, 2016. This value is $230,701 ($ Millions):
(click on charts to enlarge images)
durable goods new orders
Second, here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:
Durable Goods New Orders percent change from year ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER]; U.S. Department of Commerce: Census Bureau; accessed June 24, 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 2043.68 as this post is written

Median Household Income Chart

I have written many blog posts concerning the worrisome trends in income and earnings.
Doug Short, in his June 23, 2016 post titled “Real Median Household Income Declined Again in May” produced the chart below.  It is based upon data from Sentier Research, and it shows both nominal and real median household incomes since 2000, as depicted.  As one can see, post-recession real median household income (seen in the blue line since 2009) remains worrisome.
(click on chart to enlarge image)
median household income
As Doug mentions in his aforementioned post:
As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are about where they were during the middle of the Great Recession.
Among other items seen in his blog post is a chart depicting each of the two (nominal and real household incomes) data series’ percent change over time since 2000.
_________
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 2113.32 as this post is written

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.
FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.
For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of June 17, 2016:
from page 19:
(click on charts to enlarge images)
S&P500 earnings 2016 and 2017
from page 20:
S&P500 annual EPS
_____
I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not 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 2113.42 as this post is written

Thursday, June 23, 2016

S&P500 2016, 2017 & 2018 EPS Forecasts

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)
The following estimates are from Exhibit 20 of the “S&P500 Earnings Scorecard” (pdf) of June 23, 2016, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share and the Year 2015 value is $117.46:
Year 2016 estimate:
$118.38/share
Year 2017 estimate:
$135.42/share
Year 2018 estimate:
$149.24/share
_____
I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not 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 2113.32 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2016 & 2017 – As Of June 16, 2016

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)
For reference purposes, the most current estimates are reflected below, and are as of June 16, 2016:
Year 2016 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $114.61/share
-From a “top down” perspective, operating earnings of N/A
-From a “bottom up” perspective, “as reported” earnings of $105.77/share
Year 2017 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $134.38/share
-From a “top down” perspective, operating earnings of N/A
-From a “bottom up” perspective, “as reported” earnings of $124.94/share
_____
I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not 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 2113.32 as this post is written

Updates Of Economic Indicators June 2016

Here is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:
The June 2016 Chicago Fed National Activity Index (CFNAI) updated as of June 23, 2016: (current reading of CFNAI is -.51; current reading of CFNAI-MA3 is -.36):
CFNAI-MA3
As of June 17, 2016 (incorporating data through June 10, 2016) the WLI was at 136.5 and the WLI, Gr. was at 7.1%.
A chart of the WLI,Gr., from Doug Short’s post of June 17, 2016, titled “ECRI Weekly Leading Index:  WLI Down Slightly, But Growth Index Increases”:
ECRI WLI,Gr.
Here is the latest chart, depicting the ADS Index from December 31, 2007 through June 11, 2016:
ADS Index
The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):
As per the June 23, 2016 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Declined,” (pdf) the LEI was at 123.7, the CEI was at 113.5, and the LAG was 121.9 in May.
An excerpt from the June 23 release:
“The US LEI declined in May, primarily due to a sharp increase in initial claims for unemployment insurance. The growth rate of the LEI has moderated over the past year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “While the LEI suggests the economy will continue growing at a moderate pace in the near term, volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth.”
Here is a chart of the LEI from Doug Short’s blog post of June 23 titled “Conference Board Leading Economic Index: Decrease in May“:
Conference Board LEI
_________
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 2101.54 as this post is written