Friday, July 31, 2026

Another Recession Probability Indicator – Through Q1 2026

Each month I have been highlighting various estimates of U.S. recession probabilities.  The latest update was that of July 9, 2026, titled “Recession Probability Models – July 2026.”

While I don’t agree with the methodologies employed or the probabilities of impending economic weakness as depicted by these and other estimates, I do believe that the results of these models and estimates should be monitored.

Another probability of recession is provided by James Hamilton, and it is titled “GDP-Based Recession Indicator Index.”  A description of this index, as seen in FRED:

This index measures the probability that the U.S. economy was in a recession during the indicated quarter. It is based on a mathematical description of the way that recessions differ from expansions. The index corresponds to the probability (measured in percent) that the underlying true economic regime is one of recession based on the available data. Whereas the NBER business cycle dates are based on a subjective assessment of a variety of indicators that may not be released until several years after the event , this index is entirely mechanical, is based solely on currently available GDP data and is reported every quarter. Due to the possibility of data revisions and the challenges in accurately identifying the business cycle phase, the index is calculated for the quarter just preceding the most recently available GDP numbers. Once the index is calculated for that quarter, it is never subsequently revised. The value at every date was inferred using only data that were available one quarter after that date and as those data were reported at the time.

If the value of the index rises above 67% that is a historically reliable indicator that the economy has entered a recession. Once this threshold has been passed, if it falls below 33% that is a reliable indicator that the recession is over.

Additional reference sources for this index and its construction can be seen in the Econbrowser post of February 14, 2016 titled “Recession probabilities” as well as on the “The Econbrowser Recession Indicator Index” page.

Below is a chart depicting the most recent value of 7.00000% for the first quarter of 2026, last updated on July 30 (after the July 30, 2026 Gross Domestic Product, Second Quarter 2026 (Advance Estimate)):

source:  Hamilton, James, GDP-Based Recession Indicator Index [JHGDPBRINDX], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed July 31, 2026: 
https://fred.stlouisfed.org/series/JHGDPBRINDX#

_________

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 7484.21 as this post is written


Employment Cost Index (ECI) – June 2026

While the concept of Americans’ incomes can be defined in a number of ways, many prominent measures continue to show disconcerting trends.

One prominent measure is the Employment Cost Index (ECI).

Here is a description from the BLS document titled “The Employment Cost Index:  what is it?“:

The Employment Cost Index (ECI) is a quarterly measure of the change in the price of labor, defined as compensation per employee hour worked. Closely watched by many economists, the ECI is an indicator of cost pressures within companies that could lead to price inflation for finished goods and services. The index measures changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. As a fixed-weight, or Laspeyres, index, the ECI controls for changes occurring over time in the industrial-occupational composition of employment.

On July 31, 2026, the latest ECI report was released.  Here are two excerpts from the BLS release titled “Employment Cost Index – June 2026“:

Compensation costs for civilian workers increased 0.9 percent, seasonally adjusted, for the 3-month period ending in June 2026, the U.S. Bureau of Labor Statistics reported today. Wages and salaries increased 0.9 percent and benefit costs increased 1.0 percent from March 2026. (See tables A, 1, 2, and 3.)

Compensation costs for civilian workers increased 3.4 percent, not seasonally adjusted, for the 12-month period ending in June 2026. Wages and salaries increased 3.2 percent and benefit costs increased 3.8 percent over the year. (See tables A, 4, 8, and 12.)   

Below are three charts, updated on July 31, 2026 that depict various aspects of the ECI, which is seasonally adjusted (SA):

The first depicts the ECI, with a value of 177.178:


source: US. Bureau of Labor Statistics, Employment Cost Index: Total compensation: All Civilian [ECIALLCIV], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed July 31, 2026:  https://fred.stlouisfed.org/series/ECIALLCIV/#

The second chart depicts the ECI on a “Percent Change from Year Ago” basis, with a value of 3.4%:


The third chart depicts the ECI on a “Percent Change” (from last quarter) basis, with a value of .9%:


_________

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 7487.81 as this post is written

Velocity Of Money – Charts Updated As Of July 30, 2026

Here are two charts from the St. Louis Fed depicting the velocity of money in terms of the M1 and M2 money supply measures.

All charts reflect quarterly data through the 2nd quarter of 2026, and were last updated as of July 30, 2026.

Velocity of M1 Money Stock, current value = 1.648:


Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 31, 2026:
http://research.stlouisfed.org/fred2/series/M1V

Velocity of M2 Money Stock, current value = 1.412:


Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 31, 2026: 
http://research.stlouisfed.org/fred2/series/M2V

_________

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 7476.00 as this post is written

Thursday, July 30, 2026

Kevin Warsh’s July 29, 2026 Press Conference – Notable Aspects

On Wednesday, July 29, 2026 FOMC Chair Kevin Warsh gave the scheduled July 2026 FOMC Press Conference. (link of video and related materials)

Below are Kevin Warsh’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chair Warsh’s Press Conference“ (preliminary)(pdf) of July 29, 2026, with the accompanying “FOMC Statement” dated July 29, 2026.

Excerpts from Chair Warsh’s opening comments:

Today, as you know, our Committee decided to vote by a 9 to 3 vote to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent.  The Committee is continuing its policy of making ample reserves in the banking system.  The economy is showing impressive resilience.  Even with recent shocks, the trends are positive and reveal solid growth.  Job gains have kept pace with the workforce, and the unemployment rate has changed little.  Inflation remains elevated relative to the Committee’s 2 percent goal.  The Committee remains resolute.  You’ve heard this before, but we will deliver price stability.  

Excerpts of Kevin Warsh’s responses as indicated to various questions:

NEIL IRWIN. Hi, Chairman Warsh, thanks. Neil Irwin with Axios, thank you for taking our questions. So the Fed funds rate is now about 75 basis points below the two-year yield, suggests markets think you’ll have to tighten eventually, about 100 basis points below most Taylor Rule estimates. You’re hitting your employment mandate, inflation stays high. Why should rates not be higher today?

CHAIRMAN WARSH. There’s a lot in there, Neil. So, rates are higher today than they were 42 days ago. Markets have made decisions because we stepped back in part from trying to influence those. Market judgments have moved up on what nominal rates are, across the Treasury curve. That doesn’t mean we take them as — by dictation, but we’re observing them. So I think it’s a mischaracterization to say that markets haven’t reacted because we didn’t move today. Markets are reacting in real time. In the period ahead, we’ve got important decisions to make about the policy rate. Markets in the intervening period, I think, have quite a bit of decisions to make. I’ll see if I can put it this way, monetary policy matters not just by what we say, or even what we do, monetary policy matters by how it affects the real economy. And these prices that we see in financial markets is one of the many ways in which it affects the real economy. We’ll be continuing to watch that market information, see how it responds to incoming events, and that can help inform our decision making when we meet in seven or eight weeks.

NEIL IRWIN. How would you characterize, in the family fight the last couple days, of you and the other eight members who wanted to hold, was that a strong conviction, or was that a hair trigger close call on holding versus tightening?

CHAIRMAN WARSH. Well, I think, you know, the vote was 9-3. The broader discussion to my ear over the course of the last days showed a lot of agreement on the hard questions. The four questions I raised at the outset about what’s really happening in the economy with the shocks and absent the shocks. What are our tools and our capabilities? What’s the effect on prices on output? I heard a lot of commonality on the questions. Were there different leans on the answers? You bet there was. So, could people come to different conclusions? Absolutely. But my own judgment is this is a period of watchful thinking, not watchful waiting. And I think the score on that vote was unanimous. 

also:

MICHAEL MCKEE. Michael McKee from Bloomberg Radio and Television. I’m struggling a little bit with some of what you’ve said today, and maybe you can help clarify this. You’ve said over and over again that your job is to bring down prices, to get prices stable, to hit your target, and that you will hit your target. The market says you’re not there yet, because they’ve raised rates. But all you’ve talked about today is talking about it, and it’s not like members of the Committee weren’t there before you talking about it. So I guess what the American people might be asking is, what are you waiting for?

CHAIRMAN WARSH. Yeah. So, believe it or not, this press conference is not all I’ve done today. We have spent an inordinate amount of time in the last two — two days, two weeks, looking at our monetary policy strategy. Evaluating our tools. Thinking hard about the sources of data that we have at our disposal, and we wish we had. We’ve also thought hard about the period ahead. What among these questions will be answered with more clarity, certainly not certainty. So, the decision we made today, the discussion we had in that room, was the farthest thing from inertia I can imagine. As a point estimate at this very moment, in a choice between two alternatives, you heard the results of it, but I would tell you that this discussion was far more robust and our thinking about how best to achieve that target is advanced, and over the coming months I expect it to be advanced much more significantly. If you were to sort of — if I were to steal a follow-up question, I won’t let you — you won’t be giving it up — if I were to steal a follow-up question, well what’s — what’s — what’s the world think about what you’ve done? I would again reiterate, what we do isn’t just about what we say, it’s not just about what we do, we’re in the performance business. And so — so, if I look at the Treasury curve, if I look at the dollar, if I look at a lot of things that are internals inside of financial markets, I think what they’re broadly saying is that this Committee does own it, has the credibility to deliver it, and they believe, like I do, that we will. But I don’t want to leave you with a misimpression, we’ve got no magic wand. This isn’t something that we’re going to be able to carry out in days or weeks. But we’re going to deliver on the responsibility that Congress gave us, and today’s meeting, and the preparation for today’s meeting, was an important step towards that destination.

MICHAEL MCKEE. I’d like to follow-up on the task forces as well, and ask, what vetting did you do of the people that you appointed to the task forces. In particular, given Marc Andreessen’s substantial political spending, $25 million in just the past year to back candidates who oppose stricter AI regulation, how can the public be confident that a committee he co-chairs will provide an independent assessment of AI’s economic effects, rather than one aligned with the interests of the AI industry?

CHAIRMAN WARSH. Yeah, so I selected 15 incredible subject market — subject matter experts to tackle five of the most important questions that if we get the answers right, we’re going to do a far better job in delivering. And if we get the answers wrong, we have a problem. The comfort that I can give you and your listeners is, we’re the decision makers. The Chairman of the Board of the Federal Reserve and the members of the Board and the FOMC, we will be the consumers of the outputs from five different committees. The judgments we’re making will be informed by, but not at all determined by these outside groups. My theory of the case in establishing the task forces were to pick people with extraordinary talent, depth of expertise and a divergence of views inside every committee. So they too can have a family fight. This is not outsourcing to people that aren’t known and haven’t been vetted. This is seeing whether new ideas can catalyze a broader, better, more informed discussion inside the room. And I’m very confident that we’re going to be able to do that. I am impressed by the credentials of these 15 people. And full disclosure, I’ve known almost all of them for a very long time, and I think they’re going to give their best views on the subject, but ultimately, these are decisions we’re going to make and we’re accountable to our oversight committees and to the remit Congress gave us to deliver. 

_____

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 7422.14 as this post is written

Real GDP Chart Since 1947 – 2nd Quarter 2026

For reference purposes, below is a chart reflecting Real GDP, as depicted, with value $24,270.599.  This chart incorporates the Gross Domestic Product, 2nd Quarter 2026 (Advance Estimate) of July 30, 2026:


source: U.S. Bureau of Economic Analysis, Real Gross Domestic Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed July 30, 2026: https://fred.stlouisfed.org/series/GDPC1

_________

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 7415.38 as this post is written

Tuesday, July 28, 2026

Money Supply Charts Through June 2026

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the M1, defined in FRED as the following:

Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.

Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.

Here is the “M1 Money Stock” (seasonally adjusted) chart, updated on July 28, 2026 depicting data through June 2026, with a value of $19,831.5 Billion:


Here is the “M1 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 5.8%:


Data Source: Board of Governors of the Federal Reserve System (US), M1 Money Stock [M1SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed July 28, 2026: https://fred.stlouisfed.org/series/M1SL

The second set shows M2, defined in FRED as the following:

Before May 2020, M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.

Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on July 28, 2026, depicting data through June 2026, with a value of $23,155.2 Billion:


Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 5.5%:


Data Source: Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed July 28, 2026: https://fred.stlouisfed.org/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 7432.30 as this post is written

Friday, July 24, 2026

The U.S. Economic Situation – July 24, 2026 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.

I have written extensively about this peril, including in the following:

Building Financial Danger” (ongoing updates)

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through July 22, 2026 with a last value of 52,218.58):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)


_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 7408.30 as this post is written

Sunday, July 19, 2026

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” report of July 19, 2026:

from page 28:

(click on charts to enlarge images)


from page 29:


_____

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 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 7457.69 as this post is written