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 September 14, 2017 update (reflecting data through September 8, 2017) is -1.512.

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 September 20, 2017 incorporating data from January 5,1973 through September 15, 2017, on a weekly basis.  The September 15, 2017 value is -.86:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 20, 2017:

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

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The ANFCI chart below was last updated on September 20, 2017 incorporating data from January 5,1973 through September 15, 2017, on a weekly basis.  The September 15 value is -.60:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 20, 2017:

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

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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 2501.99 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 September 15, 2017:

from page 21:

(click on charts to enlarge images)

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from page 22:

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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 2503.87 as this post is written

S&P500 Forecasted EPS 2017, 2018, 2019

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 September 15, 2017, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share, the Year 2015 value is $117.46, and the Year 2016 value is $118.10/share:

Year 2017 estimate:

$131.38/share

Year 2018 estimate:

$145.76/share

Year 2019 estimate:

$158.92/share

_____

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 2506.56 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2017 And 2018 – As Of September 13, 2017

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 August 10, 2017:

Year 2017 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $127.13/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $114.46/share

Year 2018 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $144.48/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $131.13/share

_____

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 2503.68 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 September 7, 2017 update (reflecting data through September 1, 2017) is -1.506.

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 September 13, 2017 incorporating data from January 5,1973 through September 8, 2017, on a weekly basis.  The September 8, 2017 value is -.85:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 13, 2017:

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

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The ANFCI chart below was last updated on September 13, 2017 incorporating data from January 5,1973 through September 8, 2017, on a weekly basis.  The September 8 value is -.58:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 13, 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 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 2495.79 as this post is written

NFIB Small Business Optimism – August 2017

The August NFIB Small Business Optimism report was released today, September 12, 2017. The headline of the Small Business Economic Trends report is “Small Business Optimism Holds Its Altitude In August.”

The Index of Small Business Optimism increased in August to 105.3.

Here are some excerpts that I find particularly notable (but don’t necessarily agree with):

The NFIB Index rose 0.1 points to 105.3. Five of the components increased, while five declined. The lofty reading keeps intact a string of historically high performances extending back to last November.

“Consumer demand is very strong, and the regulatory relief has been dramatic,” said Duggan. “Small business owners still expect progress on tax reform and healthcare, and they will be watching closely.”

According to NFIB Chief Economist Bill Dunkelberg, the August figures for capital outlays are typical of a growing economy.

“Small firms are now making long-term investments in new machines, equipment, facilities, and technology,” he said. “That’s a real sign of strength, and it will be interesting to see if the August result becomes a trend.”

also:

Labor Markets

Small business owners reported a seasonally adjusted average employment change per firm of 0.18 workers per firm over the past three months, virtually unchanged from July. Fourteen percent (up 1 point) reported increasing employment an average of 4.4 workers per firm and 12 percent (up 1 point) reported reducing employment an average of 2.4 workers per firm (seasonally adjusted). Fifty-nine percent reported hiring or trying to hire (down 1 point), but 52 percent (88 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill. Nineteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (unchanged), second only to taxes. Labor quality is the top ranked problem in Construction (33 percent) and Manufacturing (25 percent), receiving more votes than taxes and regulatory costs. Thirty-one percent of all owners reported at least one job opening they could not fill in the current period, down 4 points but a very high reading. A seasonally adjusted net 18 percent of owners plan to create new jobs, off 1 point from July but historically very strong.

also:

Credit Markets

Three percent of owners reported that all their borrowing needs were not satisfied, unchanged and historically very low. Thirty-four percent reported all credit needs met (up 3 points) and 49 percent explicitly said they were not interested in a loan, down 2 points. Including those who did not answer the question, 63 percent of owners have no interest in borrowing, down 3 points. Thirty-one percent of all owners reported borrowing on a regular basis (up 1 point). The average rate paid on short maturity loans was down 40 basis points at 5.5 percent, little changed even as the Federal Reserve raises rates.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the September 12 Doug Short post titled “NFIB Small Business Survey:  Index Maintains Momentum in August“:

Further details regarding small business conditions can be seen in the full August 2017 NFIB Small Business Economic Trends (pdf) report.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2496.48 as this post is written

Recession Probability Models – September 2017

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 September 7, 2017 using data through August) this “Yield Curve” model shows a 9.9858% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 9.4544% probability through July, 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 September 1, 2017, currently shows a .20% probability using data through June.

Here is the FRED chart (last updated September 1, 2017):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed September 8, 2017:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

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The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the September 8 post titled “The September 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 16.08% 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 2461.43 as this post is written

The September 2017 Wall Street Journal Economic Forecast Survey

The September 2017 Wall Street Journal Economic Forecast Survey was published on September 7, 2017.  The headline is “WSJ Survey:  Economists Expect Next Fed Rate Increase in December.”

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:

Most economists in the latest Wall Street Journal survey expected the Federal Reserve would next raise short-term interest rates in December, and most said Janet Yellen should get a second term as the central bank’s chairwoman.

Almost three quarters of the business and academic economists surveyed in the latest poll said President Donald Trump should nominate Ms. Yellen to stay on after her current term expires in early February. Several economists said that keeping her on the job would provide continuity and reassure markets during uncertain times.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 16.08%. The individual estimates, of those who responded, ranged from 0% to 35%.  For reference, the average response in August’s survey was 15.00%.

As stated in the article, the survey’s respondents were 56 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted September 1-5.

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The current average forecasts among economists polled include the following:

GDP:

full-year 2017:  2.3%

full-year 2018:  2.4%

full-year 2019:  2.0%

Unemployment Rate:

December 2017: 4.3%

December 2018: 4.1%

December 2019: 4.2%

10-Year Treasury Yield:

December 2017: 2.49%

December 2018: 3.02%

December 2019: 3.28%

CPI:

December 2017:  1.7%

December 2018:  2.1%

December 2019:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2017: $48.94

for 12/31/2018: $51.15

for 12/31/2019: $52.26

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

_____

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 2463.26 as post is written