Thursday, February 15, 2018

“Taylor Rule” Chart – February 14, 2018 Update

On January 9, 2017 I wrote a post (“Low Interest Rates And The Formation Of Asset Bubbles“) that mentioned the “Taylor Rule.”  As discussed in that post – and for other reasons – the level of the Fed Funds rate – and whether its level is appropriate – has vast importance and far-reaching consequences with regard to many aspects of the economy and financial system.
For reference, below is an updated chart depicting the “Taylor Rule” prescription and the actual Fed Funds rate, provided by the Federal Reserve Bank of Atlanta, updated as of February 14, 2018:
Taylor Rule chart
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2698.63 as this post is written

Wednesday, February 14, 2018

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 February 8, 2018 update (reflecting data through February 2, 2018) is -1.353.
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 February 14, 2018 incorporating data from January 8, 1971 through February 9, 2018, on a weekly basis.  The February 9, 2018 value is -.82:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 14, 2018:
The ANFCI chart below was last updated on February 14, 2018 incorporating data from January 8,1971 through February 9, 2018, on a weekly basis.  The February 9 value is -.61:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 14, 2018:
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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 2675.31 as this post is written

Tuesday, February 13, 2018

Charts Indicating Economic Weakness – February 2018

U.S. Economic Indicators

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.  This post is the latest in a series of posts indicating U.S. economic weakness or a notably low growth rate.
While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.  The Gross Domestic Product Q4 2017 Advance Estimate (pdf) of January 26, 2018 was 2.6%, and as seen in the February 2018 Wall Street Journal Economic Forecast Survey the consensus among various economists is for 2.8% GDP growth in 2018.  However, there are other broad-based economic indicators that seem to imply a weaker growth rate.  As well, it should be remembered that GDP figures can be (substantially) revised.

Charts Indicating U.S. Economic Weakness

Below are a small sampling of charts that depict greater degrees of weakness and/or other worrisome trends, and a brief comment for each:

Total Private Construction Spending

Various measures of construction continue to show weak growth and/or contraction.
“Total Private Construction Spending” through December had a last value of $963,247 Million.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 2.1%, last updated February 1, 2018:
TLPRVCONS Percent Change From Year Ago
source:  U.S. Bureau of the Census, Total Private Construction Spending [TLPRVCONS], retrieved from FRED, Federal Reserve Bank of St. Louis accessed February 9, 2018:

Total Federal Receipts

“Total Federal Receipts” growth continues to be intermittent in nature since 2015.
“Total Federal Receipts” through January had a last value of $361,038 Million.  Shown below is  displayed on a “Percent Change From Year Ago” basis with value 4.9%, last updated February 12, 2018:
Monthly Total Federal Receipts
source:  U.S. Department of the Treasury. Fiscal Service, Total Federal Receipts [MTSR133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis February 12, 2018:
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Commercial And Industrial Loans, All Commercial Banks

“Commercial And Industrial Loans, All Commercial Banks” through January had a last value of $2126.943 Billion.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 1.2%, last updated February 9, 2018:
BUSLOANS_2-9-18 Percent Change From Year Ago
source:  Board of Governors of the Federal Reserve System (US), Commercial and Industrial Loans, All Commercial Banks [BUSLOANS], retrieved from FRED, Federal Reserve Bank of St. Louis February 9, 2018:
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Employment

I have written extensively concerning unemployment, as the current and future unemployment issue is of tremendous importance.
The consensus belief is that employment is robust, citing total nonfarm payroll growth and the current unemployment rate of 4.1%.  However, my analyses continue to indicate that the conclusion that employment is strong is incorrect.  Of particular note is the unemployment rate, which indicates that unemployment is (very) low.  Closer examination indicates that this metric is, for a number of reasons, highly misleading.
My analyses indicate that the underlying dynamics of the unemployment situation remain exceedingly worrisome, especially with regard to the future.  These dynamics are numerous and complex, and greatly lack recognition and understanding, especially as how from an “all-things-considered” standpoint they will progress in an economic and societal manner.  I have recently written of the current and future U.S. employment situation on the “U.S. Employment Trends” page.
While there are many charts that can be shown, one that depicts a worrisome trend is the Civilian Labor Force Participation Rate for those with Bachelor’s Degrees and Higher, Ages 25 and Above.  The current value as of the February 2, 2018 update (reflecting data through the January employment report) is 73.4%:
LNS11327662
source:  U.S. Bureau of Labor Statistics, Civilian Labor Force Participation Rate: Bachelor’s Degree and Higher, 25 years and over [LNS11327662], retrieved from FRED, Federal Reserve Bank of St. Louis, February 9, 2018:
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Productivity Measures

While I have expressed concerns about the overall definitions and value of productivity measures in the past, I do find the current-era trends to be disconcerting.
One such chart that shows a subdued level of a productivity measure is that of “Manufacturing, Real Output Per Hour.” Through the fourth quarter the last value was 109.101.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 1.1%, last updated February 1, 2018:
OPHMFG Percent Change From Year Ago
source:  U.S. Bureau of Labor Statistics, Manufacturing Sector: Real Output Per Hour of All Persons [OPHMFG], retrieved from FRED, Federal Reserve Bank of St. Louis February 12, 2018:
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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate economic weakness or economic contraction, if not outright (gravely) problematical economic conditions.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2656.00 as this post is written

Friday, February 9, 2018

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – February 9, 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 February 9, 2018 titled “ECRI Weekly Leading Index Update:  Yet Another Record High for WLI.”  These charts are on a weekly basis through the February 9, 2018 release, indicating data through February 2, 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 2546.75 as this post is written

Philadelphia Fed – 1st Quarter 2018 Survey Of Professional Forecasters

The Philadelphia Fed 1st Quarter 2018 Survey of Professional Forecasters was released on February 9, 2018.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.
The survey shows, among many measures, the following median expectations:
Real GDP: (annual average level)
full-year 2018:  2.8%
full-year 2019:  2.5%
full-year 2020:  2.0%
full-year 2021:  1.7%
Unemployment Rate: (annual average level)
for 2018: 4.0%
for 2019: 3.8%
for 2020: 3.9%
for 2021: 4.0%
Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 5.8%, 9.1%, 11.4%, 13.6% and 16.8% for each of the quarters from Q1 2018 through Q1 2019, respectively.
As well, there are also a variety of time frames shown (present quarter through the year 2027) with the median expected inflation (annualized) of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in the 1.7% to 2.7% range.
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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 2552.37 as this post is written

Thursday, February 8, 2018

Deflation Probabilities – February 8, 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 February 8, 2018 update states the following:
The 2017–22 deflation probability has been 0 percent since December 18. The 2016–21 deflation probability was 0.5 percent on February 7, down from 1.6 percent on January 31. 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.
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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 2608.32 as this post is written

The February 2018 Wall Street Journal Economic Forecast Survey

The February 2018 Wall Street Journal Economic Forecast Survey was published on February 8, 2018.  The headline is “Economists Stick With Optimistic U.S. Outlook Despite Market Turmoil.”
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:
Forecasters see the U.S. economy gathering steam this year and the Federal Reserve raising short-term interest rates three or perhaps four times by the end of 2018.
Economists surveyed in recent days by The Wall Street Journal on average predicted U.S. gross domestic product would rise 2.8% in 2018, accelerating from 2.5% growth in the fourth quarter of 2017 versus a year earlier, supported by the recent package of tax-code changes.
As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 13.97%. The individual estimates, of those who responded, ranged from 0% to 35%.  For reference, the average response in January’s survey was 13.11%.
As stated in the article, the survey’s respondents were 63 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted February 2 – February 6, 2018.
The current average forecasts among economists polled include the following:
GDP:
full-year 2018:  2.8%
full-year 2019:  2.3%
full-year 2020:  2.0%
Unemployment Rate:
December 2018: 3.8%
December 2019: 3.8%
December 2020: 4.1%
10-Year Treasury Yield:
December 2018: 3.13%
December 2019: 3.46%
December 2020: 3.54%
CPI:
December 2018:  2.2%
December 2019:  2.3%
December 2020:  2.3%
Crude Oil  ($ per bbl):
for 12/31/2018: $61.00
for 12/31/2019: $60.19
for 12/31/2020: $59.39
(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)
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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 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 2626.82 as this post is written

Building Financial Danger – February 8, 2018 Update

My overall analysis indicates a continuing elevated and growing level of financial danger which contains many worldwide and U.S.-specific “stresses” of a very complex nature. I have written numerous posts in this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.
Also of ongoing immense importance is the existence of various immensely large asset bubbles, a subject of which I have extensively written.  While all of these asset bubbles are wildly pernicious and will have profound adverse future implications, hazards presented by the bond market bubble are especially notable.
Predicting the specific timing and extent of a stock market crash is always difficult, and the immense complexity of today’s economic situation makes such a prediction even more challenging. With that being said, my analyses continue to indicate that a near-term exceedingly large (from an ultra-long term perspective) stock market crash – that would also involve (as seen in 2008) various other markets as well – will occur.
(note: the “next crash” and its aftermath has great significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts in the “Economic Depression” label)
As reference, below is a daily chart since 2008 of the S&P500 (through February 7, 2018 with a last price of 2681.66 ), depicted on a LOG scale, indicating both the 50dma and 200dma as well as price labels:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
S&P500 since 2008
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2640.98 as this post is written