Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – August 30, 2013 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.

The movement of the ECRI WLI and WLI, Gr. is particularly notable at this time, as ECRI publicly announced on September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these seven sources :

• Bloomberg video, July 30, “U.S. Recession Began in 2012, ECRI’s Achuthan Says“
• ECRI, July 30, “Becoming Japan“
• ECRI, May 31, “What Wealth Effect?“
• ECRI, April 26, “Nominal GDP Growth Falls Again“
• ECRI, April 7, “Interview on Jobs & Recession” video
• ECRI, March 8 Interview Summary (provides links to 3 video interviews)
• ECRI, March 5, “Recession in the Yo-Yo Years“ (provides a link to a 17-page ECRI report dated March 2013 titled “The U.S. Business Cycle in the Context of the Yo-Yo Years”)

Other past notable 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order)  on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:

• Bloomberg video, May 9:  ”Lakshman Achuthan on Renewed U.S. Recession Call: Video“
• ECRI, May 9:  ”Revoking Recession:  48th Time’s The Charm?”
• Wall Street Journal video, May 9: “Free Market Economies Have Business Cycles”
• ECRI, May 11:  “Rising GDP Doesn’t Rule Out Recession”

Also, subsequent to May 2012:

• Bloomberg video, July 10:  “Recession Here”
• ECRI, September 7:  “Recession Evidence Obscured in Real Time”
• ECRI, September 13: “The 2012 Recession:  Are We There Yet?”
• Bloomberg video, September 13: “Recession Update.”
• CNN video, November 29, “Official Recession Indicators“
• CNN video, November 29, “ECRI Recession Update“
• Yahoo video, November 29, “Ignore GDP and the Fiscal Cliff, U.S. Is Already in Recession“
• Bloomberg video, November 29, “Recession Underway“
• CNBC video, December 7, “Definitional Recession Indicators“
• ECRI, December 7, “The Tell-Tale Chart” including this excerpt:  “Reviewing the indicators used to officially decide U.S. recession dates, it looks like the recession began around July 2012.”

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Below are three long-term charts, from Doug Short’s blog post of August 30 titled “ECRI Recession Watch:  Weekly Update”  These charts are on a weekly basis through the August 30 release, indicating data through August 23, 2013.

Here is the ECRI WLI (defined at ECRI’s glossary):

(click on charts to enlarge images)



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This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:



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This last chart depicts, on a long-term basis, the WLI, Gr.:



_________

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 1634.42 as this post is written

St. Louis Financial Stress Index – August 29, 2013 Update

On March 28, 2011 I wrote a post (“The STLFSI“) about the  St. Louis Fed’s Financial Stress Index (STLFSI) which is supposed to measure stress in the financial system.  For reference purposes, the most recent chart is seen below.  This chart was last updated on August 29, incorporating data from December 31,1993 to August 23, 2013, on a weekly basis.  The August 23, 2013 value is -.424:

(click on chart to enlarge image)

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Here is the STLFSI chart from a 1-year perspective:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 22, 2013:

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

_________

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 1638.34 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post ("2nd Quarter Corporate Profits") I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the  long-term chart below (updated through the second quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 29, 2013

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1644.31 as this post is written

2nd Quarter Corporate Profits

Today’s GDP release (Q2, 2nd Estimate) was accompanied by the BLS Corporate Profits (preliminary estimate) report for the 2nd Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (last updated August 29,2013, with a value of $1830.4 Billion) :

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Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed August 29, 2013; https://research.stlouisfed.org/fred2/series/CP

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1638.34 as this post is written

Consumer Confidence Surveys – As Of August 27, 2013

Doug Short had a blog post of August 27 ("Consumer Confidence Comes in Above Expectations") 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)

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There are a few aspects of the above charts that I find highly noteworthy.  Of course, the continuing subdued absolute levels of these two surveys is 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 blog.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1639.71 as this post is written

Durable Goods New Orders – Long-Term Charts Through July 2013

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through July, last updated on August 26.  This value is 226,620 ($ Millions) :

(click on charts to enlarge images)

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Here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:

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 August 27, 2013;

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

_________

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 1656.78 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – August 23, 2013 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.

The movement of the ECRI WLI and WLI, Gr. is particularly notable at this time, as ECRI publicly announced on September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these seven sources :

• Bloomberg video, July 30, “U.S. Recession Began in 2012, ECRI’s Achuthan Says“
• ECRI, July 30, “Becoming Japan“
• ECRI, May 31, “What Wealth Effect?“
• ECRI, April 26, “Nominal GDP Growth Falls Again“
• ECRI, April 7, “Interview on Jobs & Recession” video
• ECRI, March 8 Interview Summary (provides links to 3 video interviews)
• ECRI, March 5, “Recession in the Yo-Yo Years“ (provides a link to a 17-page ECRI report dated March 2013 titled “The U.S. Business Cycle in the Context of the Yo-Yo Years”)

Other past notable 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order)  on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:

• Bloomberg video, May 9:  ”Lakshman Achuthan on Renewed U.S. Recession Call: Video“
• ECRI, May 9:  ”Revoking Recession:  48th Time’s The Charm?”
• Wall Street Journal video, May 9: “Free Market Economies Have Business Cycles”
• ECRI, May 11:  “Rising GDP Doesn’t Rule Out Recession”

Also, subsequent to May 2012:

• Bloomberg video, July 10:  “Recession Here”
• ECRI, September 7:  “Recession Evidence Obscured in Real Time”
• ECRI, September 13: “The 2012 Recession:  Are We There Yet?”
• Bloomberg video, September 13: “Recession Update.”
• CNN video, November 29, “Official Recession Indicators“
• CNN video, November 29, “ECRI Recession Update“
• Yahoo video, November 29, “Ignore GDP and the Fiscal Cliff, U.S. Is Already in Recession“
• Bloomberg video, November 29, “Recession Underway“
• CNBC video, December 7, “Definitional Recession Indicators“
• ECRI, December 7, “The Tell-Tale Chart” including this excerpt:  “Reviewing the indicators used to officially decide U.S. recession dates, it looks like the recession began around July 2012.”

-

Below are three long-term charts, from Doug Short’s blog post of August 23 titled “ECRI Recession Watch:  Weekly Update”  These charts are on a weekly basis through the August 23 release, indicating data through August 16, 2013.

Here is the ECRI WLI (defined at ECRI’s glossary):

(click on charts to enlarge images)



-

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.:



_________

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 1660.81 as this post is written

St. Louis Financial Stress Index – August 22, 2013 Update

On March 28, 2011 I wrote a post ("The STLFSI") about the  St. Louis Fed’s Financial Stress Index (STLFSI) which is supposed to measure stress in the financial system.  For reference purposes, the most recent chart is seen below.  This chart was last updated on August 22, incorporating data from December 31,1993 to August 16, 2013, on a weekly basis.  The August 16, 2013 value is -.555:

(click on chart to enlarge image)

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Here is the STLFSI chart from a 1-year perspective:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 22, 2013:

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

_________

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 1654.32 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

Each week I have been posting two charts of the St. Louis Fed’s Financial Stress Index (STLFSI), which is supposed to measure stress in the financial system.

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

Here are the most recently updated charts of the NFCI and ANFCI, respectively.

This NFCI chart was last updated on August 21, incorporating data from January 5,1973 to August 16, 2013, on a weekly basis.  The August 16, 2013 value is -.81:

(click on chart to enlarge image)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 22, 2013:

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

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This ANFCI chart was last updated on August 21, incorporating data from January 5,1973 to August 16, 2013, on a weekly basis.  The August 16, 2013 value is -.04:

(click on chart to enlarge image)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 22, 2013:

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 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 1653.20 as this post is written

Current Economic Situation

With regard to our current economic situation,  my thoughts can best be described/summarized by the posts found under the 27 “Building Financial Danger” posts.

My thoughts concerning our ongoing economic situation – with future implications – can be seen on the page titled “A Special Note On Our Economic Situation,” which has been found near the bottom of every blog post since August 15, 2010.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1651.68 as this post is written

The Impact Of Rising Interest Rates

With the recent increase in interest rates, perhaps the paramount question is what impact a rising interest rate environment will have on the economy.

First, for reference, here is a long-term chart of interest rates from 1962, as seen in Doug Short's post of August 17 titled "Treasury Yields In Perspective" :

(click on chart to enlarge image)

As one can see, the overall trend in interest rates has been declining, dating back to the peak seen in the early-80s.

The impacts that these falling interest rates have had is extensive, and many of the impacts lack (full) recognition.  As I have previously commented, most recently in my February 6, 2013 post, "Falling interest rates over the last 20 years have been an “enabler” of much of our current day economy."

While the list of ways in which lower interest rates have acted as a benevolent factor to the economy is exceedingly lengthy, one such notable area is the impact lower interest rates have had on corporate earnings.  I highlighted two estimates concerning the positive impact of declining interest rates on corporate profitability in my July 29 ProfitabilityIssues.com post titled "Impact Of Low Interest Rates On Corporate Profitability."

Although there are various areas which benefit from increased interest rates, from an "all-things-considered" basis rising interest rates have many problematic aspects for our current-era economy.  While 10-Year Treasury Yields were above 5% as recently as 2007 - with no seeming adverse economic impact - I believe that the economy will have difficulties "absorbing" higher yields far before that 5%+ rate on the 10-Year Treasury is again reached.

The impact of the recent rising interest rate environment is particularly noteworthy, not only because of the historically-rapid speed of its ascent, but also because, as I have commented before, my analyses indicate that interest rates can rise to levels much higher than generally expected.  I have written extensively about my belief that there is an exceedingly large bond bubble; if one believes that such is the case, the implications concerning the level of future interest rates is disconcerting.  A "deflating" or "bursting" of such a large bubble will have widespread negative impacts on the economy and markets.

For reference, below is a chart depicting the recent movements of various (3-month, 2-Year, 5-Year, 7-Year and 10-Year) Treasury yields:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1642.80 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 August 16, 2013:

from page 11:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks)

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from page 12:

Calendar Year Bottom-Up EPS Actuals & Estimates

_____

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 1647.62 as this post is written

S&P500 Earnings Estimates For Years 2013, 2014, And 2015

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 12 of “The Director’s Report” of August 20, 2013, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2013 estimate:

$110.70/share

Year 2014 estimate:

$123.01/share

Year 2015 estimate:

$135.62/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 1648.08 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2013 & 2014 – As Of August 15, 2013

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 tag)

For reference purposes, the most current estimates are reflected below, and are as of August 15, 2013:

Year 2013 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $108.41/share

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

-From a “top down” perspective, “as reported” earnings of $100.91/share

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $122.28/share

-From a “top down” perspective, operating earnings of $114.53/share

-From a “top down” perspective, “as reported” earnings of $111.53/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 1656.87 as this post is written

Updates Of Economic Indicators August 2013

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

The August 2013 Chicago Fed National Activity Index (CFNAI)(pdf) updated as of August 20, 2013:

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The ECRI WLI (Weekly Leading Index):

As of 8/16/13 (incorporating data through 8/9/13) the WLI was at 131.2 and the WLI, Gr. was at 4.7%.

A chart of the WLI, Gr. since 2000, from Doug Short’s blog of August 16 titled “ECRI Recession Watch:  Weekly Update” :

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The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 12-31-07 through 8-10-13:

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The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the July 18 press release, the LEI was at 95.3 and the CEI was at 105.9 in June.

An excerpt from the July 18 release:

Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI was flat in June. Declines in building permits, new orders and stock prices were offset by gains in consumer expectations, initial claims for unemployment insurance, and other financial indicators. However, the LEI’s six-month growth rate remains positive, suggesting the economy will continue expanding through the end of the year.”

Here is a chart of the LEI from Doug Short’s blog post of July 18 titled “Conference Board Leading Economic Index:  Unchanged In June" :

_________

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 1658.25 as this post is written