Wednesday, January 16, 2019

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 January 10, 2019 update (reflecting data through January 4, 2019) is -.667.
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 January 16, 2019 incorporating data from January 8, 1971 through January 11, 2019, on a weekly basis.  The January 11 value is -.75:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 16, 2019: 
http://research.stlouisfed.org/fred2/series/NFCI
The ANFCI chart below was last updated on January 16, 2019 incorporating data from January 8, 1971 through January 11, 2019, on a weekly basis.  The January 11 value is -.59:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 16, 2019: 
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 2623.93 as this post is written

Disturbing Charts (Update 33)

I find the following charts to be disturbing.   These charts would be disturbing at any point in the economic cycle; that they (on average) depict such a tenuous situation now – 115 months after the official (as per the September 20, 2010 NBER BCDC announcement) June 2009 end of the recession – is especially notable.
These charts raise a lot of questions.  As well, they highlight the “atypical” nature of our economic situation from a long-term historical perspective.
All of these charts are from the Federal Reserve, and represent the most recently updated data.
(click on charts to enlarge images)

Housing starts (last updated December 18, 2018):

Housing Starts
US. Bureau of the Census, Housing Starts: Total: New Privately Owned Housing Units Started [HOUST], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/HOUST/, January 15, 2019.

The Federal Deficit (last updated October 16, 2018):

Federal Deficit
US. Office of Management and Budget, Federal Surplus or Deficit [-] [FYFSD], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/FYFSD/, January 15, 2019.

Federal Net Outlays (last updated October 16, 2018):

Federal Net Outlays
US. Office of Management and Budget, Federal Net Outlays [FYONET], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/FYONET/, January 15, 2019.

State & Local Personal Income Tax Receipts (% Change from Year Ago)(last updated July 27, 2018):

ASLPITAX Percent Change From Year Ago
US. Bureau of Economic Analysis, State and local government current tax receipts: Personal current taxes: Income taxes [ASLPITAX], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/ASLPITAX/, January 15, 2019.

Total Loans and Leases of Commercial Banks (% Change from Year Ago)(last updated January 11, 2019):

Total Loans And Leases Percent Change From Year Ago
Board of Governors of the Federal Reserve System (US), Loans and Leases in Bank Credit, All Commercial Banks [TOTLL], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TOTLL/, January 15, 2019.

Bank Credit – All Commercial Banks (% Change from Year Ago)(last updated January 11, 2019):

Total Bank Credit Percent Change From Year Ago
Board of Governors of the Federal Reserve System (US), Bank Credit of All Commercial Banks [TOTBKCR], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TOTBKCR/, January 15, 2019.

M1 Money Multiplier (last updated January 11, 2019):

Money Multiplier
Federal Reserve Bank of St. Louis, M1 Money Multiplier [MULT], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/MULT/, January 15, 2019.

Median Duration of Unemployment (last updated January 4, 2019):

Median Duration of Unemployment
US. Bureau of Labor Statistics, Median Duration of Unemployment [UEMPMED], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/UEMPMED/, January 15, 2019.

Labor Force Participation Rate (last updated January 4, 2019):

Labor Force Participation Rate
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate [CIVPART], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CIVPART/, January 15, 2019.

The Chicago Fed National Activity Index (CFNAI) 3-month moving average (CFNAI-MA3)(last updated December 24, 2018):

Chicago Fed National Activity Index 3-Month Moving Average
Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CFNAIMA3/, January 15, 2019.
I will continue to update these charts on an intermittent basis as they deserve close monitoring…
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2610.30 as this post is written

Monday, January 14, 2019

Charts Indicating Economic Weakness – January 2019

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.  As seen in the January 2019 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 3.1% GDP growth in 2018 and 2.2% GDP growth in 2019.  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 weak growth or contraction, and a brief comment for each:

Regional Manufacturing Surveys

Various Federal Reserve regional manufacturing surveys are indicating either a significant weakening in growth or a decline in various aspects of activity.
Below is a chart of the Dallas Fed General Business Activity chart, from Doug Short’s site post of December 31, 2018 titled “December Dallas Fed Manufacturing Outlook at 2.5 Year Low“:
Texas Manufacturing General Business Activity
__

Philadelphia Federal Reserve’s Nonmanufacturing Business Outlook Survey

Another indicator that is flagging is the Current General Activity diffusion index from the Philadelphia Federal Reserve’s Nonmanufacturing Business Outlook Survey. Below is a chart through December, with a value of 4.3:
GABNDIF066MNFRBPHI
source: Federal Reserve Bank of Philadelphia, Current General Activity, Perceptions of Respondents for their Firm; Diffusion Index for FRB – Philadelphia District [GABNDIF066MNFRBPHI], retrieved from FRED, Federal Reserve Bank of St. Louis: accessed January 11, 2019: https://fred.stlouisfed.org/series/GABNDIF066MNFRBPHI
__

Unemployment

I have written extensively concerning unemployment, as the current and future unemployment issue is of tremendous importance, but is widely misunderstood.
The consensus belief is that employment is robust, with the often-cited total nonfarm payroll growth and the current unemployment rate of 3.9%.  However, my analyses continue to indicate that the conclusion that employment is strong is (in many ways) incorrect.  While the unemployment rate 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 evolve in an economic and societal manner.  I have 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 a Bachelor’s Degree and Higher, 25 years and over.  Among disconcerting aspects of this measure is the long-term (most notably the post-2009) trend, especially given this demographic segment’s characteristics.
The current value as of the January 4, 2019 update (reflecting data through the December employment report) is 73.6%:
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; accessed January 10, 2019: https://fred.stlouisfed.org/series/LNS11327662
__

The ECRI WLI, Gr.

The ECRI WLI,Gr. measure has been steadily declining and now is at -6.5% as of the January 11, 2019 update, reflecting data through January 4, 2019.
A chart of the WLI,Gr., with an overlay of U.S. GDP, from the Doug Short’s site ECRI update post of January 11, 2019:
ECRI WLI,Gr.
__

Other Indicators

As mentioned previously, many other indicators discussed on this site indicate weak economic growth or economic contraction, if not outright (gravely) problematical economic conditions.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2596.26 as this post is written

Thursday, January 10, 2019

Deloitte “CFO Signals” Report Q4 2018 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 4th Quarter of 2018.
As seen in page 2 of the report, there were 147 survey respondents.  As stated:
“Each quarter (since 2Q10), CFO Signals has tracked the thinking and actions of CFOs representing many of North America’s largest and most influential companies.
All respondents are CFOs from the US, Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. For a summary of this quarter’s response demographics, please see the sidebars and charts on this page. For other information about participation and methodology, please contact nacfosurvey@deloitte.com.”
Here are some of the excerpts that I found notable:
from page 3:

Perceptions

How do you regard the status of the North American, European, and Chinese economies? Perceptions of North America declined, with 88% of CFOs rating current conditions as good (down from 89% last quarter), and 28% expecting better conditions in a year (down from 45%, and a five-year low). Perceptions of Europe declined markedly to 23% and 7% (from 32% and 23%), and China also declined sharply to 24% and 12% (from 37% and 27%). Page 6.
What is your perception of the capital markets? A four-year-low 62% of CFOs say debt financing is attractive (73% last quarter). Attractiveness of equity financing fell for public company CFOs (from 42% to 35%) and also for private company CFOs (53% to 37%). Sixty-five percent of CFOs now say US equities are overvalued—down from last quarter’s 71%. Page 7.

Sentiment

Overall, what risks worry you the most? Following the US midterm elections, external risks have become an even stronger focus. CFOs express concerns about trade policy and political turmoil, and rising worries about economic growth. Talent is again the top internal concern. Page 8.
Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index fell drastically from last quarter’s +36 to just +3 this quarter—the lowest reading in nearly three years. Just 26% of CFOs express rising optimism (48% last quarter), and 23% express declining optimism (12% last quarter). Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a smaller bias toward growth over cost reduction (50% vs. 21%) and a lower bias toward investing cash over returning it (48% vs. 18%). The bias toward current offerings over new ones shifted toward new (43% vs. 40%), and the bias toward current geographies over new ones decreased (60% vs. 17%). Page 10.
Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months? Revenue growth expectations declined from 6.1% to 5.5%, and earnings growth declined from 8.1% to 7.3% (their lowest levels in one and two years, respectively). Capital investment slid from 9.4% to just 5.0% (the lowest level in two years). Domestic hiring rose from 2.7% to 3.2% (matching its survey high). Dividend growth fell from last quarter’s very high 7.4% back to 4.5% (the two-year average). Page 11.

Special topic: Economic, capital markets, and company expectations

What are your expectations for the macroeconomy in 2019? The vast majority of CFOs do not expect the US, Canadian, or Mexican economies to improve, and 55% expect a US recession by 2020. Expectations for business spending declined sharply, and those for labor costs rose. Page 12.
from page 9:

Sentiment

Optimism regarding own-companies’ prospects

Optimism plummeted to its lowest level in nearly three years, with all countries registering some of their lowest-ever readings. CFOs citing declining optimism nearly matched the proportion citing rising optimism.
Net optimism declined very sharply, from last quarter’s +36 to just +3—the lowest reading since 1Q16, and the third straight decline. Just 26% of CFOs expressed rising optimism (down from 48%), and 23% cited declining optimism (up from 12%).
Net optimism for the US reached its lowest point since 1Q16 at +9. Canada fell to a new survey low at -36, and Mexico fell to its lowest point since 1Q17 at -43. 
Sentiment declined for nearly all industries. The strongest gains were in Technology, which rose from +17 to +25 following last quarter’s sharp decline. Sentiment fell most sharply in Manufacturing (to a 7-year low), Healthcare/Pharma, and Services.
Please see the full report for charts specific to individual industries and countries.
from page 11:

Expectations

Growth in key metrics, year-over-year

Expectations for sales, earnings, and capital spending declined and are at or below their two-year averages. Expectations for hiring and wages rose. Retail/Wholesale and Technology are the relative bright spots.
Revenue growth declined from 6.1% to 5.5%, even with its two-year average. All three countries declined to their lowest levels in a year, with the US and Mexico still above their two-year averages and Canada below. Technology and Energy/Resources lead; Manufacturing and Healthcare/Pharma trail.
Earnings growth declined from 8.1% to 7.3%, its lowest level since 4Q16. The US fell below its two-year average. Canada fell to its lowest level since 3Q15, and Mexico rose slightly. T/M/E and Technology are highest; Financial Services and Healthcare/Pharma are lowest.
Capital spending growth declined sharply from 9.4% to 5.0%, a two-year low. The US and Mexico fell to their lowest levels since 4Q16; Canada declined sharply to its lowest level in a year. Retail/Wholesale and Services are highest; Energy/Resources and Manufacturing are lowest.
Domestic personnel growth rose from 2.7% to 3.2%, again above its two-year average. The US rose to just below its survey high. Canada rose to well above its two-year average; Mexico rose to an eight-year high. Retail/Wholesale and Technology lead; Financial Services and T/M/E trail.
Dividend growth declined sharply from 7.4% to 4.5%, erasing last quarter’s marked uptick.
Please see the full report for charts specific to individual industries and countries.
Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” on page 9 and “Economic Optimism” found on page 6.
_____
I post various business and economic surveys 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 surveys.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2596.64 as this post is written

Deflation Probabilities – January 10, 2019 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 January 10, 2019 update states the following:
Both the 2017–22 deflation probability and the 2018–23 deflation probability declined from 7 percent on January 2 to 6 percent on January 9. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2017 and early 2018, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2017 and April 2018 and the 10-year TIPS issued in July 2012 and July 2013.
_________
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 2596.63 as this post is written

The January 2019 Wall Street Journal Economic Forecast Survey

The January 2019 Wall Street Journal Economic Forecast Survey was published on January 10, 2019.  The headline is “Economists See U.S. Recession Risks Rising.”
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.
Two excerpts:
On average, economists surveyed in the past week as part of The Wall Street Journal’s monthly poll said there was a 25% chance of a recession in the next year, the highest level since October 2011. The probability was just 13% a year ago.
also:
Forecasters are even more concerned about the outlook for 2020. More than half of the economists, 56.6%, said they expected a recession to start in 2020, a presidential election year, while another 26.4% of those surveyed expect a recession in 2021.
As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 24.80%. The individual estimates, of those who responded, ranged from 0% to 60%.  For reference, the average response in December’s survey was 22.02%.
As stated in the article, the survey’s respondents were 73 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted January 4 – January 8, 2019.
The current average forecasts among economists polled include the following:
GDP:
full-year 2018:  3.1%
full-year 2019:  2.2%
full-year 2020:  1.7%
full-year 2021:  1.8%
Unemployment Rate:
December 2019: 3.6%
December 2020: 3.9%
December 2021: 4.2%
10-Year Treasury Yield:
December 2019: 3.10%
December 2020: 3.12%
December 2021: 3.18%
CPI:
December 2018:  2.00%
December 2019:  2.20%
December 2020:  2.20%
December 2021:  2.20%
Crude Oil  ($ per bbl):
for 12/31/2019: $56.50
for 12/31/2020: $58.31
for 12/31/2021: $58.80
(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 2592.11 as this post is written

CEO Confidence Surveys 4Q 2018 – Notable Excerpts

On January 3, 2019, The Conference Board released the 4th Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 42, down from 55 in the third quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]
Notable excerpts from this January 3, 2019 Press Release include:
CEOs’ assessment of current economic conditions turned pessimistic in the fourth quarter, with only 21 percent saying conditions are better compared to six months ago, down from 49 percent last quarter. Meanwhile, about 39 percent say conditions are worse, up from less than 8 percent in the prior quarter. CEOs were also much more negative about current conditions in their own industries compared to six months ago. Now, just 21 percent say conditions are better, down from 31 percent last quarter, while those who say conditions have worsened rose to 35 percent, up from 25 percent last quarter.
Looking ahead, CEOs’ expectations regarding the economic outlook have also turned negative. Now, just 12 percent expect economic conditions to improve over the next six months, down from 23 percent in the third quarter. Meanwhile, about 54 percent expect economic conditions will worsen, compared to 22 percent last quarter. CEOs’ expectations regarding short-term prospects in their own industries over the next six months were also more pessimistic. Now, only 14 percent anticipate an improvement in conditions, down from 22 percent last quarter, while 44 percent expect conditions to worsen, up from 19 percent in the third quarter.
Last month, the Business Roundtable also released its CEO Economic Outlook Survey for the 4th Quarter of 2018.   Notable excerpts from the December 7 release, titled “Business Roundtable CEO Economic Outlook Remains Strong“:
Declining 4.9 points from 109.3 in the third quarter of 2018, the Q4 2018 CEO Economic Outlook Index of 104.4 ranks among the top 10 percent of all readings in the survey’s 16-year history and is well above the historical average of 82.1. This is the eighth straight quarter where the Index has exceeded its historical average, signaling a continued positive direction for the U.S. economy.
also:
In their first estimate of 2019 U.S. GDP growth, CEOs projected 2.7 percent growth for the year ahead.
Additional details can be seen in the sources mentioned above.
_____
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 2584.96 as this post is written