Friday, June 28, 2019

Consumer Confidence Surveys – As Of June 28, 2019

The Doug Short site had a post of June 28, 2019 (“Michigan Consumer Sentiment: Small Decline in June“) that displays 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)
Conference Board Consumer Confidence
University of Michigan Consumer Sentiment
There are a few aspects of the above charts that I find highly noteworthy.  Of course, until the sudden upswing in 2014, the continued subdued absolute levels of these two surveys was 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 notable, especially in light of a variety of other highly disconcerting measures highlighted throughout this site.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2941.76 as this post is written

Wednesday, June 26, 2019

Durable Goods New Orders – Long-Term Charts Through May 2019

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.
For reference, below are two charts depicting this measure.
First, from the St. Louis Fed site (FRED), a chart through May 2019, updated on June 26, 2019. This value is $243,367 ($ Millions):
(click on charts to enlarge images)
Durable Goods New Orders
Second, here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis, with a last value of -2.8%:
Durable Goods New Orders Percent Change From Year Ago
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 June 26, 2019;
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 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 2923.87 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 June 20, 2019 update (reflecting data through June 14, 2019) is -1.217.
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 June 26, 2019 incorporating data from January 8, 1971 through June 21, 2019, on a weekly basis.  The June 21 value is -.83:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 26, 2019: 
http://research.stlouisfed.org/fred2/series/NFCI
The ANFCI chart below was last updated on June 26, 2019 incorporating data from January 8, 1971 through June 21, 2019, on a weekly basis.  The June 21 value is -.67:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 26, 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 2921.69 as this post is written

Monday, June 24, 2019

Updates Of Economic Indicators June 2019

Here is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:
The June 2019 Chicago Fed National Activity Index (CFNAI) updated as of June 24, 2019:
The CFNAI, with current reading of -.05:
CFNAI
source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, June 24, 2019;
https://fred.stlouisfed.org/series/CFNAI
The CFNAI-MA3, with current reading of -.17:
CFNAIMA3
source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis, June 24, 2019;
https://fred.stlouisfed.org/series/CFNAIMA3
As of June 21, 2019 (incorporating data through June 14, 2019) the WLI was at 144.6 and the WLI, Gr. was at -2.3%.
A chart of the WLI,Gr., from the Doug Short’s site ECRI update post of June 21, 2019:
ECRI WLI,Gr.
Here is the latest chart, depicting the ADS Index from December 31, 2007 through June 15, 2019:
ADS Index
The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):
As per the June 20, 2019 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Remained Unchanged in May” (pdf) the LEI was at 111.8, the CEI was at 105.9, and the LAG was 107.0 in May.
An excerpt from the release:
“The US LEI was unchanged in May, following three consecutive increases,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. “Positive contributions from financial conditions and consumers’ outlook offset the weakness in stock prices and the manufacturing sector. The yield spread’s contribution to the LEI was neither positive nor negative. While the economic expansion is now entering its eleventh year, the longest in US history, the LEI clearly points to a moderation in growth towards 2 percent by year end.”
Here is a chart of the LEI from the Doug Short’s site Conference Board Leading Economic Index update of June 20, 2019:
Conference Board LEI 111.8
_________
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 2953.25 as this post is written

The U.S. Economic Situation – June 24, 2019 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 June 21, 2019, with a last value of 26719.33):
(click on chart to enlarge image)(chart courtesy of StockCharts.com)

DJIA since 1900

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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2950.46 as this post is written

Friday, June 21, 2019

Money Supply Charts Through May 2019

For reference purposes, below are two sets of charts depicting growth in the money supply.
The first shows the MZM (Money Zero Maturity), defined in FRED as the following:
M2 less small-denomination time deposits plus institutional money funds.
Money Zero Maturity is calculated by the Federal Reserve Bank of St. Louis.
Here is the “MZM Money Stock” (seasonally adjusted) chart, updated on June 14, 2019 depicting data through May 2019, with a value of $16,001.4 Billion:
MZMSL
Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 3.6%:
MZMSL Percent Change From A Year Ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 21, 2019;
https://research.stlouisfed.org/fred2/series/MZMSL
The second set shows M2, defined in FRED as the following:
M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.
Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on June 20, 2019, depicting data through May 2019, with a value of $14,613.5 Billion:
M2SL
Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 4.1%:
M2SL Percent Change From A Year Ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 21, 2019;
https://research.stlouisfed.org/fred2/series/M2SL
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2954.18 as this post is written

Thursday, June 20, 2019

Jerome Powell’s June 19, 2019 Press Conference – Notable Aspects

On Wednesday, June 19, 2019 FOMC Chairman Jerome Powell gave his scheduled June 2019 FOMC Press Conference. (link of video and related materials)
Below are Jerome Powell’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 Chairman Powell’s Press Conference“ (preliminary)(pdf) of June 19, 2019, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2019.“
From Chairman Powell’s opening comments:
CHAIR POWELL.  Good afternoon, and welcome.  My colleagues and I have one overarching goal: to sustain the economic expansion, with a strong job market and stable prices, for the benefit of the American people.   
At the Federal Open Market Committee (FOMC) meeting that concluded today, we maintained our policy interest rate, but made some significant changes to our statement.  Since the beginning of the year, we have judged that our current policy stance was broadly appropriate, and that we should be patient in assessing the need for any changes.  In light of increased uncertainties and muted inflation pressures, we now emphasize that the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its 2 percent objective.
I’d like to step back and review how the changing economic and financial picture brings us to today’s decision.  So far this year, the economy has performed reasonably well, with solid fundamentals supporting continued growth and strong employment.  Inflation has been running somewhat below our objective, but we have expected it to pick up, supported by solid growth and a strong job market.  Along with this favorable picture, we have been mindful of some ongoing crosscurrents, including trade developments and concerns about global growth.  At the time of our last FOMC meeting, which ended on May 1, there was tentative evidence that these crosscurrents were moderating.  The latest data from China and Europe were encouraging, and there were reports of progress in trade negotiations with China.  Our continued patient stance seemed appropriate, and the Committee saw no strong case for adjusting our policy rate.
In the weeks since our last meeting, the crosscurrents have reemerged.  Growth indicators from around the world have disappointed on net, raising concerns about the strength of the global economy.  Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture report heightened concerns over trade developments.  These concerns may have contributed to the drop in business confidence in some recent surveys and may be starting to show through to incoming data.  Risk sentiment in financial markets has deteriorated as well. 
Against this backdrop, inflation remains muted.  
Jerome Powell’s responses as indicated to the various questions:
NICK TIMIRAOS. Nick Timiraos, Wall Street Journal.  Chair Powell, would you consider a rate cut today—specifically was it one of the options, the policy options in the Teal Book?  And is the Committee considering moving given all the uncertainty you addressed moving—changing its policy before the next meeting? 
CHAIR POWELL. So, the Committee had, you know, our usual long discussion of global and domestic economic and financial conditions and then spent this morning talking about monetary policy.  And I came to the view that I expressed to you, which is that we’re going to be monitoring the crosscurrents, and the other items that we’ve mentioned but that we’d like to see more going forward.  Particularly, we’d like to see whether these risks continue to weigh on the outlook. 
So generally, as I mentioned, many on the Committee do see a strengthened case, eight of those strengthen case for cutting rates.  Eight actually wrote down rate cuts, a number of others see that the case is strengthened.  But the Committee wanted to see more, as I mentioned. And I also mentioned that some of these developments have been quite recent advantage.  And so, we do expect that we’ll be learning a lot more on all of these issues in the near term.  And that’s our focus. 
also:
PAUL KIERNAN. Thank you Chairman Powell, Paul Kiernan from Dow Jones.  If the most, according to the dot plot, I mean if the most likely case is that you will have to cut rates in the next 18 months, and given some of the concerns about, you know, policy, needing to react sooner and more aggressively, what would have been the downsides to cutting rates now?  Why not just cut them now? 
CHAIR POWELL. So, why not now?  And I would say that there was not much support for cutting rates now at this meeting.  There was, as you see a number of people wrote down rate cuts.  But all of those but apparently one felt that it would be better to see more to—before moving.  And I gave a couple of reasons why that is the case.  
First is just the fact that some of these developments are so recent that we want to see whether they’ll sustain.  So, we felt that it would be better to get a clearer picture of things, and then we would in fact learn a lot about these developments in the near term.  Ultimately, the question we’re going to be asking ourselves is, are these risks going to be continuing to weigh on the outlook?  And we will act as needed, including promptly if that’s appropriate and use our tools to expand—to sustain the expansion.
also:
MICHAEL MCKEE. Michael McKee, Bloomberg Television and radio.  If consumer spending is solid and business investment has been slowed by uncertainty, I’d like to get your thinking on what a Fed rate cut would do?  Have you modeled the additional growth and inflation you might get from a rate cut?  Can you identify any sectors that would benefit from a lower cost of capital, or is this really about the Fed being the only game in town? 
CHAIR POWELL. Well, we have the tools we have and we’re committed and sworn to use them to support economic activity, and they do support economic activity through a number of channels that are reasonably well understood.  Some more directly tied to interest rates than others.  But we do generally believe that that our interest rate policy can support demand and support business investment as well.  And so, we will use those tools and use them as we see as appropriate to achieve our objective, which really are to sustain this expansion, and I would just make a note of that.  
The reason why we say sustain the expansion is, you’re seeing now for the first time, you know, communities that are being brought into the benefits of this expansion that hadn’t been earlier.  You’re 10 years deep into this and that’s something we heard quite a lot at the conference in Chicago on the review, I just would say that’s why we think—it’s one of the reasons why we think it’s so important to sustain the expansion and keep it going, because we really are benefiting groups that haven’t seen, you know, this kind of prosperity in a long time.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2944.83 as this post is written

Deloitte “CFO Signals” Report Q2 2019 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 2nd Quarter of 2019.
As seen in page 2 of the report, there were 159 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 slightly, with 79% of CFOs rating current conditions as good (down from 80% last quarter), and 24% expecting better conditions in a year (down from 28%). Perceptions of Europe slid to just 10% and 4%; China sits at 26% and 10%. Page 6.
What is your perception of the capital markets? Seventy-seven percent of CFOs say debt financing is attractive (up from 70%). Equity financing attractiveness rose for both public (from 25% to 40%) and private (27% to 35%) company CFOs. Sixty-four percent say US equity markets are overvalued, up from 46% and similar to the levels from 2018. Page 7.

Sentiment

What external/internal risks worry you the most? CFOs express strong concerns about the impact of US trade policy on global growth and about US political turmoil. Talent is the dominant internal concern, with newly emerging concerns about rising labor costs. Page 8.
Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index declined from last quarter’s +16 to just +9 this quarter—the second-lowest reading in three years. Thirty percent of CFOs express rising optimism (32% last quarter), and 21% express declining optimism (16% last quarter). Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a bias toward revenue growth over cost reduction (48% vs. 29%), investing cash over returning it (51% vs. 18%), current offerings over new ones (47% vs. 32%), and current geographies over new ones (66% vs. 13%). Page 10.
How do you expect your key operating metrics to change over the next 12 months? YOY revenue growth expectations fell from 4.8% to 3.8%, earnings growth slid from 7.1% to 6.1%, and hiring fell from 2.1% to 1.9% (all sit at twoyear lows). Dividend growth declined from 3.9% to 3.7%, the lowest level in two years. Capital spending rose substantially from 5.9% to 7.7%. Page 11.

Special topic: Company growth, profitability, and investment

If the US experiences a pullback, what type of pullback do you expect? About 80% expect a downturn to be mild, and they are split on whether that downturn will be short or prolonged. Pages 12.
What industry and company factors are affecting your business planning? All industries expected rising industry revenue over declining, with Manufacturing lowest and Healthcare/Pharma highest. All industries except Technology and Retail/Wholesale claimed to be in profitability mode over growth mode; all except Financial Services were biased toward market expansion over consolidation. Overall, companies claimed substantial talent constraints, but not capital constraints or shareholder pressure to use/return cash. Page 13.
What are your company’s top uses of cash this year? Top uses revolve around investment for growth and productivity improvement. There are substantial public/private and industry differences when it comes to returning cash, paying down debt, and investing for growth versus for productivity. Page 14.
Which markets will be important to your company’s growth over the next five years? Predictably, CFOs ranked their home markets most important. The US ranked universally high, but the importance of Canada and Mexico to US CFOs seems to have declined since we last asked in 4Q15; China is the most important market outside North America on the whole. Page 15.
What is your approach to growth investments over the next three years? The vast majority of CFOs say they are making focused growth investments instead of spreading investments across multiple opportunities; capital-constrained companies are the most likely to be avoiding major investment. Page 16.
On which areas will you personally focus for the next year? Three areas comprise the top tier for CFOs’ personal focus: profitability, corporate strategy, and growth. Other focus areas were substantial for particular industries. Page 17.
from page 9:

Sentiment

Optimism regarding own-companies’ prospects

Own-company optimism continues to sit among its lowest levels in the last three years. The US is highest at just +15; Canada and Mexico are both  overwhelmingly negative.
Last quarter’s net optimism rebounded somewhat from the prior quarter’s three-year low of +3 to a modest +16. This quarter it retreated to +9 and sits at the second-lowest reading in three years. Thirty percent of CFOs expressed rising optimism (down from 32%), and 21% cited declining optimism (up from 16%).
Net optimism for the US declined from last quarter’s +19 to +15, the second-lowest level in the last three years. Canada fell sharply from last quarter’s +25 to -25. Mexico rose from last quarter’s dismal -60 to a still-poor 43, tying the second lowest point in the last two years.
Manufacturing, Retail/Wholesale, and Healthcare/Pharma were comparatively pessimistic (+2, +6, and -27, respectively). Technology was strongest at +20, with Financial Services and Energy/Resources slightly behind at +15.
Please see the full report for industry-specific charts. Note that industry sample sizes vary markedly and that the means are most volatile for the least-represented. Due to a very small sample size, T/M/E was not used as a comparison point this quarter.
from page 11:

Expectations

Growth in key metrics, year-over-year

Expectations for revenue, earnings, dividends, hiring, and wages all declined to their lowest levels in the last two years; capital spending rose but remains below the two-year average.
Revenue growth declined from 4.8% to 3.8%, its lowest level since 4Q16. The US slid to a twoyear low. Canada dipped slightly, and remained below its two-year average. Mexico declined to a two-year low. Technology and Energy/Resources again lead; Healthcare/Pharma trails.
Earnings growth declined from 7.1% to 6.1%, the lowest level since 3Q16. The US fell to a twoyear low. Canada fell and remains below its twoyear average. Mexico dipped and remained below its two-year average. Retail/Wholesale is highest; Manufacturing and Healthcare/Pharma are lowest.
Capital spending growth rose substantially from 5.9% to 7.7%, just below the two-year average. The US rose to just above its two-year average. Canada and Mexico declined and sit below their two-year averages. Healthcare/Pharma and Retail/Wholesale are again highest; Services is lowest.
Domestic personnel growth slid from 2.1% to 1.9%, the lowest level since 3Q16. The US fell to its lowest level in more than two years. Canada slid below its two-year average. Mexico rose, but remains below its two-year average. Services and Technology lead; Energy/Resources trails.
Dividend growth declined from 3.9% to 3.7, the lowest level in two years.
Please see the full report for industry-specific charts. Note that industry sample sizes vary markedly and that the means are most volatile for the least-represented. Due to a very small sample size, T/M/E was not used as a comparison point this quarter.
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 2926.46 as this post is written