Wednesday, July 31, 2019

Employment Cost Index (ECI) – Second Quarter 2019

While the concept of Americans’ incomes can be defined in a number of ways, many prominent measures continue to show disconcerting trends.
One prominent measure is the Employment Cost Index (ECI).
Here is a description from the BLS document titled “The Employment Cost Index:  what is it?“:
The Employment Cost Index (ECI) is a quarterly measure of the change in the price of labor, defined as compensation per employee hour worked. Closely watched by many economists, the ECI is an indicator of cost pressures within companies that could lead to price inflation for finished goods and services. The index measures changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. As a fixed-weight, or Laspeyres, index, the ECI controls for changes occurring over time in the industrial-occupational composition of employment.
On July 31, 2019, the ECI for the first quarter was released.  Here are two excerpts from the BLS release titled “Employment Cost Index – June 2019“:
Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period ending in June 2019, the U.S. Bureau of Labor Statistics reported today. Wages and salaries increased 0.7 percent and benefit costs increased 0.5 percent from March 2019. (See tables A, 1, 2, and 3.)
also:
Compensation costs for civilian workers increased 2.7 percent for the 12-month period ending in June 2019 compared with an increase of 2.8 percent in June 2018. Wages and salaries increased 2.9 percent for the 12-month period ending in June 2019 and increased 2.8 percent for the 12-month period ending in June 2018. Benefit costs increased 2.3 percent for the 12-month period ending in June 2019. In June 2018, the increase was 2.9 percent. (See tables A, 4, 8, and 12.)
Below are three charts, updated on July 31, 2019 that depict various aspects of the ECI, which is seasonally adjusted (SA):
The first depicts the ECI, with a value of 137.0:
ECIALLCIV
source: US. Bureau of Labor Statistics, Employment Cost Index: Total compensation: All Civilian[ECIALLCIV], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed July 31, 2019:
https://research.stlouisfed.org/fred2/series/ECIALLCIV/
The second chart depicts the ECI on a “Percent Change from Year Ago” basis, with a value of 2.8%:
ECIALLCIV Percent Change From Year Ago
The third chart depicts the ECI on a “Percent Change” (from last quarter) basis, with a value of .6%:
ECIALLCIV Percent Change
_________
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 3016.29 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 July 25, 2019 update (reflecting data through July 19, 2019) is -1.334.
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 July 31, 2019 incorporating data from January 8, 1971 through July 26, 2019, on a weekly basis.  The July 26 value is -.86:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 31, 2019: 
http://research.stlouisfed.org/fred2/series/NFCI
The ANFCI chart below was last updated on July 31, 2019 incorporating data from January 8, 1971 through July 26, 2019, on a weekly basis.  The July 26 value is -.70:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 31, 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 3014.13 as this post is written

Tuesday, July 30, 2019

Another Recession Probability Indicator – Updated Through Q1 2019

Each month I have been highlighting various estimates of U.S. recession probabilities.  The latest update was that of July 8, 2019, titled “Recession Probability Models – July 2019.”
While I don’t agree with the methodologies employed or the probabilities of impending economic weakness as depicted by these and other estimates, I do believe that the results of these models and estimates should be monitored.
Another probability of recession is provided by James Hamilton, and it is titled “GDP-Based Recession Indicator Index.”  A description of this index, as seen in FRED:
This index measures the probability that the U.S. economy was in a recession during the indicated quarter. It is based on a mathematical description of the way that recessions differ from expansions. The index corresponds to the probability (measured in percent) that the underlying true economic regime is one of recession based on the available data. Whereas the NBER business cycle dates are based on a subjective assessment of a variety of indicators that may not be released until several years after the event , this index is entirely mechanical, is based solely on currently available GDP data and is reported every quarter. Due to the possibility of data revisions and the challenges in accurately identifying the business cycle phase, the index is calculated for the quarter just preceding the most recently available GDP numbers. Once the index is calculated for that quarter, it is never subsequently revised. The value at every date was inferred using only data that were available one quarter after that date and as those data were reported at the time.
If the value of the index rises above 67% that is a historically reliable indicator that the economy has entered a recession. Once this threshold has been passed, if it falls below 33% that is a reliable indicator that the recession is over.
Additional reference sources for this index and its construction can be seen in the Econbrowser post of February 14, 2016 titled “Recession probabilities” as well as on the “The Econbrowser Recession Indicator Index” page.
Below is a chart depicting the most recent value of 2.90%, for the first quarter of 2019, last updated on July 29, 2019 (after the July 26, 2019 Gross Domestic Product, Second Quarter 2019 (Advance Estimate) (pdf)):
GDP-Based Recession Indicator Index
source:  Hamilton, James, GDP-Based Recession Indicator Index [JHGDPBRINDX], retrieved from FRED, Federal Reserve Bank of St. Louis on July 29, 2019:
https://research.stlouisfed.org/fred2/series/JHGDPBRINDX
_________
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 3020.97 as this post is written

Monday, July 29, 2019

Velocity Of Money – Charts Updated Through July 26, 2019

Here are three charts from the St. Louis Fed depicting the velocity of money in terms of the MZM, M1 and M2 money supply measures.
All charts reflect quarterly data through the 2nd quarter of 2019, and were last updated as of July 26, 2019.
Velocity of MZM Money Stock, current value = 1.332:
MZM Velocity of Money
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 26, 2019:
http://research.stlouisfed.org/fred2/series/MZMV
Velocity of M1 Money Stock, current value = 5.623:
M1 Velocity of Money
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 26, 2019:
http://research.stlouisfed.org/fred2/series/M1V
Velocity of M2 Money Stock, current value = 1.457:
M2 Velocity of Money
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 26, 2019:
http://research.stlouisfed.org/fred2/series/M2V
_________
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 3020.59 as this post is written

Friday, July 26, 2019

Real GDP Chart Since 1947 With Trendline – 2nd Quarter 2019

For reference purposes, below is a chart from the Doug Short site post of July 26, 2019 titled “Q2 GDP Advance Estimate: Real GDP at 2.1%, Better Than Expected” reflecting Real GDP, with a trendline, as depicted.  This chart incorporates the Gross Domestic Product, Second Quarter 2019 (Advance Estimate) (pdf) of July 26, 2019:
U.S. Real GDP with Trendline
_________
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 3018.02 as this post is written

Broad-Based Indicators Of Economic Activity

The Chicago Fed National Activity Index (CFNAI) and the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index) are two broad-based economic indicators that I regularly feature in this site.
The short-term and long-term trends of each continue to be notable.
The post on the Doug Short site of July 25, 2019, titled “The Philly Fed ADS Index Business Conditions Index Update” displays both the CFNAI MA-3 (3-month Moving Average) and ADS Index (91-Day Moving Average) from a variety of perspectives.
Of particular note, two of the charts, shown below, denote where the current levels of each reading is relative to the beginning of past recessionary periods, as depicted by the red dots.
The CFNAI MA-3:
(click on charts to enlarge images)
CFNAI MA3
The ADS Index, 91-Day MA:
ADS Index 91dma
Also shown in the aforementioned post is a chart of each with a long-term trendline (linear regression) as well as a chart depicting GDP for comparison purposes.
_________
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 3003.67 as this post is written

Zillow Q2 2019 Home Price Expectations Survey – Summary & Comments

On July 25, 2019, the Zillow Q2 2019 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.
An excerpt from the press release:
Home value appreciation has slowed over the past several months, from 8.1% annual growth in December 2018 to 5.2% in June 2019 – the slowest annual pace since 2015. The expected decline in demand in 2020 is likely to extend the housing slowdown going forward.
Home prices are predicted to rise 4.1% in 2019, but experts have lowered their forecasts for home price appreciation for the next couple years. They predict home prices will rise 2.8% in 2020, down from their Q2 2018 prediction of 2.9% growth. Similarly, their 2021 forecasts have slid from 2.6% growth to 2.5% appreciation.
Various Q2 2019 Zillow Home Price Expectations Survey charts are available, including that seen below:
Zillow Home Price Expectations chart
As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index, will continually climb.
The detail of the Q2 2019 Home Price Expectations Survey is interesting.  Of the 100+ survey respondents, only six (of the displayed responses) forecasts a cumulative price decrease through 2023, and none of those forecasts is for a double-digit percentage decline.   The largest decline is seen as a 3.58% cumulative price decrease through 2023.
The Median Cumulative Home Price Appreciation for years 2019-2023 is seen as 4.00%, 7.02%, 9.64%, 12.55%, and 15.92%, respectively.
For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in the above-referenced forecast) will prove far too optimistic in hindsight.  From a longer-term historical perspective, such a decline is very mild in light of the wild excesses that occurred over the “bubble” years.
I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post titled “What’s Ahead For The Housing Market – A Look At The Charts.”
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 3003.67 as this post is written

Thursday, July 25, 2019

Durable Goods New Orders – Long-Term Charts Through June 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 June 2019, updated on July 25, 2019. This value is $245,958 ($ 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 -1.6%:
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 July 25, 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 3003.53 as this post is written

Tuesday, July 23, 2019

Money Supply Charts Through June 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 July 19, 2019 depicting data through June 2019, with a value of $16,180.7 Billion:
MZMSL
Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 4.3%:
MZMSL Percent Change From Year Ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 23, 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 July 18, 2019, depicting data through June 2019, with a value of $14,770.6 Billion:
M2SL
Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 4.7%:
M2SL Percent Change From Year Ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 23, 2019;
https://research.stlouisfed.org/fred2/series/M2SL
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2985.03 as this post is written

The U.S. Economic Situation – July 23, 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 July 19, 2019, with a last value of 27154.20):
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
DJIA since 1900
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2985.03 as this post is written