Friday, April 16, 2021

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – April 16, 2021 Update

 As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

Below are three long-term charts, from Advisor Perspectives’ ECRI update post of April 16, 2021 titled “ECRI Weekly Leading Index Update.”  These charts are on a weekly basis as of the April 16, 2021 release, reflecting data through April 9, 2021.

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

ECRI WLI,Gr.

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

ECRI WLI YoY of the Four-Week Moving Average

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

ECRI WLI,Gr.

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I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4185.47 as this post is written

Disturbing Charts (Update 41)

The following is the latest update of 10 charts that depict various aspects of the U.S. economic and financial situation.

I find these charts portray disturbing long-term trends. These trends have been in effect for years, even during the longest U.S. economic expansion that recently ended. [The June 8 NBER BCDC declaration of U.S. recession is described in the “Recession Declared For The United States By The NBER BCDC” post.]

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 March 17, 2021):

Housing Starts

U.S. 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/, April 15, 2021.

The Federal Deficit (last updated October 16, 2020):

Federal Deficit

U.S. 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/, April 15, 2021.

Federal Net Outlays (last updated October 16, 2020):

Federal Net Outlays

U.S. 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/, April 15, 2021.

State & Local Personal Income Tax Receipts (% Change from Year Ago)(last updated March 25, 2021):

ASLPITAX Percent Change From Year Ago

U.S. 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/, April 15, 2021.

Total Loans and Leases of Commercial Banks (% Change from Year Ago)(last updated April 9, 2021):

Total Loans And Leases Of Commercial Banks 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/, April 15, 2021.

Bank Credit – All Commercial Banks (% Change from Year Ago)(last updated April 9, 2021):

Bank Credit - All Commercial Banks - 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/, April 15, 2021.

M1 Money Multiplier Proxy:

M1 Multiplier Proxy

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/, April 15, 2021.

Median Duration of Unemployment (last updated April 2, 2021):

Median Duration of Unemployment

U.S. 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/, April 15, 2021.

Labor Force Participation Rate (last updated April 2, 2021):

Labor Force Participation Rate

U.S. 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/, April 15, 2021.

The Chicago Fed National Activity Index (CFNAI) Three Month Moving Average (CFNAI-MA3)(last updated March 22, 2021):

Chicago Fed National Activity Index (CFNAIMA3)

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/, April 15, 2021.

I will continue to update these charts on an intermittent basis as they deserve close monitoring…

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4170.42 as this post is written

Thursday, April 15, 2021

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI2) is one index that is supposed to measure stress in the financial system. Its reading as of the April 15, 2021 update (reflecting data through April 9, 2021) is -.9184:

STLFSI2

source: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI2], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 15, 2021: https://fred.stlouisfed.org/series/STLFSI2

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

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

The NFCI chart below was last updated on April 14, 2021 incorporating data from January 8, 1971 through April 9, 2021, on a weekly basis.  The April 9 value is -.67470:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 15, 2021:  
http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on April 14, 2021 incorporating data from January 8, 1971 through April 9, 2021, on a weekly basis.  The April 9, 2021 value is -.59919:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 15, 2021:  
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 4170.42 as this post is written

Wednesday, April 14, 2021

Zillow Q1 2021 Home Price Expectations Survey – Summary & Comments

On April 14, 2021, the Zillow Q1 2021 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the press release:

Strong competition for available homes pushed up prices last year — the typical home appreciated by more than $20,000 in 2020. Even with an expectation for more inventory to help meet buyer demand, ZHPE panelists on average expect home prices to grow 6.2% in 2021 — a full two percentage points higher than when they were surveyed in Q4 2020 — and several panelists call for double-digit price growth this year. 

“This is the most bullish near-term outlook for home prices we’ve seen from our experts since the early stages of the post-bust recovery, and the panel’s five-year average annual home price forecast has never been more optimistic,” said Terry Loebs, founder of Pulsenomics. “In the wake of last year’s heady home equity gains, these new projections indicate that the aggregate value of homes across the country will increase by another $2 trillion in 2021. This is great news for existing homeowners, but even with a robust economic rebound in the coming months affordability will likely remain a challenge for many aspirational renters looking to move into homeownership this year.”

Various Q1 2021 Zillow Home Price Expectations Survey charts are available, including that seen below:

U.S. 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 Q1 2021 Home Price Expectations Survey is interesting.  Of the 100+ survey respondents, none (of the displayed responses) forecasts a cumulative price decrease through 2025.

The Median Cumulative Home Price Appreciation for years 2021-2025 is seen as 6.0%, 10.93%, 15.23%, 19.13%, and 23.59%, respectively.

For a variety of reasons, I continue to believe that these forecasts will prove far too optimistic in hindsight.

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. 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4124.66 as this post is written

Monday, April 12, 2021

Recession Probability Models – April 2021

Although there was an official declaration of U.S. recession on June 8, 2020 (as discussed in the “Recession Declared For The United States By The NBER BCDC” post), the following discussion is warranted for many reasons. Among the reasons is that two of the measures mentioned below are “forward-looking” in nature.

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated April 7, 2021 using data through March 2021) this “Yield Curve” model shows a 6.2616% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 9.5911% probability through February 2021, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on April 1, 2021 currently shows a .06% probability using data through February 2021.

Here is the FRED chart (last updated April 1, 2021):

Smoothed U.S. Recession Probabilities

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed April 1, 2021:  
http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent posts.  For instance, as seen in the April 12, 2021 post titled “The April 2021 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 12.53% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4127.99 as this post is written

The April 2021 Wall Street Journal Economic Forecast Survey

The April 2021 Wall Street Journal Economic Forecast Survey was published on April 11, 2021. The headline is “With Economy Poised for Best Growth Since 1983, Inflation Lurks.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the forecasts section.

An excerpt:

The U.S. has produced many more Star Wars films since 1983, but growth has never approached that level—until this year, if economists are right. Those surveyed by The Wall Street Journal boosted their average forecast for 2021 economic growth to 6.4%, measured as the change in inflation-adjusted gross domestic product in the fourth quarter from a year earlier. If realized, that would be one of the few times in 70 years that the economy has grown so fast.

also:

Growth of 6% or better was more common before the 1980s, when underlying growth was higher and usually came right after recessions with the help of loose monetary and fiscal policy. The contraction in output in the first half of last year was far more severe than any previous recession, so a strong recovery was partly inevitable. Indeed, GDP rebounded strongly in the third quarter of last year.

The scale of federal stimulus is greater than in the previous recoveries, at nearly $6 trillion, or more than one-quarter of annual GDP. Mr. Reagan’s combination of tax cuts and military spending was spread out over a longer period, said Mr. Sinai. “It makes it hard for a forecaster because I’ve not seen anything like this, ever,” he said.

As seen in the “Recession Probability” section, the average response as to whether the economy will be in a recession within the next 12 months was 12.53%. The individual estimates, of those who responded, ranged from 0% to 100%.  For reference, the average response in March’s survey was 11.62%.

As stated in the article, the survey’s 69 respondents were academic, financial and business economists.  The survey was conducted April 5 – April 7. Not every economist answered every question.

Economic Forecasts

The current average forecasts among economists polled include the following:

GDP:

full-year 2021:  6.41%

full-year 2022:  3.21%

full-year 2023:  2.39%

Unemployment Rate:

December 2021: 4.83%

December 2022: 4.10%

December 2023: 3.80%

10-Year Treasury Yield:

December 2021: 1.93%

December 2022: 2.22%

December 2023: 2.50%

CPI:

December 2021:  2.58%

December 2022:  2.27%

December 2023:  2.34%

Core PCE:

full-year 2021:  2.08%

full-year 2022:  2.13%

full-year 2023:  2.22%

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” label)

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4118.95 as this post is written