Employment Cost Index (ECI) – September 2023

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 October 31, 2023, the latest ECI report was released.  Here are two excerpts from the BLS release titled “Employment Cost Index – September 2023“:

Compensation costs for civilian workers increased 1.1 percent, seasonally adjusted, for the 3-month period ending in September 2023, the U.S. Bureau of Labor Statistics reported today. Wages and salaries increased 1.2 percent and benefit costs increased 0.9 percent from June 2023. (See tables A, 1, 2, and 3.)

also:

Compensation costs for civilian workers increased 4.3 percent for the 12-month period ending in September 2023 and increased 5.0 percent in September 2022. Wages and salaries increased 4.6 percent for the 12-month period ending in September 2023 and increased 5.1 percent for the 12-month period ending in September 2022. Benefit costs increased 4.1 percent over the year and increased 4.9 percent for the 12-month period ending in September 2022. (See tables A, 4, 8, and 12.)

Below are three charts, updated on October 31, 2023 that depict various aspects of the ECI, which is seasonally adjusted (SA):

The first depicts the ECI, with a value of 160.7:

source: US. Bureau of Labor Statistics, Employment Cost Index: Total compensation: All Civilian [ECIALLCIV], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed October 31, 2023: 
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 4.4%:

The third chart depicts the ECI on a “Percent Change” (from last quarter) basis, with a value of 1.1%:

_________

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 4168.63 as this post is written

Another Recession Probability Indicator – Through Q2 2023

Each month I have been highlighting various estimates of U.S. recession probabilities.  The latest update was that of October 5, 2023, titled “Recession Probability Models – October 2023.”

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 3.00000% for the second quarter of 2023, last updated on October 26, 2023 (after the October 26, 2023 Gross Domestic Product, Third Quarter 2023 (Advance Estimate)):

source:  Hamilton, James, GDP-Based Recession Indicator Index [JHGDPBRINDX], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 26, 2023: 
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 4149.81 as this post is written

Velocity Of Money – Charts Updated Through October 26, 2023

Here are two charts from the St. Louis Fed depicting the velocity of money in terms of the M1 and M2 money supply measures.

All charts reflect quarterly data through the 3rd quarter of 2023, and were last updated as of October 26, 2023.

Velocity of M1 Money Stock, current value = 1.509:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 26, 2023:
http://research.stlouisfed.org/fred2/series/M1V

–

Velocity of M2 Money Stock, current value = 1.327:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 26, 2023: 
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 4174.59 as this post is written

Real GDP Chart Since 1947 With Trendline – 3rd Quarter 2023

For reference purposes, below is a chart from the Advisor Perspectives’ post of October 26, 2023 titled “Q3 GDP Advance Estimate: Real GDP at 4.9%, Stronger Than Expected” reflecting Real GDP, with a trendline, as depicted.  This chart incorporates the Gross Domestic Product, Third Quarter 2023 (Advance Estimate) of October 26, 2023:

_________

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 4156.14 as this post is written

Durable Goods New Orders – Long-Term Charts Through September 2023

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 September 2023, updated on October 26, 2023. This value is $297,243 ($ Millions):

(click on charts to enlarge images)

–

Second, here is the chart depicting this measure on a “Percent Change from a Year Ago” basis, with a last value of 7.8%:

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 October 26, 2023; 
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 4186.77 as this post is written

Money Supply Charts Through September 2023

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the M1, defined in FRED as the following:

Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.

Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.

Here is the “M1 Money Stock” (seasonally adjusted) chart, updated on October 24, 2023 depicting data through September 2023, with a value of $18,171.4 Billion:

Here is the “M1 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of -10.4%:

Data Source: Board of Governors of the Federal Reserve System (US), M1 Money Stock [M1SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 24, 2023: https://fred.stlouisfed.org/series/M1SL

The second set shows M2, defined in FRED as the following:

Before May 2020, M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.

Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on October 24, 2023, depicting data through September 2023, with a value of $20,754.9 Billion:

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of -3.6%:

Data Source: Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 23, 2023: https://fred.stlouisfed.org/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4234.37 as this post is written

Updates Of Economic Indicators October 2023

The following 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 October 2023 Chicago Fed National Activity Index (CFNAI) updated as of October 23, 2023:

The CFNAI, with a current reading of .02:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 23, 2023: 
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with a current reading of 0.0:

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; accessed October 23, 2023: 
https://fred.stlouisfed.org/series/CFNAIMA3

–

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

The ADS Index as of October 19, 2023, reflecting data from March 1, 1960 through October 14, 2023, with last value .186102:

–

The Conference Board Leading Economic Index (LEI), Coincident Economic Index (CEI), and Lagging Economic Index (LAG):

As per the October 19, 2023 Conference Board press release the LEI was 104.6 in September, the CEI was 110.9 in September, and the LAG was 118.5 in September.

An excerpt from the release:

“The LEI for the US fell again in September, marking a year and a half of consecutive monthly declines since April 2022,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “In September, negative or flat contributions from nine of the index’s ten components more than offset fewer initial claims for unemployment insurance. Although the six-month growth rate in the LEI is somewhat less negative, and the recession signal did not sound, it still signals risk of economic weakness ahead. So far, the US economy has shown considerable resilience despite pressures from rising interest rates and high inflation. Nonetheless, The Conference Board forecasts that this trend will not be sustained for much longer, and a shallow recession is likely in the first half of 2024.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index (LEI) update of October 19, 2023:

_________

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 4224.70 as this post is written

The U.S. Economic Situation – October 23, 2023 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)

“A Special Note On Our Economic Situation”

“Forewarning Pronounced Economic Weakness”

“Thoughts Concerning The Next Financial Crisis”

“Was A Depression Successfully Avoided?”

“Has the Financial System Strengthened Since the Financial Crisis?”

“The Next Crash And Its Significance”

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 October 20, 2023 with a last value of 33,127.28):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4217.54 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” report of October 13, 2023:

from page 26:

(click on charts to enlarge images)

from page 27:

_____

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 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 4300.59 as this post is written