Tuesday, April 23, 2024

The U.S. Economic Situation – April 23, 2024 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 April 19, 2024 with a last value of 37,986.40):

(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 5010.60 as this post is written

Monday, April 22, 2024

Updates Of Economic Indicators April 2024

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 April 2024 Chicago Fed National Activity Index (CFNAI) updated as of April 22, 2024:

The CFNAI, with a current reading of .15:

CFNAI .15

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 22, 2024: 
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with a current reading of -.19:

CFNAIMA3 -.19

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 April 22, 2024: 
https://fred.stlouisfed.org/series/CFNAIMA3

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

The ADS Index as of April 18, 2024, reflecting data from March 1, 1960 through April 13, 2024, with last value .188817:

ADS Index

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

As per the April 18, 2024 Conference Board press release the LEI was 102.4 in March, the CEI was 112.0 in March, and the LAG was 119.0 in March.

An excerpt from the release:

“February’s uptick in the U.S. LEI proved to be ephemeral as the Index posted a decline in March,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Negative contributions from the yield spread, new building permits, consumers’ outlook on business conditions, new orders, and initial unemployment insurance claims drove March’s decline. The LEI’s six-month and annual growth rates remain negative, but the pace of contraction has slowed. Overall, the Index points to a fragile—even if not recessionary—outlook for the U.S. economy. Indeed, rising consumer debt, elevated interest rates, and persistent inflation pressures continue to pose risks to economic activity in 2024. The Conference Board forecasts GDP growth to cool after the rapid expansion in the second half of 2023. As consumer spending slows, US GDP growth is expected to moderate over Q2 and Q3 of this year.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index (LEI) update of April 19, 2024:

Conference Board LEI 102.4

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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 4985.91 as this post is written

Thursday, April 18, 2024

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI4) is one index that is supposed to measure stress in the financial system. Its reading as of the April 18, 2024 update (reflecting data through April 12, 2024) is -.8186:

STLFSI4

source: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI4], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 18, 2024: https://fred.stlouisfed.org/series/STLFSI4

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 17, 2024 incorporating data from January 8, 1971 through April 12, 2024 on a weekly basis.  The April 12 value is -.53070:

NFCI -.53070

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 18, 2024:  
http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on April 17, 2024 incorporating data from January 8, 1971 through April 12, 2024, on a weekly basis.  The April 12, 2024 value is -.54624:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 18, 2024:  
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 5048.85 as this post is written

Wednesday, April 17, 2024

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 April 12, 2024:

from page 28:

(click on charts to enlarge images)

S&P500 EPS

from page 29:

S&P500 EPS 2014-2025

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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 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 5051.41 as this post is written

Tuesday, April 16, 2024

S&P500 EPS Forecasts For 2023-2026 As Of April 12, 2024

As many are aware, Refinitiv publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)

The following estimates are from Exhibit 24 of the “S&P500 Earnings Scorecard” (pdf) of April 12, 2024, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share; the Year 2015 value is $117.46/share; the Year 2016 value is $118.10/share; the Year 2017 value is $132.00/share; the Year 2018 value is $161.93/share; the Year 2019 value is $162.93/share; the Year 2020 value is $139.72/share; the year 2021 value is $208.12/share; and the year 2022 value is $218.09/share:

Year 2023 estimate:

$222.94/share

Year 2024 estimate:

$243.04/share

Year 2025 estimate:

$276.13/share

Year 2026 estimate:

$308.86/share

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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 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 5045.81 as this post is written

Standard & Poor’s S&P500 EPS Estimates 2024 – 2025 – April 9, 2024

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)

For reference purposes, the most current estimates are reflected below, and are as of April 9, 2024:

Year 2024 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $240.93/share

-From a “bottom up” perspective, “as reported” earnings of $217.36/share

Year 2025 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $273.98/share

-From a “bottom up” perspective, “as reported” earnings of $249.60/share

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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 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 5052.64 as this post is written

Sunday, April 14, 2024

The April 2024 Wall Street Journal Economic Forecast Survey

The April 2024 Wall Street Journal Economic Forecast Survey was published on April 14, 2024. The headline is “’Envy of the World’ – U.S. Economy Expected to Keep Powering Higher.”

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. economy has far outperformed expectations over the past year and a half. Instead of stumbling under the weight of the Federal Reserve’s most aggressive interest-rate-raising campaign in four decades, it has continued expanding at a robust clip. 

Few think that the economy can do quite as well as last year’s 3.1% growth, as measured by the seasonally adjusted fourth-quarter change from a year earlier. That figure might have been boosted by one-time factors such as federal infrastructure and semiconductor legislation and an uptick in immigration, which also might not last.

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 29%. The individual estimates, of those who responded, ranged from 1% to 75%.  For reference, the average response in January’s survey [the previously published survey] was 39%.

As stated in the article, the survey’s 69 respondents were academic, financial and business economists.  The survey was conducted April 5 – April 9. Not every economist answered every question.

Economic Forecasts

The current average forecasts among economists polled include the following:

GDP:

full-year 2024:  1.72%

full-year 2025:  1.90%

full-year 2026:  2.01%

Unemployment Rate:

December 2024: 4.11%

December 2025: 4.17%

December 2026: 4.03%

10-Year Treasury Yield:

December 2024: 3.97%

December 2025: 3.78%

December 2026: 3.78%

CPI:

December 2024:  2.73%

December 2025:  2.29%

December 2026:  2.30%

Core PCE:

full-year 2024:  2.54%

full-year 2025:  2.13%

full-year 2026:  2.09%

(note: I have highlighted this WSJ Economic Forecast survey each time it is published; it was published monthly until April 2021, after which the survey is conducted (at least) every three months; 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 5123.41 as this post is written

Tuesday, April 9, 2024

Recession Probability Models – April 2024

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 4, 2024 using data through March 2024) this “Yield Curve” model shows a 58.3127% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 58.3217% probability through February 2024, 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 2, 2024 currently shows a 1.48% probability using data through February 2024.

Here is the FRED chart:

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 8, 2024:  
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 January 14, 2024 post titled “The January 2024 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 39% 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 5183.98 as this post is written

Monday, April 8, 2024

Charts Indicating Economic Weakness – April 2024

Throughout this site there are many discussions of economic indicators.  This post is the latest in a series of posts indicating facets of U.S. economic weakness or a notably low growth rate.

The level and trend of economic growth is especially notable at this time. As seen in various sources, recession estimates have been at elevated levels.

As seen in the January 2024 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 2.65% GDP in 2023, 1.01% GDP in 2024, 1.99% GDP in 2025, and 2.01% in 2026.

Charts Indicating U.S. Economic Weakness

Below is a small sampling of charts that depict weak growth or contraction, and a brief comment for each:

The Yield Curve (T10Y2Y)

Many people believe that the Yield Curve is a leading economic indicator for the United States economy.

On March 1, 2010, I wrote a post on the issue, titled “The Yield Curve As A Leading Economic Indicator.”

While I continue to have the stated reservations regarding the “Yield Curve” as an indicator, I do believe that it should be monitored.

The U.S. Yield Curve (one proxy seen below) is (all things considered) notably inverted when viewed from a long-term perspective. Below is the spread between the 10-Year Treasury Constant Maturity and the 2-Year Treasury Constant Maturity from June 1976 through the April 5, 2024 update, showing a value of -.41% [10-Year Treasury Yield (FRED DGS10) of 4.31% as of the April 5 update, 2-Year Treasury Yield (FRED DGS2) of 4.65% as of the April 5 update]:

T10Y2Y

source: Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 8, 2024: https://fred.stlouisfed.org/series/T10Y2Y

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Job Openings (JTSJOL)

Job openings (Job Openings: Total Nonfarm [JTSJOL]), although still at a (very) high level, have recently declined significantly. This “Job Openings” measure had a value of 8,756 (Thousands) through February 2024 as of the April 2, 2024 update, as shown below:

JTSJOL 8756

Below is this measure displayed on a “Percent Change From Year Ago” basis with value -11.1%:

JTSJOL -11.1 Percent Change From Year Ago

source: U.S. Bureau of Labor Statistics, Job Openings: Total Nonfarm [JTSJOL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 7, 2024: https://fred.stlouisfed.org/series/JTSJOL

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Average Weekly Overtime Hours of Production and Nonsupervisory Employees: Manufacturing (AWOTMAN)

Various U.S. manufacturing measures continue to indicate growth. However, overtime hours for manufacturing is somewhat subdued by recent-era economic expansion standards and the measure on a Percent Change From Year Ago level has recently been negative.

Shown below is the “Average Weekly Overtime Hours of Production and Nonsupervisory Employees: Manufacturing” measure (with last value of 3.6 hours through March) last updated April 5, 2024:

AWOTMAN 3.6 Hours

Below is this measure displayed on a “Percent Change From Year Ago” basis with value 0.0%:

AWOTMAN 0.0 Percent Change From Year Ago

source: U.S. Bureau of Labor Statistics, Average Weekly Overtime Hours of Production and Nonsupervisory Employees: Manufacturing [AWOTMAN], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 7, 2024: https://fred.stlouisfed.org/series/AWOTMAN

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Motor Vehicle Retail Sales: Heavy Weight Trucks (HTRUCKSSA)

Sales of “Heavy Weight Trucks” (HTRUCKSSA) has recently been volatile. Shown below is this measure with last value of 39.817 Thousand through March 2024, last updated April 5, 2024:

HTRUCKSSA 39.817

Below is this measure displayed on a “Percent Change From Year Ago” basis with value -6.1%:

HTRUCKSSA -6.1 Percent Change From Year Ago

source: U.S. Bureau of Economic Analysis, Motor Vehicle Retail Sales: Heavy Weight Trucks [HTRUCKSSA], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed April 7, 2024: https://fred.stlouisfed.org/series/HTRUCKSSA

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 5204.34 as this post is written