Thursday, March 28, 2024

Consumer Confidence Surveys – As Of March 28, 2024

Advisor Perspectives had a post of March 28, 2024 (“Michigan Consumer Sentiment Reaches Highest Level Since July 2021“) that displays the latest Conference Board Consumer Confidence and University of Michigan Consumer Sentiment Index charts.  They are presented below:

(click on charts to enlarge images)

Conference Board Consumer Confidence 104.7

University of Michigan Consumer Sentiment Index 79.4

While I don’t believe that confidence surveys should be overemphasized, I find these readings and trends 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 5254.81 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“4th Quarter 2023 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the fourth quarter), (After Tax) Corporate Profits as a Percentage of GDP is still at levels that can be seen as historically high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

CP-GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 28, 2024

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 5253.48 as this post is written

4th Quarter 2023 Corporate Profits

Today’s (March 28, 2024) GDP release (Q4 2023, Third Estimate) was accompanied by the Bureau of Economic Analysis (BEA) Corporate Profits report (Preliminary Estimate) for the 4th Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (without IVA and CCAdj) (last updated March 28, 2024 with a value of $3,096.319 Billion SAAR):

CP

Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective (value of 8.6%):

CP Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed March 28, 2024; https://research.stlouisfed.org/fred2/series/CP

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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 5247.22 as this post is written

Wednesday, March 27, 2024

The CFO Survey First Quarter 2024 – Notable Excerpts

On March 27, 2024 The CFO Survey was released.  It contains a variety of statistics regarding how CFOs view business and economic conditions.

In the CFO Survey press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

CFOs revised upward their expectations for real GDP growth over the next four quarters to 2.2 percent, from 1.7 percent in the prior survey and 1.4 percent a year ago. Moreover, the probability respondents assign to negative year-ahead economic growth fell to 10 percent, from 31 percent during the second half of 2022.

Alongside stronger GDP growth expectations, using a scale from 0 to 100 to rate their optimism about the overall U.S. economy, CFO optimism increased to 61, its highest level since 2021Q2. The pick-up in overall optimism is widespread, cutting across firm size and industry.

also:

CFO optimism about their own firm’s financial prospects, which stands at a level of 69, increased slightly from last quarter. At the same time, over half of firms expect their price growth in 2024 to remain above pre-COVID norms, suggesting that for many firms, pricing pressures remain above what they consider normal.

The CFO Survey contains an Optimism Index chart, with the blue line showing U.S. Optimism (with regard to the economy) at 60.6, as seen below:

The CFO Survey - Optimism Indexes

t should be interesting to see how well the CFOs predict business and economic conditions going forward.   I discussed past various aspects of this, and the importance of these predictions, in the July 9, 2010 post titled “The Business Environment”.

(past posts on CEO and CFO surveys can be found under the “CFO and CEO Confidence” 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 5217.37 as this post is written

Tuesday, March 26, 2024

Money Supply Charts Through February 2024

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 March 26, 2024 depicting data through February 2024, with a value of $17,944.1 Billion:

M1SL 17944.1

Here is the “M1 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of -7.3%:

M1SL Percent Change From Year Ago

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 March 26, 2024: 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 March 26, 2024, depicting data through February 2024, with a value of $20,783.6 Billion:

M2SL 20783.6

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of -1.7%:

M2SL Percent Change From Year Ago

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 March 26, 2024: https://fred.stlouisfed.org/series/M2SL

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 5216.29 as this post is written

House Prices Reference Chart

As a reference for long-term house price index trends, below is a chart, updated with the most current data (through January 2024) from the CalculatedRisk blog post of March 26, 2024 titled “Case-Shiller : National House Price Index…“:

Case Shiller National and Composite Indexes

_________

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 5231.80 as this post is written

Durable Goods New Orders – Long-Term Charts Through February 2024

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 February 2024, updated on March 26, 2024. This value is $277,931 ($ Millions):

(click on charts to enlarge images)

DGORDER 277,931

Second, here is the chart depicting this measure on a “Percent Change from a Year Ago” basis, with a last value of 2.6%:

DGORDER 2.6% 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 March 26, 2024; 
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 5230.66 as this post is written

Monday, March 25, 2024

Updates Of Economic Indicators March 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 March 2024 Chicago Fed National Activity Index (CFNAI) updated as of March 25, 2024:

The CFNAI, with a 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; accessed March 25, 2024: 
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with a current reading of -.18:

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; accessed March 25, 2024: 
https://fred.stlouisfed.org/series/CFNAIMA3

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

The ADS Index as of March 21, 2024, reflecting data from March 1, 1960 through March 16, 2024, with last value -.0405321:

ADS Index

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

As per the March 21, 2024 Conference Board press release the LEI was 102.8 in February, the CEI was 112.3 in February, and the LAG was 118.8 in February.

An excerpt from the release:

“The U.S. LEI rose in February 2024 for the first time since February 2022,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Strength in weekly hours worked in manufacturing, stock prices, the Leading Credit Index™, and residential construction drove the LEI’s first monthly increase in two years. However, consumers’ expectations and the ISM® Index of New Orders have yet to recover, and the six- and twelve-month growth rates of the LEI remain negative. Despite February’s increase, the Index still suggests some headwinds to growth going forward. The Conference Board expects annualized US GDP growth to slow over the Q2 to Q3 2024 period, as rising consumer debt and elevated interest rates weigh on consumer spending.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index (LEI) update of March 21, 2024:

Conference Board LEI 102.8

_________

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 5226.50 as this post is written

Friday, March 22, 2024

The U.S. Economic Situation – March 22, 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 March 20, 2024 with a last value of 39,512.13):

(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 5237.86 as this post is written

Thursday, March 21, 2024

Jerome Powell’s March 20, 2024 Press Conference – Notable Aspects

On Wednesday, March 20, 2024 FOMC Chair Jerome Powell gave his scheduled March 2024 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 Chair Powell’s Press Conference“ (preliminary)(pdf) of March 20, 2024, with the accompanying “FOMC Statement” and “Summary of Economic Projections” (pdf) dated March 20, 2024.

Excerpts from Chair Powell’s opening comments:

Inflation has eased notably over the past year but remains above our longer-run goal of 2 percent.  Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.5 percent over the 12 months ending in February; and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent.  Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.  The median projection in the SEP for total PCE inflation falls to 2.4 percent this year, 2.2 percent next year, and 2 percent in 2026.

also:

The Fed’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people.  My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation.  We are strongly committed to returning inflation to our 2 percent objective.  

The Committee decided at today’s meeting to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent and to continue the process of significantly reducing our securities holdings.  As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals are coming into better balance.  We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.  The economic outlook is uncertain, however, and we remain highly attentive to inflation risks.  We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.

Excerpts of Jerome Powell’s responses as indicated to various questions:

NICK TIMIRAOS.  How much of that inflation that we’ve seen so far this year do you chalk up to one-off calendar adjustment affects following a period of high inflation versus some change in the trend we saw the second half of last year? 

CHAIR POWELL.  I want to start by being, saying, I always try to be careful about dismissing data that we don’t like. So, you need to check yourself on that and I’ll do that, but so I would say the January number, which was very high, the January CPI and PCE numbers were quite high, there’s reason to think that there could be seasonal affects there. But nonetheless, we don’t want to be completely dismissive of it. The February number was high, higher than expectations, but we have it at currently well below 30 basis points core PCE, which is not terribly high. So it’s not like the January number. But I take the two of them together and I think they haven’t really changed the overall story which is that of inflation moving down gradually on a sometimes-bumpy road toward two percent. I don’t think that story has changed. I also don’t think that those readings added to anyone’s confidence that we’re moving closer to that point, but we didn’t– the last thing I’ll say is we didn’t excessively celebrate the good inflation readings we got in the last seven months of last year. We didn’t take too much signal out of that, what you heard us saying was that we needed to see more that we could, that we wanted to be careful about that decision and we’re not going to overreact as well to these two months of data, nor are we going to ignore them. 

also:

CHRIS RUGABER.  Hi, Chris Rugaber, the Associated Press. Thank you. In the projections there is an increase in the neutral rate as you know, and higher rates, a quarter point higher rates projected in 2025, 2026. Can you speak about what might be behind that? Is there a real sense here that the economy has perhaps changed in some way that higher rates will be needed in the future? Thank you. 

CHAIR POWELL.  So, you’re right. They’re pretty midst changes but you’re right, there was an uptick in the longer run rate, and also there’s a 25 basis point increase in ’25 and ’26. In terms of are rates going to be higher in the longer run, if that’s really your question, I don’t think we know that. I think it’s, we think that rates were generally low during the pre-pandemic postglobal financial crisis era, for reasons that are mostly important, slow moving large things like demographics and productivity and that sort of thing. Things that don’t move quickly. But I don’t think we know. I mean my instinct would be that rates will not go back down to the very low levels that we saw where all around the world there were long run rates that were at or below zero in some cases. I don’t see rates going back down to that level, but I think there’s tremendous uncertainty around that. 

CHRIS RUGABER.  Great, and just a quick follow; on the projections you also have 2.6 percent core inflation for the end of this year. It’s already at, or you mentioned it being 2.8 in February, I mean that doesn’t sound like much disinflation at all. So are you really, are you still confident or, at the last press conference you sounded pretty optimistic you would get more confidence in the end of this year. Is it right to say that this suggests you’re not seeing a lot of disinflation this year compared to what we’ve seen 2023 and so forth? 

CHAIR POWELL.  I think that that, the higher yearend number reflects the data we’ve seen so far this year. Because you’re now in this year, so I think that– Sorry, say your last part of your question again. 

CHRIS RUGABER. Are you still optimistic that you’ll get the confidence you need this year? 

CHAIR POWELL.  I think if you look at the SEP, what it says is that it is still likely in most people’s view that we will achieve that confidence and that there will be rate cuts. But that’s really going to depend on the incoming data, it is. The other thing is, in the second half of the year you have some pretty low readings so it might be harder to make progress as you move that 12-month window forward. Nonetheless, we’re looking for data that confirm the kind of low readings that we had last year and give us a higher degree of confidence that what we saw was really inflation moving sustainably down to two percent, toward two percent. 

also:

NEIL IRWIN.  Hi Chair Powell, Neil Irwin with Axios. How do you assess the state of financial conditions right now and particularly, in particular do you view the kind of easing financial conditions since the fall is consistent and compatible with what you’re trying to achieve on the inflation mandate? 

CHAIR POWELL.  So we think, there are many different financial conditions indicators and you can kind of see different answers to that question. But ultimately, we do think that financial conditions are weighing on economic activity and we think you see that in, a great place to see it is in the labor market where you’ve seen demand cooling off a little bit from the extremely high levels and there I would point to job openings, quits, surveys, the hiring rate, things like that are really demand. There are also supply-side things happening, but I think those are demand side things happening. We saw, that’s been a question for a while, we did see progress on inflation last year, significant progress despite financial conditions sometimes being tighter, sometimes looser. 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 5246.65 as this post is written