3 Critical Unemployment Charts – February 2014

As I have commented previously, as in the October 6, 2009 post (“A Note About Unemployment Statistics”), in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction; they serve to understate the severity of unemployment.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated unemployment situation.

The first two charts are from the St. Louis Fed site.  Here is the Median Duration of Unemployment (current value = 16.0 weeks) :

(click on charts to enlarge images)(charts updated as of 2-7-14)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Median Duration of Unemployment [UEMPMED] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 7, 2014;

http://research.stlouisfed.org/fred2/series/UEMPMED

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Here is the chart for Unemployed 27 Weeks and Over (current value =  3.646 million) :

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilians Unemployed for 27 Weeks and Over [UEMP27OV] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 7, 2014;

http://research.stlouisfed.org/fred2/series/UEMP27OV

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Lastly, a chart from the CalculatedRisk.com site, from the February 7 post titled “January Employment Report:  113,000 Jobs, 6.6% Unemployment Rate.”  This shows the employment situation vs. that of previous recessions, as shown:

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As depicted by these charts, our unemployment problem is severe.  Unfortunately, there do not appear to be any “easy” solutions.

On April 24, 2012 I wrote a five-part blog post titled “The Unemployment Situation Facing The United States”, which discusses various problematical issues concerning the present and future employment situation.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1786.83 as this post is written

Deflation Probabilities

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”

As stated on the site:

Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2018.

A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the February 6, 2014 update states the following:

The 2013–18 deflation probability—based on the 5-year TIPS issued in April and the 10-year TIPS issued in July 2008—was 0 percent on February 5, where it has been since early September. The 2012–17 deflation probability is also 0 percent as of February 5.

Prices of Treasury Inflation-Protected Securities (TIPS) with similar maturity dates can be used to measure probabilities of a net decline in the consumer price index over the five-year period starting in early 2013 or the five-year period starting in early 2012.

I plan on providing updates to this measure on a regular interval.

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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 blog are aware, I do not necessarily agree with what they depict or imply.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1773.43 this post is written

St. Louis Financial Stress Index – February 6, 2014 Update

On March 28, 2011 I wrote a post (“The STLFSI“) about the St. Louis Fed’s Financial Stress Index (STLFSI) which is supposed to measure stress in the financial system.  For reference purposes, the most recent chart is seen below.  This chart was last updated on February 6, incorporating data from December 31,1993 to January 31, 2014, on a weekly basis.  The January 31, 2014 value is -.869:

(click on chart to enlarge image)

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Here is the STLFSI chart from a 1-year perspective:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 6, 2014:

http://research.stlouisfed.org/fred2/series/STLFSI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog 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 1769.38 as this post is written

Stock Market Capitalization To GDP

"Stock market capitalization to GDP" is a notable and important metric regarding stock market valuation.  In February of 2009 I wrote of it in "Does Warren Buffett's Market Metric Still Apply?"

Doug Short has recently published posts depicting this "stock market capitalization to GDP' metric.

As seen in his February 5, 2014 post titled "Market Cap to GDP:  The Buffett Valuation Indicator" he shows two different versions, varying by the definition of stock market capitalization. (note:  additional explanation is provided in his post.)

For reference purposes, here is the first chart, with the stock market capitalization as defined by the Federal Reserve:

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Here is the second chart, with the stock market capitalization as defined by the Wilshire 5000:

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As one can see in both measures depicted above, "stock market capitalization to GDP" is at notably high levels, from a long-term historical perspective.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1751.64 as this post is written

Recession Probability Models

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 blog post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated February 4, 2014 using data through January) this “Yield Curve” model shows a 1.02% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 1.01% probability through December, and a chart going back to 1960 is seen at “Probability Of U.S. Recession Charts.” (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 February 4, 2014, currently shows a .10% probability using data through November.

Here is the FRED chart (last updated February 4, 2014) :

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Marcelle Chauvet and Jeremy Piger; U.S. Recession Probabilities [RECPROUSM156N]; accessed February 4, 2014:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

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The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the January 17 post titled “The January 2014 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 11% probability of a U.S. recession within the next 12 months.

Of course, there is a (very) limited number of prominent parties, such as ECRI (most recently featured in the January 31 post titled “Long-Term Charts Of The ECRI WLI & ECRI WLI,Gr. – January 31, 2014 Update“) that believe the U.S. is currently experiencing a recession.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1751.64 as this post is written

February 4 Gallup Poll Results On Economic Confidence – Notable Excerpts

On February 4, 2014 Gallup released the poll results titled “U.S. Economic Confidence Continued to Improve in January.”  The subtitle is “Index improves for third consecutive month.”

Notable excerpts include:

Gallup's Economic Confidence Index improved slightly for the month of January, climbing to -16 from -19 in December. Although a disheartening jobs report and steep stock market losses negatively affected Americans' confidence in the short term, Americans' economic confidence improved for the third month in a row after dipping to -35 during the federal government shutdown in October.

also:

The Gallup Economic Confidence Index is the average of two components: Americans' views on the current economic situation and their economic outlook. The current economic conditions component of the index averaged -18 in January, based on 18% rating the economy as excellent or good versus 36% rating it poor. The economic outlook component was -13 in January, with 41% of Americans saying the economy is getting better and 54% saying it is getting worse.

Here is an accompanying chart of the Gallup Economic Confidence Index:

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1755.45 as this post is written

Charts Of Equities’ Performance Since March 9, 2009 And January 1, 1980 – February 4, 2014 Update

In the March 9, 2012 post (“Charts of Equities’ Performance Since March 9, 2009 And January 1, 1980“) I highlighted two charts for reference purposes.

Below are those two charts, updated through yesterday’s closing price.

The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, WFM, SBUX, CAT) individual stocks, since 2005.  There is a blue vertical line that is very close to the March 6, 2009 low.  As one can see, both the S&P500 performance, as well as many stocks including the five shown, have performed strongly since the March 6, 2009 low:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

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This next chart shows, on a monthly LOG basis, the S&P500 since 1980.  I find this chart notable as it provides an interesting long-term perspective on the S&P500′s performance.  The 20, 50, and 200-month moving averages are shown in blue, red, and green lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1741.89 as this post is written

U.S. Dollar Decline – February 3, 2014 Update

U.S. Dollar weakness is a foremost concern of mine.  As such, I have extensively written about it.  I am very concerned that the actions being taken to “improve” our economic situation will dramatically weaken the Dollar.  Should the Dollar substantially decline from here, as I expect, the negative consequences will far outweigh any benefits.  The negative impact of a substantial Dollar decline can’t be overstated, in my opinion.

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983.  This clearly shows a long-term weakness, with the blue line showing technical support until 2007:

(charts courtesy of StockCharts.com; annotations by the author)

(click on charts to enlarge images)

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Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale.  The red line represents both a (past) trendline as well as a relatively good visual “best-fit” line.  The gray dotted line is the 200-day M.A. (moving average):

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Lastly, a chart of the Dollar on a weekly LOG scale.  There are some clearly marked channels, with a potential large, prominent triangle featured (shown with two potential lower trendlines, one red and one dashed light blue line):

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I will continue providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1782.59 as this post is written