Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the September 28, 2017 update (reflecting data through September 22, 2017) is -1.546.

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 October 4, 2017 incorporating data from January 5,1973 through September 29, 2017, on a weekly basis.  The September 29, 2017 value is -.86:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 4, 2017:

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

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The ANFCI chart below was last updated on October 4, 2017 incorporating data from January 5,1973 through September 29, 2017, on a weekly basis.  The September 29 value is -.61:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 4, 2017:

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

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2535.25 as this post is written

Recession Probability Models – October 2017

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 October 2, 2017 using data through September) this “Yield Curve” model shows a 10.3271% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 9.9858% probability through August, 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 October 2, 2017, currently shows a .18% probability using data through July.

Here is the FRED chart (last updated October 2, 2017):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed October 2, 2017:

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 September 8 post titled “The September 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 16.08% 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 2534.58 as this post is written

October 3, 2017 Gallup Poll Results On Economic Confidence – Notable Excerpts

On October 3, 2017 Gallup released the poll results titled “Confidence in U.S. Economy Dips to +4 in September.”

Notable excerpts include:

Americans’ confidence in the economy declined slightly in September, with Gallup’s U.S. Economic Confidence Index slipping to +4 from August’s reading of +6.

also:

Gallup’s U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they believe the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans were to say the economy is doing well and improving and a theoretical minimum of -100 if all were to say the economy is doing poorly and getting worse.

also:

The current conditions component measured +13 in September, the result of 34% describing the economy as “excellent” or “good” minus the 21% describing the economy as “poor.” September’s current conditions score essentially ties the +14 observed in August — the highest monthly reading in the 2008-2017 Gallup Daily tracking trend.

However, economic expectations dimmed slightly in September. Over the course of the month, half of Americans said economic conditions were “getting worse,” while 44% said conditions were “getting better,” resulting in an economic outlook score of -6. This is down four points from August’s -2 outlook score — but, as was the case with the overall metric, was no different from how this component performed in the final half of August. In the first half of August, by contrast, the economic outlook component was neutral, meaning it averaged a score of 0.

Here is an accompanying chart of the two components of the Gallup Economic Confidence Index, discussed above:

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 2531.87 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000 – October 3, 2017 Update

For reference purposes, below are two charts of the VIX from year 2000 through Monday’s (October 2, 2017) close, which had a closing value of 9.45.

Here is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:

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

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Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red 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 2529.12 as this post is written

Charts Of Equities’ Performance Since March 9, 2009 And January 1, 1980 – October 2, 2017 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 the latest daily closing price.

The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, AMZN, 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 2519.36 as this post is written

Monthly LOG Stock Charts DJIA – DJTA – S&P500 – Nasdaq Composite

StockCharts.com maintains long-term historical charts of various major stock market indices, interest rates, currencies, commodities, and economic indicators.

As a long-term reference, below are charts depicting various stock market indices for the dates shown.  All charts are depicted on a monthly basis using a LOG scale.

(click on charts to enlarge images)(charts courtesy of StockCharts.com)

The Dow Jones Industrial Average, from 1900 – September 29, 2017:

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The Dow Jones Transportation Average, from 1900 – September 29, 2017:

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The S&P500, from 1925 – September 29, 2017:

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The Nasdaq Composite, from 1978 – September 29, 2017:

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2519.36 as this post is written

U.S. Dollar Decline – October 2, 2017 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, in my opinion, be overstated.

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, and the red line representing a (past) trendline:

(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 a (past) trendline.  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 two clearly marked past channels, with possible technical support depicted by the 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 2519.36 as this post is written

Charts Indicating Economic Weakness – October 2017

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.

While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.

Below are a small sampling of charts that depict greater degrees of weakness and/or other worrisome trends, and a brief comment for each:

Overall Economic Activity

While the recently-released 2nd quarter GDP (Third Estimate)(pdf) was 3.1%, there are other broad-based economic indicators that seem to imply a weaker growth rate.  As well, it should be remembered that GDP figures can be (substantially) revised.

Currently, the consensus opinion for near-term growth is that the recent hurricanes will serve to depress economic growth.  As Janet Yellen stated at the September 20 FOMC Press Conference:

In the third quarter, however, economic growth will be held down by the severe disruptions caused by Hurricanes Harvey, Irma, and Maria.  As activity resumes and rebuilding gets underway, growth likely will bounce back.  Based on past experience, these effects are unlikely to materially alter the course of the national economy beyond the next couple of quarters.

There has been a (very) significant lowering of estimates for 3rd Quarter GDP growth.  This can be seen in various estimates, including the Federal Reserve Bank of Atlanta’s GDP Now (September 29 estimate of 2.3%) as well as the Federal Reserve Bank of New York’s Nowcast (September 29 estimate of 1.5%.)

However, is the recent reduction in economic growth estimates indeed due to the hurricanes?  There are many reasons to believe that overall weakening economic growth and/or contraction in some economic measures had been occurring previous to the hurricanes.

Among the broad-based economic indicators that have been implying weaker growth or mild contraction is the Chicago Fed National Activity Index (CFNAI) and the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index).

As seen in the charts shown below, such trends have been in existence for a number of months:

The September 2017 Chicago Fed National Activity Index (CFNAI) updated as of September 25, 2017:

The CFNAI, with current reading of -.31:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, September 25, 2017;

https://fred.stlouisfed.org/series/CFNAI

The ADS Index, from the year 2000 through September 16, 2017:

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Inflation Trends

Current inflation levels and the possibility of deflation  is a vastly complex topic, and as such isn’t suitably discussed in a brief manner.  I have discussed the issue of deflation extensively as I continue to believe that prolonged and deep U.S. deflationary conditions are on the horizon, and that such deflationary conditions will cause, as well as accompany, inordinate economic hardship. [note: to clarify, for purposes of this discussion, when I mention “deflation” I am referring to the CPI going below zero. Also, I have been using the term “deflationary pressures” as a term to describe deflationary manifestations within an environment that is still overall inflationary but heading towards deflation.]

Of note, the shortfall between the Federal Reserve’s stated inflation target (2% on the (Core) PCE Price Index) and the actual inflation reading continues.  For years there has been a continued inability for the 2% inflation target to be sustained.

Below is a chart of the “Core PCE” price measure as of the September 29, 2017 update, showing data through August, with a current reading of 1.3%:

source:  U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 1, 2017:

https://fred.stlouisfed.org/series/PCEPILFE

While there appears (as seen in forecasts and surveys) to be little if any general concern about deflation, recent commentary, including that from Janet Yellen in the September 20 FOMC Press Conference and in the September 26 speech concerning inflation is notable.  A couple of excerpts from the September 26 speech titled “Inflation, Uncertainty, And Monetary Policy” (pdf):

As I will discuss, this low inflation likely reflects factors whose influence should fade over time.  But as I will also discuss, many uncertainties attend this assessment, and downward pressures on inflation could prove to be unexpectedly persistent.  My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.

also:

Based on analyses of this sort, my colleagues and I currently think that this year’s low inflation is probably temporary, so we continue to anticipate that inflation is likely to stabilize around 2 percent over the next few years.  But our understanding of the forces driving inflation is imperfect, and we recognize that something more persistent may be responsible for the current undershooting of our longer-run objective.  Accordingly, we will monitor incoming data closely and stand ready to modify our views based on what we learn.

Although we judge that inflation will most likely stabilize around 2 percent over the next few years, the odds that it could turn out to be noticeably different are considerable.

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Consumer Spending

In the March 23, 2017 post (“‘Hidden’ Weakness In Consumer Spending?“) I wrote of various indications that consumer spending may be (substantially) less than what is depicted by various mainstream indicators, including overall retail sales.  This weakness (including the implications stemming from the substantial number of retail store closures) has widespread consequences for the U.S. economy as discussed in previous posts, including the June 13, 2011 post titled “The Changing Nature Of Retail – Economic Implications.”

While I continue to believe that the various retail sales figures are overstated, one tangential long-term indicator that is notable in its current trend is that of “All Employees:  Retail Trade” as depicted below on a “Percent Change From Year Ago” basis, through August with last value of -.2 Percent, last updated September 1, 2017:

source:  U.S. Bureau of Labor Statistics, All Employees: Retail Trade [USTRADE], retrieved from FRED, Federal Reserve Bank of St. Louis; September 29, 2017:

https://fred.stlouisfed.org/series/USTRADE

Another worrisome aspect is the peaking in auto sales and the (current-era) dynamics and structure of the auto industry with the accompanying widespread economic implications.

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Rail Freight Carloads

Another notable measure is that of “Rail Freight Carloads,” as depicted below, through July with last value of 1,099,399, last updated September 15, 2017:

source:  U.S. Bureau of Transportation Statistics, Rail Freight Carloads [RAILFRTCARLOADSD11], retrieved from FRED, Federal Reserve Bank of St. Louis;  September 29, 2017:

https://fred.stlouisfed.org/series/RAILFRTCARLOADSD11

Here is the same measure on a “Percent Change From Year Ago” basis:

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate economic weakness 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 2519.36 as this post is written