The May 2020 Wall Street Journal Economic Forecast Survey

The May 2020 Wall Street Journal Economic Forecast Survey was published on May 13, 2020. The headline is “WSJ Survey: Coronavirus to Cause 17% Unemployment in June.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the “Economist Q&A” section.

An excerpt:

A monthly Wall Street Journal survey found economists expect gross domestic product to shrink 6.6% this year, measured from the fourth quarter of 2019, a downgrade from the 4.9% contraction economists predicted in last month’s survey. While economists expect a deeper contraction in the second quarter, a majority—85%—continue to expect the recovery will start in the second half of the year. They predict an annualized growth rate of 8.5% in the third quarter, up from 6.2% in the prior survey. Growth is expected to clock in at 6.7% in the fourth quarter, broadly unchanged from last month.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 94.6%. The individual estimates, of those who responded, ranged from 10% to 100%.  For reference, the average response in April’s survey was 96.24%.

As stated in the article, the survey’s 64 respondents were academic, financial and business economists.  Not every economist answered every question.  The survey was conducted May 8 – May 12, 2020.

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Economic Forecasts

The current average forecasts among economists polled include the following:

GDP:

full-year 2020:  -6.64%

full-year 2021:  5.00%

full-year 2022:  2.99%

Unemployment Rate:

December 2020: 11.38%

December 2021: 7.55%

December 2022: 5.83%

December 2023: 4.91%

10-Year Treasury Yield:

December 2020: .85%

December 2021: 1.30%

December 2022: 1.73%

CPI:

December 2020:  .45%

December 2021:  1.93%

December 2022:  2.10%

Crude Oil  ($ per bbl):

for 12/31/2020: $31.72

for 12/31/2021: $40.94

for 12/31/2022: $47.76

(note: I highlight this WSJ Economic Forecast survey each month; 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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2815.74 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI2) is one index that is supposed to measure stress in the financial system.  Its reading as of the May 7, 2020 update (reflecting data through May 1, 2020) is .865.

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 May 13, 2020 incorporating data from January 8, 1971 through May 8, 2020, on a weekly basis.  The May 8 value is -.40:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 13, 2020: 
http://research.stlouisfed.org/fred2/series/NFCI

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The ANFCI chart below was last updated on May 13, 2020 incorporating data from January 8, 1971 through May 8, 2020, on a weekly basis.  The May 8 value is .24:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 13, 2020: 
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 2861.81 as this post is written

Recession Probability Models – May 2020

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 May 4, 2020 using data through April 2020) this “Yield Curve” model shows a 19.4565% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 18.4658% probability through March 2020, 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 May 1, 2020 currently shows a 100.0% probability using data through March 2020.

Here is the FRED chart (last updated May 1, 2020):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed May 13, 2020: 
http://research.stlouisfed.org/fred2/series/RECPROUSM156N

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The two models featured above can be compared against measures seen in recent posts.  For instance, as seen in the April 8, 2020 post titled “The April 2020 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 96.24% 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 2870.12 as this post is written

Charts Indicating Economic Weakness – May 2020

U.S. Economic Indicators

Throughout this site there are many discussions of economic indicators.  This post is the latest in a series of posts indicating 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 measures and near-term projections, the U.S. economy is undergoing an outsized level of economic contraction. As seen in many surveys and projections, most people believe that this historic level of contraction will be temporary in nature and that an economic rebound will start in the third quarter of 2020. 

As seen in the April 2020 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for -4.9% GDP growth in 2020 and 5.1% GDP growth in 2021. 

Charts Indicating U.S. Economic Weakness

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

The Chicago Fed National Activity Index (CFNAI)

A broad-based economic indicator that has been implying substantial contraction is the Chicago Fed National Activity Index (CFNAI).

The April 2020 Chicago Fed National Activity Index (CFNAI) updated as of April 20, 2020:

The CFNAI, with current reading of -4.19:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, April 20, 2020;
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with current reading of -1.47:

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, April 20, 2020;
https://fred.stlouisfed.org/series/CFNAIMA3

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

Another broad-based economic indicator that seems to imply substantial economic contraction is the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index.)

Below is a chart of the index from January 1, 2000 through May 2, 2020, with a value of -36.1637, as of the May 8, 2020 update: (please note: as stated, the Y-Axis is truncated)

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Regional Manufacturing Surveys

Various Federal Reserve regional manufacturing surveys are indicating a significant if not substantial weakening.

Below is a chart of various regional manufacturing surveys, depicted on a 3-month moving average, from Advisor Perspectives’ post of April 28, 2020 titled “April Regional Fed Manufacturing Overview“:

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The Weekly Economic Index (WEI)

A newly-introduced indicator, the Weekly Economic Index, is an economic indicator that is a composite of 10 different weekly indicators. It is (purportedly) designed to provide a timely depiction of the U.S. economic trend. As seen below, it depicts the severity of the recent plunge in economic activity.

The Weekly Economic Index (WEI) with a value of -11.91, updated as of May 7, 2020:

source:  Lewis, Daniel J., Mertens, Karel and Stock, James H., Weekly Economic Index (Lewis-Mertens-Stock) [WEI], retrieved from FRED, Federal Reserve Bank of St. Louis, May 8, 2020; https://fred.stlouisfed.org/series/WEI

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Oil Price Weakness

Recent (severe) oil price weakness is both an indicator of economic weakness and various imbalances. As well, substantial oil price weakness is problematical for the economy and various aspects of the financial system.

Shown below is the price of (light crude) oil on a daily basis, from 2008 through the closing price of May 8, 2020:

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

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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 2929.80 as this post is written

Monthly Changes In Total Nonfarm Payroll – May 8, 2020 Update

For reference purposes, below are five charts that display growth in payroll employment, as depicted by the Total Nonfarm Payroll measures (FRED data series PAYEMS).

PAYEMS, which is seasonally adjusted, is defined in Financial Reserve Economic Data [FRED] as:

All Employees: Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed. This measure accounts for approximately 80 percent of the workers who contribute to Gross Domestic Product (GDP).

This measure provides useful insights into the current economic situation because it can represent the number of jobs added or lost in an economy. Increases in employment might indicate that businesses are hiring which might also suggest that businesses are growing. Additionally, those who are newly employed have increased their personal incomes, which means (all else constant) their disposable incomes have also increased, thus fostering further economic expansion.

Generally, the U.S. labor force and levels of employment and unemployment are subject to fluctuations due to seasonal changes in weather, major holidays, and the opening and closing of schools. The Bureau of Labor Statistics (BLS) adjusts the data to offset the seasonal effects to show non-seasonal changes: for example, women’s participation in the labor force; or a general decline in the number of employees, a possible indication of a downturn in the economy. To closely examine seasonal and non-seasonal changes, the BLS releases two monthly statistical measures: the seasonally adjusted All Employees: Total Nonfarm (PAYEMS) and All Employees: Total Nonfarm (PAYNSA), which is not seasonally adjusted.

The series comes from the ‘Current Employment Statistics (Establishment Survey).’

The source code is: CES0000000001

The first chart shows the monthly change in Total Nonfarm Payroll from the year 2000 through the current April 2020 report (April 2020 value of -20500 (Thousands)):

(click on charts to enlarge images)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total Nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed May 8, 2020; https://fred.stlouisfed.org/series/PAYEMS

The second chart shows a longer-term chart of the same month-over-month change in Total Nonfarm Payroll (reports of February 1939 through the present report of April 2020):

The third chart shows the aggregate number of Total Nonfarm Payroll, from the reports of February 1939 – April 2020 (April 2020 value of 131.072 million):

The fourth chart shows this same aggregate number of Total Nonfarm Payroll measure as seen above but presented on a LOG scale:

Lastly, the fifth chart shows the Total Nonfarm Payroll number on a “Percent Change from Year Ago” basis from January 1940 – April 2020: (April 2020 value of -12.9%)

_________

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 2919.52 as this post is written

Average Hourly Earnings Trends

I have written many blog posts concerning the worrisome trends in income and earnings.

Along these lines, one of the measures showing disconcerting trends is that of hourly earnings.

While the concept of hourly earnings can be defined and measured in a variety of ways, below are a few charts that I believe broadly illustrate problematic trends.

The first chart depicts Average Hourly Earnings Of All Employees: Total Private (FRED series CES0500000003)(current value = $30.01):

(click on chart to enlarge image)(chart last updated 5-8-20)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of All Employees:  Total Private [CES0500000003] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed May 8, 2020:
http://research.stlouisfed.org/fred2/series/CES0500000003

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This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 5-8-20)

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There are slightly different measures available from a longer-term perspective. Pictured below is another measure, the Average Hourly Earnings of Production and Nonsupervisory Employees – Total Private (FRED series AHETPI)(current value = $25.12):

(click on chart to enlarge image)(chart last updated 5-8-20)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of Production and Nonsupervisory Employees:  Total Private [AHETPI] ; U.S. Department of Labor: Bureau of Labor Statistics;  accessed May 8, 2020:
http://research.stlouisfed.org/fred2/series/AHETPI

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Pictured below is this AHETPI measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 5-8-20)

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I will continue to actively monitor these trends, especially given the post-2009 dynamics.

_________

I post various economic 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 2917.99 this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of May 8, 2020

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective.  Both charts are from the St. Louis Fed site.  The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 14.7% unemployment rate:

(click on charts to enlarge images)(charts updated as of 5-8-20)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilian Unemployment Rate [UNRATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed May 8, 2020:
http://research.stlouisfed.org/fred2/series/UNRATE

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Here is the U-6 chart, currently showing a 22.8% unemployment rate:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons  [U6RATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed May 8, 2020: 
http://research.stlouisfed.org/fred2/series/U6RATE

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2913.40 as this post is written