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:
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 21, 2023, with a last value of 33,808.96):
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
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The Special Note summarizes my overall thoughts about our economic situation
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 14, 2023:
from page 26:
(click on charts to enlarge images)
from page 27:
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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.
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The Special Note summarizes my overall thoughts about our economic situation
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 14, 2023, 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; and the year 2021 value is $208.12:
Year 2022 estimate:
$218.09/share
Year 2023 estimate:
$219.52/share
Year 2024 estimate:
$246.46/share
Year 2025 estimate:
$273.04/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.
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The Special Note summarizes my overall thoughts about our economic situation
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 6, 2023:
Year 2023 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $217.77/share
-From a “bottom up” perspective, “as reported” earnings of $200.65/share
Year 2024 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $244.52/share
-From a “bottom up” perspective, “as reported” earnings of $226.22/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.
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The Special Note summarizes my overall thoughts about our economic situation
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 economy is proving more resilient and inflation more stubborn than economists expected a few months ago, and as a result the Federal Reserve will keep interest rates high for longer, according to The Wall Street Journal’s latest survey of economists.
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 61%. The individual estimates, of those who responded, ranged from 1% to 100%. For reference, the average response in January’s survey [the previously published survey] was 61%.
As stated in the article, the survey’s 62 respondents were academic, financial and business economists. The survey was conducted April 7 – April 11. Not every economist answered every question.
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Economic Forecasts
The current average forecasts among economists polled include the following:
GDP:
full-year 2023: .45%
full-year 2024: 1.61%
full-year 2025: 2.20%
Unemployment Rate:
December 2023: 4.30%
December 2024: 4.51%
December 2025: 4.25%
10-Year Treasury Yield:
December 2023: 3.42%
December 2024: 3.29%
December 2025: 3.28%
CPI:
December 2023: 3.53%
December 2024: 2.47%
December 2025: 2.27%
Core PCE:
full-year 2023: 3.59%
full-year 2024: 2.46%
full-year 2025: 2.19%
(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.
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The Special Note summarizes my overall thoughts about our economic situation
The following is the latest update of 10 charts that depict various aspects of the U.S. economic and financial situation.
I find these charts portray disturbing long-term trends. These trends have been in effect for years.
These charts raise a lot of questions. As well, they highlight the “atypical” nature of our economic situation from a long-term historical perspective.
All of these charts are from the Federal Reserve, and represent the most recently updated data.
(click on charts to enlarge images)
Housing starts (last update March 16, 2023):
U.S. Bureau of the Census, Housing Starts: Total: New Privately Owned Housing Units Started [HOUST], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/HOUST/, April 13, 2023.
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The Federal Deficit (last updated March 15, 2023):
State & Local Personal Income Tax Receipts (% Change from Year Ago)(last updated March 30, 2023):
U.S. Bureau of Economic Analysis, State and local government current tax receipts: Personal current taxes: Income taxes [ASLPITAX], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/ASLPITAX/, April 13, 2023.
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Total Loans and Leases of Commercial Banks (% Change from Year Ago)(last updated April 7, 2023):
Board of Governors of the Federal Reserve System (US), Loans and Leases in Bank Credit, All Commercial Banks [TOTLL], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TOTLL/, April 13, 2023.
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Bank Credit – All Commercial Banks (% Change from Year Ago)(last updated April 7, 2023):
Board of Governors of the Federal Reserve System (US), Bank Credit of All Commercial Banks [TOTBKCR], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TOTBKCR/, April 13, 2023.
The Chicago Fed National Activity Index Three Month Moving Average (CFNAI-MA3)(last updated March 23, 2023):
Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CFNAIMA3/, April 13, 2023.
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I will continue to update these charts on an intermittent basis as they deserve close monitoring…
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The Special Note summarizes my overall thoughts about our economic situation
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 13, 2023 update (reflecting data through April 7, 2023) is -.0086:
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 13, 2023: 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:
Below are the most recently updated charts of the NFCI and ANFCI, respectively.
The NFCI chart below was last updated on April 12, 2023 incorporating data from January 8, 1971 through April 7, 2023 on a weekly basis. The April 7 value is -.18230:
The ANFCI chart below was last updated on April 12, 2023 incorporating data from January 8, 1971 through April 7, 2023, on a weekly basis. The April 7, 2023 value is -.13293:
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
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.
Currently (last updated April 3, 2023 using data through March 2023) this “Yield Curve” model shows a 57.7709% probability of a recession in the United States twelve months ahead. For comparison purposes, it showed a 54.4896% probability through February 2023, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)
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)
This model, last updated on April 3, 2023 currently shows a .74% probability using data through February 2023.
Here is the FRED chart (last updated April 3, 2023):
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 11, 2023: 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 January 15, 2023 post titled “The January 2023 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 61% 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
