Thursday, November 16, 2017

Walmart’s Q3 2018 Results – Comments

I found various notable items in Walmart’s Q3 2018 management call transcript (pdf) dated November 16, 2017.  (as well, there is Walmart’s press release of the Q3 results and related presentation materials)
I view Walmart’s results and comments as particularly noteworthy given their retail prominence and focus on low prices.  I have previously commented on their quarterly management call comments; these previous posts are found under the “paycheck to paycheck” label.
Here are various excerpts that I find most notable:
comments from Doug McMillon, President and CEO, page 4, wrt Walmart U.S.: 
We had a strong quarter with comp-sales growth of 2.7 percent and
comp traffic growth of 1.5 percent. While we recognize that there are some
incremental hurricane-related sales in these numbers, our core business is
performing well.
comments from Doug McMillon, President and CEO, page 4, wrt Walmart U.S.: 
Walmart U.S. eCommerce sales were up 50 percent this quarter, with
the majority of the increase through Walmart.com. Existing customers have
become advocates for popular initiatives like online grocery and free twoday
shipping, and as a result, new customers, suppliers and partnerships
are coming to Walmart. The expanded assortment on Walmart.com has
also contributed to growth. Over the past year, we’ve tripled the number of
items on Walmart.com to reach more than 70 million SKUs today. As you
heard last month, Marc’s team is making progress on hiring additional
category specialists focused on improving the customer experience and our
positioning with the top one million eCommerce items. The recent
agreement with Lord and Taylor is a great example of how we will be
creating specialty experiences that complement what we offer and serve
customers with the brands they want. We’re making good progress
attracting premium brands to the site such as KitchenAid and Bose.
comments from Brett Biggs, EVP & CFO, page 7:
We expect top line growth going forward to be led more by comp
sales and eCommerce with less emphasis on new units in the U.S. We
have good sales momentum and cost transformation is gaining traction.
This gives us confidence in our ability to operate with discipline and
leverage expenses. In terms of capital allocation, we’re prioritizing
eCommerce, technology, supply chain and store remodels over new stores
and clubs, which we believe will contribute to long-term value creation for
shareholders. We’re excited about the future of Walmart.
comments from Brett Biggs, EVP & CFO, page 9:
Walmart U.S. eCommerce continued its strong performance with net
sales growth of 50 percent. We began to lap the acquisition of Jet.com
mid-quarter, which impacted our overall growth. Walmart.com, including
online grocery, once again led the way and was responsible for the majority
of the growth in the period. Throughout this year we’ve talked a lot about
the speed at which we’re moving, and we continued that progress in the
third quarter. For example, we launched new partnerships with Google and
August Home – these are capital-light initiatives that expand convenience
for customers by enabling hands free voice shopping and unattended
delivery in the home. We also acquired Parcel, a technology-based, sameday,
last-mile delivery company focused on customers in New York City.
comments from Brett Biggs, EVP & CFO, page 10, wrt Walmart U.S.:  
Walmart U.S. had a strong quarter with comp sales growth of 2.7
percent led by a traffic increase of 1.5 percent. While difficult to quantify
precisely, we estimate hurricane-related impacts benefited comps by 30 to
50 basis points. On a two-year stacked basis, comp sales were up 3.9
percent and comp traffic increased 2.2 percent. This is the strongest
quarterly and two-year stacked comp performance in more than eight
years. The food business continued to accelerate with sales, traffic and
unit growth across categories. In fact, food categories delivered the
strongest quarterly comp sales performance in almost six years. Market
inflation was around or slightly less than what we saw in the second
quarter. All formats had positive comps and eCommerce contributed
approximately 80 basis points to the segment.
Gross margin rate declined 36 basis points in the quarter. The
margin rate decreased in part due to the continued execution of our price
investment strategy and the mix effects from our growing eCommerce
business. In addition, we estimate that hurricane-related impacts were
about one-third of the overall decline.
Operating expenses as a percentage of net sales decreased 10 basis
points, with stores leveraging at a higher level than that. The U.S. team
has made great progress while maintaining high customer service levels,
as associates are more efficient with improved technology, training and
processes.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2564.62 as this post is written

Wednesday, November 15, 2017

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 November 9, 2017 update (reflecting data through November 3, 2017) is -1.60.
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 November 15, 2017 incorporating data from January 8, 1971 through November 10, 2017, on a weekly basis.  The November 10, 2017 value is -.93:
NFCI_11-15-17 -.93
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 15, 2017:
The ANFCI chart below was last updated on November 15, 2017 incorporating data from January 8,1971 through November 10, 2017, on a weekly basis.  The November 10 value is -.75:
ANFCI_11-15-17 -.75
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 15, 2017:
_________
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 2570.48 as this post is written

Monday, November 13, 2017

Philadelphia Fed – 4th Quarter 2017 Survey Of Professional Forecasters

The Philadelphia Fed 4th Quarter 2017 Survey of Professional Forecasters was released on November 13, 2017.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.
The survey shows, among many measures, the following median expectations:
Real GDP: (annual average level)
full-year 2017:  2.2%
full-year 2018:  2.5%
full-year 2019:  2.1%
full-year 2020:  1.9%
Unemployment Rate: (annual average level)
for 2017: 4.4%
for 2018: 4.1%
for 2019: 4.0%
for 2020: 4.1%
Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 6.3%, 10.4%, 12.6%, 14.7% and 17.0% for each of the quarters from Q4 2017 through Q4 2018, respectively.
As well, there are also a variety of time frames shown (present quarter through the year 2026) with the median expected inflation (annualized) of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in the 1.4% to 2.3% range.
_____
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.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2582.00 as this post is writtenShare

The S&P500 And 10-Year Treasury Yields Since 1980

As reference, here is a long-term chart of the S&P500 (top plot) and 10-Year U.S. Treasury yield (bottom plot) since 1980, depicted on a monthly basis through the November 10, 2017 closing values:
(click on charts to enlarge images)(charts courtesy of StockCharts.com; chart creation and annotation by the author)
S&P500 And 10-Year U.S. Treasury Yields
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2581.90 as this post is written

Friday, November 10, 2017

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – November 10, 2017 Update

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):
For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.
However, I do think the measures are important and deserve close monitoring and scrutiny.
Below are three long-term charts, from Doug Short’s ECRI update post of November 10, 2017 titled “ECRI Weekly Leading Index…”  These charts are on a weekly basis through the November 10, 2017 release, indicating data through November 3, 2017.
Here is the ECRI WLI (defined at ECRI’s glossary):
ECRI WLI
This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:
This last chart depicts, on a long-term basis, the WLI, Gr.:
ECRI WLI,Gr.
_________
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 2579.58 as this post is written

Thursday, November 9, 2017

Deflation Probabilities – November 9, 2017 Update

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 2022.
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 November 9, 2017 update states the following:
The 2017–22 deflation probability was 3 percent on November 8, up from 2 percent on November 1. The 2016–21 deflation probability was 4 percent on November 8, unchanged from November 1. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2016 and early 2017, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2016 and April 2017 and the 10-year TIPS issued in July 2011 and July 2012.
_________
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 2584.62 this post is written

The November 2017 Wall Street Journal Economic Forecast Survey

The November 2017 Wall Street Journal Economic Forecast Survey was published on November 9, 2017.  The headline is “Forecasters Predict Nafta Withdrawal Would Slow U.S. Growth.”
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:
Forecasters this month saw GDP growth of 2.5% this year and again in 2018. The pace of expansion was then seen easing to 2.1% in 2019 and 2% in 2020, closer to the average since the 2007-09 recession ended. Last month, economists said the proposed GOP tax plan would produce several years of stronger growth if enacted by Congress, though forecasters were divided over its likely long-term effects.
As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 14.64%. The individual estimates, of those who responded, ranged from 0% to 35%.  For reference, the average response in October’s survey was 15.85%.
As stated in the article, the survey’s respondents were 59 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted November 3-7.
The current average forecasts among economists polled include the following:
GDP:
full-year 2017:  2.5%
full-year 2018:  2.5%
full-year 2019:  2.1%
full-year 2020:  2.0%
Unemployment Rate:
December 2017: 4.1%
December 2018: 3.9%
December 2019: 4.0%
December 2020: 4.3%
10-Year Treasury Yield:
December 2017: 2.47%
December 2018: 3.00%
December 2019: 3.31%
December 2020: 3.47%
CPI:
December 2017:  1.9%
December 2018:  2.2%
December 2019:  2.3%
December 2020:  2.3%
Crude Oil  ($ per bbl):
for 12/31/2017: $53.72
for 12/31/2018: $54.22
for 12/31/2019: $54.91
for 12/31/2020: $57.06
(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” label)
_____
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 2571.07 as this post is written

Wednesday, November 8, 2017

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 November 2, 2017 update (reflecting data through October 27, 2017) is -1.529.
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 November 8, 2017 incorporating data from January 8, 1971 through November 3, 2017, on a weekly basis.  The November 3, 2017 value is -.91:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 8, 2017:
The ANFCI chart below was last updated on November 8, 2017 incorporating data from January 8,1971 through November 3, 2017, on a weekly basis.  The November 3 value is -.74:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 3, 2017:
_________
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 2593.41 as this post is written

Building Financial Danger – November 8, 2017 Update

My overall analysis indicates a continuing elevated and growing level of financial danger which contains many worldwide and U.S.-specific “stresses” of a very complex nature. I have written numerous posts in this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.
Also of ongoing immense importance is the existence of various immensely large asset bubbles, a subject of which I have extensively written.  While all of these asset bubbles are wildly pernicious and will have profound adverse future implications, hazards presented by the bond market bubble are especially notable.
Predicting the specific timing and extent of a stock market crash is always difficult, and the immense complexity of today’s economic situation makes such a prediction even more challenging. With that being said, my analyses continue to indicate that a near-term exceedingly large (from an ultra-long term perspective) stock market crash – that would also involve (as seen in 2008) various other markets as well – will occur.
(note: the “next crash” and its aftermath has great significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts with the “Economic Depression” label)
As reference, below is a daily chart since 2008 of the S&P500 (through November 7, 2017 with a last price of 2590.64), depicted on a LOG scale, indicating both the 50dma and 200dma as well as price labels:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
S&P500 daily
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2590.64 as this post is written

Monday, November 6, 2017

Monthly Changes In Total Nonfarm Payrolls – November 6, 2017 Update

For reference purposes, below are five charts that display growth in payroll employment, as depicted by the Total Nonfarm Payrolls 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 Payrolls from the year 2000 through the current October 2017 report, with value of 261,000:
(click on charts to enlarge images)
Total Nonfarm Payrolls monthly change
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 November 6, 2017;
The second chart shows a longer-term chart of the same month-over-month change in Total Nonfarm Payrolls (reports of January 1940 through the present report of October 2017):
Total Nonfarm Payrolls Month Change Since 1939
The third chart shows the aggregate number of Total Nonfarm Payrolls, from January 1939 – October 2017 (October 2017 value of 147.010 million):
Total Nonfarm Payrolls
The fourth chart shows this same aggregate number of Total Nonfarm Payrolls measure as seen above but presented on a LOG scale:
Total Nonfarm Payrolls
Lastly, the fifth chart shows the Total Nonfarm Payrolls number on a “Percent Change from Year Ago” basis from January 1940 – October 2017: (October 2017 value of 1.4%)
Total Nonfarm Payrolls Percent Change From Year Ago
_________
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 2588.06 as this post is written

Recession Probability Models – November 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 November 2, 2017 using data through October) this “Yield Curve” model shows a 9.035% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 10.3271% probability through September, 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 November 1, 2017, currently shows a 2.46% probability using data through August.
Here is the FRED chart (last updated November 1, 2017):
U.S. Recession Probability
Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed November 6, 2017:
The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the October 12 post titled “The October 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 15.85% probability of a U.S. recession within the next 12 months.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2587.84 as this post is written