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 January 25, 2018 update (reflecting data through January 19, 2018) is -1.463.

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 January 31, 2018 incorporating data from January 8, 1971 through January 26, 2018, on a weekly basis.  The January 26, 2018 value is -.94:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 31, 2018:

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

–

The ANFCI chart below was last updated on January 31, 2018 incorporating data from January 8,1971 through January 26, 2018, on a weekly basis.  The January 26 value is -.73:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 31, 2018:

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 2822.24 as this post is written

Employment Cost Index (ECI) – Fourth Quarter 2017

While the concept of Americans’ incomes can be defined in a number of ways, many prominent measures continue to show disconcerting trends.

One prominent measure is the Employment Cost Index (ECI).

Here is a description from the BLS document titled “The Employment Cost Index:  what is it?“:

The Employment Cost Index (ECI) is a quarterly measure of the change in the price of labor, defined as compensation per employee hour worked. Closely watched by many economists, the ECI is an indicator of cost pressures within companies that could lead to price inflation for finished goods and services. The index measures changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. As a fixed-weight, or Laspeyres, index, the ECI controls for changes occurring over time in the industrial-occupational composition of employment.

On January 31, 2018, the ECI for the fourth quarter was released.  Here are two excerpts from the BLS release titled “Employment Cost Index – December 2017“:

Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period ending in December 2017, the U.S. Bureau of Labor Statistics reported today. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.5 percent, and benefits (which make up the remaining 30 percent of compensation) increased 0.5 percent. (See tables A, 1, 2, and 3.)

also:

Compensation costs for civilian workers increased 2.6 percent for the 12-month period ending in December 2017. In December 2016, compensation costs increased 2.2 percent. Wages and salaries increased 2.5 percent for the 12- month period ending in December 2017 and increased 2.3 percent for the 12-month period ending in December 2016. Benefit costs increased 2.5 percent for the 12-month period ending in December 2017. In December 2016, the increase was 2.1 percent. (See tables A, 4, 8, and 12.)

Below are three charts, updated on January 31, 2018 that depict various aspects of the ECI, which is seasonally adjusted (SA):

The first depicts the ECI, with a value of 131.4:

source: US. Bureau of Labor Statistics, Employment Cost Index: Total compensation: All Civilian[ECIALLCIV], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed January 31, 2018:

https://research.stlouisfed.org/fred2/series/ECIALLCIV/

The second chart depicts the ECI on a “Percent Change from Year Ago” basis, with a value of 2.656%:

The third chart depicts the ECI on a “Percent Change” (from last quarter) basis, with a value of .6%:

_________

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 2830.35 as this post is written

The State of the Union Address – Notable Excerpts

I found President Trump’s State of the Union Address last night (January 30, 2018) to contain some noteworthy comments.  While I could comment extensively on many parts of the speech, for now I will indicate excerpts that I found most relevant with regard to the economic situation, and may comment upon them at a future point.  I am highlighting these excerpts for many reasons; it should be noted that I do not necessarily agree with any or all of them.

Here are the excerpts I found most relevant, in the order they occurred in the speech:

Since the election, we have created 2.4 million new jobs, including 200,000 new jobs in manufacturing alone.  After years of wage stagnation, we are finally seeing rising wages.

Unemployment claims have hit a 45-year low.  African-American unemployment stands at the lowest rate ever recorded, and Hispanic American unemployment has also reached the lowest levels in history.

Small business confidence is at an all-time high.  The stock market has smashed one record after another, gaining $8 trillion in value.  That is great news for Americans’ 401k, retirement, pension, and college savings accounts.

And just as I promised the American people from this podium 11 months ago, we enacted the biggest tax cuts and reforms in American history.

Our massive tax cuts provide tremendous relief for the middle class and small businesses.

also:

A typical family of four making $75,000 will see their tax bill reduced by $2,000 — slashing their tax bill in half.

also:

We slashed the business tax rate from 35 percent all the way down to 21 percent, so American companies can compete and win against anyone in the world.  These changes alone are estimated to increase average family income by more than $4,000.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2822.43 as this post is written

Another Recession Probability Indicator – Updated Through Q3 2017

Each month I have been highlighting various estimates of U.S. recession probabilities.  The latest update was that of January 4, 2018, titled “Recession Probability Models – January 2018.”

While I don’t agree with the methodologies employed or the probabilities of impending economic weakness as depicted by these and other estimates, I do believe that the results of these models and estimates should be monitored.

Another probability of recession is provided by James Hamilton, and it is titled “GDP-Based Recession Indicator Index.”  A description of this index, as seen in FRED:

This index measures the probability that the U.S. economy was in a recession during the indicated quarter. It is based on a mathematical description of the way that recessions differ from expansions. The index corresponds to the probability (measured in percent) that the underlying true economic regime is one of recession based on the available data. Whereas the NBER business cycle dates are based on a subjective assessment of a variety of indicators that may not be released until several years after the event , this index is entirely mechanical, is based solely on currently available GDP data and is reported every quarter. Due to the possibility of data revisions and the challenges in accurately identifying the business cycle phase, the index is calculated for the quarter just preceding the most recently available GDP numbers. Once the index is calculated for that quarter, it is never subsequently revised. The value at every date was inferred using only data that were available one quarter after that date and as those data were reported at the time.

If the value of the index rises above 67% that is a historically reliable indicator that the economy has entered a recession. Once this threshold has been passed, if it falls below 33% that is a reliable indicator that the recession is over.

Additional reference sources for this index and its construction can be seen in the Econbrowser post of February 14, 2016 titled “Recession probabilities” as well as on the “The Econbrowser Recession Indicator Index” page.

Below is a chart depicting the most recent value of 2.4%, for the third quarter of 2017, last updated on January 30, 2018 (after the January 26, 2018 Gross Domestic Product Q4 2017 Advance Estimate (pdf)):

source:  Hamilton, James, GDP-Based Recession Indicator Index [JHGDPBRINDX], retrieved from FRED, Federal Reserve Bank of St. Louis on January 30, 2018:

https://research.stlouisfed.org/fred2/series/JHGDPBRINDX

_________

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 2824.26 as this post is written

Velocity Of Money – Charts Updated Through January 26, 2018

Here are three charts from the St. Louis Fed depicting the velocity of money in terms of the MZM, M1 and M2 money supply measures.

All charts reflect quarterly data through the 4th quarter of 2017, and were last updated as of January 26, 2018.  As one can see, two of the three measures are very near an all-time low for the periods depicted:

Velocity of MZM Money Stock, current value = 1.299:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 26, 2018:

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

–

Velocity of M1 Money Stock, current value = 5.488:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 26, 2018:

http://research.stlouisfed.org/fred2/series/M1V

–

Velocity of M2 Money Stock, current value = 1.431:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 26, 2018:

http://research.stlouisfed.org/fred2/series/M2V

_________

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 2872.87 as this post is written

Real GDP Chart Since 1947 With Trendline – 4th Quarter 2017

For reference purposes, below is a chart from Doug Short’s “Q4 GDP Advance Estimate: Real GDP at 2.6%” post of January 26, 2018, depicting Real GDP, with a trendline, as depicted.  This chart reflects the Gross Domestic Product Q4 2017 Advance Estimate (pdf) of January 26, 2018:

_________

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 2858.27 as this post is written

Durable Goods New Orders – Long-Term Charts Through December 2017

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are two charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through December 2017, updated on January 26, 2018. This value is $249,448 ($ Millions):

(click on charts to enlarge images)

–

Second, here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER]; U.S. Department of Commerce: Census Bureau; accessed January 26, 2018;

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

_________

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 2851.08 as this post is written

10-Year Treasury Yields – Two Long-Term Charts As Of January 26, 2018

I have written extensively about U.S. interest rates and their importance.  Rising interest rates have substantial ramifications for many aspects of the current-day economy.  My commentaries with regard to interest rates and the bond bubble are largely found under the “bond bubble” tag.   From an intervention perspective commentary is found under the “Intervention” category.

As reference, here is a long-term chart of the 10-Year Treasury yield since 1980, depicted on a monthly basis, LOG scale:

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

Here is a long-term chart of the 10-Year Treasury yield since 2008, depicted on a daily basis, LOG scale:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2839.25 as this post is written

S&P500 And Long-Term VIX Chart – Through January 24, 2018

For reference purposes, below is a chart of the S&P500 and VIX from year 2003 through Wednesday’s (January 24, 2018) close.  The closing price for the S&P500 was 2837.54 and the VIX had a closing value of 11.47.  A dashed blue line depicts the VIX value of 20.  Price labels are also shown:

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2837.54 as this post is written

Level Of Peril In The Financial System

On this site numerous highly problematical issues concerning the U.S. economy and financial system have been discussed.

Of key importance is the resulting level of risk and future implications.

As discussed in the September 29, 2017 post (“Problematical Aspects Of Today’s Financial System“) the almost universal opinion is that the financial system is strong, in (large) part due to various reforms enacted since the Financial Crisis.

However, there are many reasons to believe that this widely-held assessment is incorrect.  At this time, due to many problematical areas, from an “all things considered” basis I would assess the overall level of embedded peril to far exceed that previously experienced in the United States, including the level in existence prior to and during the Great Depression.

While no one likes to contemplate a future rife with economic adversity, the resolution of the problematical issues in the economy and financial system will lead to what I have previously referred to as a “Super Depression,” i.e. a severe economic depression characterized by difficult-to-solve problems.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2837.54 as this post is written

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 January 18, 2018 update (reflecting data through January 12, 2018) is -1.492.

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 January 24, 2018 incorporating data from January 8, 1971 through January 19, 2018, on a weekly basis.  The January 19, 2018 value is -.94:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 24, 2018:

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

–

The ANFCI chart below was last updated on January 24, 2018 incorporating data from January 8,1971 through January 19, 2018, on a weekly basis.  The January 19 value is -.76:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 24, 2018:

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 2838.84 as this post is written

Money Supply Charts Through December 2017

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the MZM (Money Zero Maturity), defined in FRED as the following:

M2 less small-denomination time deposits plus institutional money funds.
Money Zero Maturity is calculated by the Federal Reserve Bank of St. Louis.

Here is the “MZM Money Stock” (seasonally adjusted) chart, updated on January 19, 2018 depicting data through December 2017, with a value of $15,277.2 Billion:

Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 4.7%:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 23, 2018:

https://research.stlouisfed.org/fred2/series/MZMSL

The second set shows M2, defined in FRED as the following:

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on January 18, 2018, depicting data through December 2017, with a value of $13,845.0 Billion:

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 4.9%:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed January 23, 2018:

https://research.stlouisfed.org/fred2/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2836.38 as this post is written

The U.S. Economic Situation – January 23, 2018 Update

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:

“Building Financial Danger” (ongoing updates)

“A Special Note On Our Economic Situation”

“Forewarning Pronounced Economic Weakness”

“Thoughts Concerning The Next Financial Crisis”

“Was A Depression Successfully Avoided?”

“Has the Financial System Strengthened Since the Financial Crisis?”

“The Next Crash And Its Significance”

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 January 19, 2018, with a last value of 26071.72):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2832.97 as this post is written