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.

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 June 22, 2022, with a last value of 30,483.13):

(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

SPX at 3759.89 as this post is written

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 June 20, 2022 using data through May 2022) this “Yield Curve” model shows a 4.1063% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 3.7102% probability through April 2022, 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 June 2, 2022 currently shows a .1% probability using data through April 2022.

Here is the FRED chart (last updated June 2, 2022):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed June 22, 2022:  
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 June 21, 2022 post titled “The June 2022 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 44% 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 3794.87 as this post is written

The June 2022 Wall Street Journal Economic Forecast Survey was published on June 19, 2022. The headline is “Recession Probability Soars as Inflation Worsens.”

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:

Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.

The likelihood of a recession has increased rapidly this year as inflationary pressures remained strong and the Federal Reserve took increasingly aggressive action to tame them. Economists on average put the probability of the economy being in recession sometime in the next 12 months at 28% in the Journal’s last survey in April and at 18% in January.

Since the Journal began asking the question in mid-2005, a 44% recession probability is seldom seen outside of an actual recession. In December 2007, the month that the 2007-to-2009 recession began, economists assigned a 38% probability. In February 2020, when the last recession began, they assigned a 26% probability.

As noted above, and also 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 44%. The individual estimates, of those who responded, ranged from 1% to 99%.  For reference, the average response in April’s survey [the previously published survey] was 28%.

As stated in the article, the survey’s 53 respondents were academic, financial and business economists.  The survey was conducted June 16 – June 17. 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 2022:  1.28%

full-year 2023:  1.36%

full-year 2024:  n/a

Unemployment Rate:

December 2022: 3.70%

December 2023: 4.19%

December 2024: n/a

10-Year Treasury Yield:

December 2022: n/a

December 2023: n/a

December 2024: n/a

CPI:

December 2022:  6.97%

December 2023:  3.23%

December 2024:  n/a

Core PCE:

full-year 2022:  n/a

full-year 2023:  n/a

full-year 2024:  n/a

(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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3768.29 as this post is written

The following is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The June 2022 Chicago Fed National Activity Index (CFNAI) updated as of June 21, 2022:

The CFNAI, with a current reading of .01:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 21, 2022: 
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with a current reading of .20:

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

The ADS Index as of June 17, 2022, reflecting data from March 1, 1960 through June 11, 2022, with last value .202692:

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The Conference Board Leading Economic Index (LEI), Coincident Economic Index (CEI), and Lagging Economic Index (LAG):

As per the June 17, 2022 Conference Board press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Fell Again in May” the LEI was 118.3 in May, the CEI was 108.8 in May, and the LAG was 112.9 in May.

An excerpt from the release:

“The US LEI fell again in May, fueled by tumbling stock prices, a slowdown in housing construction, and gloomier consumer expectations,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term—and tighter monetary policy is poised to dampen economic growth even further.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index (LEI) update of June 17, 2022:

_________

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 3756.12 as this post is written

On June 13, 2022, the Business Roundtable released its most recent CEO Economic Outlook Survey for the 2nd Quarter of 2022.   Notable excerpts from this June 13, 2022 release, titled “Business Roundtable Q2 CEO Economic Outlook Index Declines; Expectations and Plans Decelerate Amid Continued Geopolitical, Global Economic Uncertainty“:

Business Roundtable today released its Q2 2022 CEO Economic Outlook Survey, a composite index of CEO plans for capital spending and employment and expectations for sales over the next six months. The overall CEO Economic Outlook Index declined 19 points from last quarter to 96 but remains well above its long-run average of 84 and the expansion or contraction threshold of 50.

also:

In their third estimate of 2022 U.S. real GDP growth, CEOs projected 3.2% growth for the year. 

On May 18, 2022, The Conference Board released the Q2 2022 Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 42, down from the previous reading of 57. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this May 18, 2022 Press Release include:

Current Conditions

CEOs’ assessment of general economic conditions declined in Q2 2022:

• 14% of CEOs reported economic conditions were better compared to six months ago, down from 34% in Q1 2022.
• 61% said conditions were worse, up from 35%.

CEOs were more pessimistic about conditions in their own industries in Q2 2022:

• 24% of CEOs reported that conditions in their industries were better compared to six months ago, down from 40%.
• 37% said conditions in their own industries were worse, up from 22%.

Future Conditions

CEOs’ expectations about the short-term economic outlook weakened in Q2:

• 19% of CEOs said they expected economic conditions to improve over the next six months, down from 50% in Q1.
• 60% expected conditions to worsen, up from 23%.

CEOs’ expectations regarding short-term prospects in their own industries declined in Q2:

• 28% of CEOs expected conditions in their own industry to improve over the next six months, down from 58%.
• 34% expected conditions to worsen, up from 13%.

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Additional details can be seen in the sources mentioned above.

_____

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 3674.84 as this post is written

The June 2022 Livingston Survey (pdf) published on June 17, 2022 contains, among its various forecasts, a S&P500 forecast.  It shows the following price forecast for the dates shown:

June 30, 2022 4100.0

Dec. 30, 2022  4130.0

June 30, 2023  4186.1

Dec. 29, 2023  4245.4

These figures represent the median value across the forecasters on the survey’s panel.

_____

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 3674.84 as this post is written

The St. Louis Fed’s Financial Stress Index (STLFSI3) is one index that is supposed to measure stress in the financial system. Its reading as of the June 16, 2022 update (reflecting data through June 10, 2022) is -1.5130:

source: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI3], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 17, 2022: https://fred.stlouisfed.org/series/STLFSI3

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 June 15, 2022 incorporating data from January 8, 1971 through June 10, 2022 on a weekly basis.  The June 10 value is -.26397:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 17, 2022:  
http://research.stlouisfed.org/fred2/series/NFCI

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The ANFCI chart below was last updated on June 15, 2022 incorporating data from January 8, 1971 through June 10, 2022, on a weekly basis.  The June 10, 2022 value is -.02730:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 17, 2022:  
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 3666.77 as this post is written

On Wednesday, June 15, 2022 FOMC Chairman Jerome Powell gave his scheduled June 2022 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of June 15, 2022, with the accompanying “FOMC Statement” and “Summary of Economic Projections” dated June 15, 2022.

Excerpts from Chairman Powell’s opening comments:

From the standpoint of our Congressional mandate to promote maximum employment and price stability, the current picture is plain to see: The labor market is extremely tight, and inflation is much too high.  Against this backdrop, today the Federal Open Market Committee raised its policy interest rate by 3/4 percentage point and anticipates that ongoing increases in the that rate will be appropriate.  In addition, we are continuing the process of significantly reducing the size of our balance sheet.  I will have more to say about today’s monetary policy actions after briefly reviewing economic developments.  

also:

Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent.  We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy.  Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.  From the perspective of today, either a 50 or 75 basis point increase seems most likely at our next meeting.  We will, however, make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as we can.  Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored.

Excerpts of Jerome Powell’s responses as indicated to various questions:

JEANNA SMIALEK. Thanks for taking our questions. Jeanna Smialek with the New York Times. You, I guess I wonder if you could describe for us a little bit how you’re deciding how aggressive you need to be. So obviously 75 today, what did 75 achieve that 50 wouldn’t have and why not just go for a full percentage point at some point? 

CHAIR POWELL. Sure. So if you take a step back, what we’re looking for is compelling evidence that inflationary pressures are abating and that inflation is moving back down and we’d like to see that in the form of a series of declining monthly inflation ratings, that’s what we’re looking for. And by this point, we had actually been expecting to see clear signs of at least inflation flattening out and ideally beginning to decline. We’ve said that we’d be data dependent, focused on incoming data, highly attentive to inflation risks, the things that I mentioned to Howard moments ago. So, contrary to expectations, inflation again surprised to the upside, indicators, some indicators of inflation expectations have risen, and projections of this year have moved up notably. So, we thought that strong action was warranted at this meeting and today we delivered that in the form of a 75 basis point rate hike as I mentioned. So, what was the point of it really is this, we’ve been moving rates up expeditiously to more normal levels and over the course of the seven months since we pivoted and began moving in this direction, we’ve seen financial conditions tighten, and appropriately so. But the federal funds rate, even after this move, is at 1.6 percent. So, again the Committee is moving rates up expeditiously to more normal levels and we came to the view that we’d like to do a little more front-end loading on that. So I think that the SEP gives you the levels that people think are appropriate at given points in time. This was really about the speed in which we would get there.  So as I mentioned, 75 basis points today, I said the next meeting could well be about a decision between 50 and 75, that would put us at the end of July meeting, in that range, in that more normal range and that’s a desirable place to be because you begin to have more optionality there about the speed with which you would proceed going forward. Just talking about the SEP for a second; what it really says is that Committee participants widely would like to see policy at a modestly restricted, restrictive level at the end of this year, and that’s six months from now and so much data and so much can happen. So remember how highly uncertain this is, but so that is generally a range of 3 to 3 and 1/2 percent. That’s where people and that’s what they want to see. Knowing what they know now and understanding that we need to be, we need to show result but also be flexible to incoming data as we see it. If things are better, we don’t need to do that much, so, and if they’re not then we either do that much or possibly even more. But in any case, it will be very data dependent. Then you’re looking at next year and what you’re seeing is people see more, a bit more tightening and a range of maybe 3 and 1/2 to 4 percent. And that’s generally what people see as the appropriate path for getting inflation under control and starting back down and getting back down to 2 percent. So, 75 basis points seemed like the right thing to do at this meeting and that’s what we did. 

STEVE LIESMAN. Steve Liesman, CNBC, thank you for taking my question, Mr. Chairman. You have not used the phrase in a long time, monetary policy is in a good place, which is a phrase that you used to use often. Now that the Committee is projecting 4 percent on a, or 3.8 percent next year in terms of the funds rate, which is similar to where the market is now, the futures market of 4 percent funds rate next year, do you think that’s a level that is going to be sufficiently high enough to deal with and bring down the inflation problem? And just as a follow-up, could you break that apart for me? How much of that is restrictive and how much of that restrictive and how much of that is a normal positive rate that ought to be imbedded or not in your opinion, in the funds rate? Thank you. 

CHAIR POWELL. Sure, to the question really is; how high does the rate really need to go? And this is, the estimates on the Committee are in that range of 3 and 1/2 to 4 percent. And how do you think about that? Well, you can think about the longer run neutral rate, you can compare it to that and we think that’s in the mid-2’s, you can look frankly at broader financial conditions. You can look at asset prices, you can look at the effect they’re having on the economy, rates, asset prices, credit spreads, all of those things go into that. You can also look at the yield curve and ask all along the yield curve, where is the policy rate? So, for much of the yield curve now, real rates are positive. That’s not true at the short end, at the short end of the yield curve in the early years, you don’t have real, you have negative rates still. So that really is one data point, that’s one part of financial conditions. So I think, I have to look at it this way; we move the policy rate that affects financial conditions, and that affects the economy. We have of course, ways, rigorous ways to think about it, but ultimately it comes down to do we think financial conditions are in a place where they’re having the desired effect on the economy? And that desired affect is we’d like to see demand moderating. Demand is very hot still in the economy, we’d like to see the labor market getting better in balance between supply and demand. And that can happen both from supply and demand. Right now, there’s demand is substantially higher than available supply though, so we feel that there’s a role for us in moderating demand. Those are the things we can affect with our policy tools. There are many things we can’t affect, and those would be – you know, the things, the commodity price issues that we’re having around the world due to the war in Ukraine and the fallout from that, and also just all of the supply side things that are still pushing upward on inflation. So that’s really how I think, how I think about it.

STEVE LIESMAN. But does 3.8 percent, 4 percent, get it done? Does it get the job done on the back of inflation? 

CHAIR POWELL. I think it’s certainly in the range of plausible numbers. I think we’ll know when we get there really, I mean honestly though, that would be, you would have positive real rates I think and inflation coming down by then, I think you’d have positive real rates across the curve, I think that the neutral rate is pretty low these days. So, I would think it would, but you know what, we’re going to find that out empirically, we’re not going to be completely model driven about this, we’re going to be looking at this, keeping our eyes open and reacting to incoming data both on financial conditions and on what’s happening in the economy.

NICK TIMIRAOS. Thanks, Nick Timiraos. Chair Powell, you’ve said that you like your policy to work through expectations and now obviously this decision was something quite different from how you and almost all of your colleagues had set those expectations during the intermeeting period. And I know you just said that what changed was really the inflation data, the inflation expectations data, but I’m wondering on the inflation expectations data, was there something you saw that was unsettling enough to risk eroding the credibility of your verbal guidance by doing something so different from what you had socialized before? 

CHAIR POWELL. So, if you look at a broad range of inflation expectations, so you’ve got the public, you’ve got surveys of the public and of experts and you’ve also got market based. And I think if you look across that broad range of data, what you see is that expectations are still in the place, very much in the place, where short-term inflation is going to be high, but comes down sharply over the next couple of years. And that’s really where inflation expectations are and also, as you get away from this episode, they get back down close to 2 percent. And so, this is really very important to us that that remain the case. And I think if you look for most measures, most of the time, that’s what you see. If we even see a couple of indicators that bring that into question, we take that very seriously. We do not take this for granted, we take it very seriously. So the preliminary Michigan reading, it’s a preliminary reading, it might be revised, nonetheless it was quite eye catching and we noticed that. We also noticed that the Index of Common Inflation Expectations at the Board has moved up after being pretty flat for a long time, so we’re watching that and we’re thinking this is something we need to take seriously. And that is one of the factors as I mentioned. One of the factors in our deciding to move ahead with 75 basis points today was what we saw in inflation expectations. We’re absolutely determined to keep them anchored at 2 percent. That was one of the reasons, the other was just the CPI rating. 

also:

EDWARD LAWRENCE. Thanks Chair Powell. Edward Lawrence with FOX Business. I want to, you talked about CPI going to 8.6 percent, the retail sales surprised the market by falling and then revisions to the previous months were down. Are you hearing from contacts about consumers slowing spending or changing their habits? 

CHAIR POWELL. So we’re of course watching very, very carefully for that, and looking at the retail, the big store numbers and all this kind of thing and so I, but I think the fair summary of what we see is you see continuing shifts in consumption, you see some things getting, sales going down, but overall spending is very strong. The consumer’s in really good shape financial, they’re spending. There’s no sign of a broader slowdown that I can see in the economy. People are talking about it a lot, consumer confidence is very low. That’s probably related to gas prices and also just stock prices to some extent for other people. But that’s what we’re seeing. We’re not seeing a broad slowdown. We see job growth slowing but it’s still at quite robust levels. We see the economy slowing a bit but still growth levels, at healthy growth levels.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3678.58 as this post is written 

The May NFIB Small Business Optimism report was released today, June 14, 2022. The headline of the Economic Trends report is “Small Business Owners’ Expectations for the Future at 48-year Low.”

The Index of Small Business Optimism decreased by .1 points to 93.1.

Here is an excerpt that I find particularly notable (but don’t necessarily agree with):

The NFIB Optimism Index fell 0.1 points in May to 93.1, marking the fifth consecutive month below the 48-year average of 98. Owners expecting better business conditions over the next six months decreased four points to a net negative 54%, the lowest level recorded in the 48-year-old survey. Expectations for better business conditions have deteriorated every month since January.

Twenty-eight percent of owners reported inflation was their single most important problem in operating their business, a decrease of four points from April. The net percent of owners raising average selling prices increased two points to a net 72% (seasonally adjusted), back to the highest reading in the 48-year-history of the survey last reached in March and 32 points higher than May 2021.

Below is a chart of the NFIB Small Business Optimism chart, from the Advisor Perspectives’ June 14, 2022 post titled “NFIB Small Business Survey…“:

Further details regarding small business conditions can be seen in the full May 2022 NFIB Small Business Economic Trends (pdf) report.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3752.90 as this post is written

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

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 June 10, 2022:

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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3729.35 as this post is written

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 June 10, 2022, 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:

$229.35/share

Year 2023 estimate:

$251.79/share

Year 2024 estimate:

$270.43/share

_____

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 3732.84 as this post is written

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 June 9, 2022:

Year 2022 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $224.23/share

-From a “bottom up” perspective, “as reported” earnings of $206.72/share

Year 2023 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $247.86/share

-From a “bottom up” perspective, “as reported” earnings of $230.70/share

_____

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 3749.63 as this post is written

On January 9, 2017 I wrote a post titled “Low Interest Rates And The Formation Of Asset Bubbles.“  As discussed in that post – and for other reasons – the level of the Fed Funds rate – and whether its level is appropriate – has vast importance and far-reaching consequences with regard to many aspects of the economy and financial system.

Along these lines, below is an updated long-term chart indicating the Real Fed Funds Rate [FRED FEDFUNDS – CPIAUCSL] , with a last value of -7.74641% through May 2022. [FEDFUNDS = .77% as of the June 1, 2022 update; CPIAUCSL = 8.51641% as of the June 10, 2022 update]

Of particular note is the post-2000 persistently negative Real Fed Funds rate:

source: Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 13, 2022: https://fred.stlouisfed.org/series/FEDFUNDS

source: U.S. Bureau of Labor Statistics, Consumer Price Index: All Items in U.S. City Average, All Urban Consumers [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 13, 2022: https://fred.stlouisfed.org/series/CPIAUCSL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3800.28 as this post is written

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 Advisor Perspectives’ ECRI update post of June 10, 2022 titled “ECRI Weekly Leading Index Update.”  These charts are on a weekly basis as of the June 10, 2022 release, reflecting data through June 3, 2022.

Here is the ECRI WLI (defined at ECRI’s glossary):

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This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

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This last chart depicts, on a long-term basis, the WLI, Gr.:

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3907.30 as this post is written

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1945:Q4 through 2022:Q1).  The last value (as of the June 9, 2022 update) is $149.279115 Trillion:

(click on each chart to enlarge image)

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Also of interest is the same metric presented on a “Percent Change from a Year Ago” basis, with a current value of 9.3%:

Data Source: FRED, Federal Reserve Economic Data, Board of Governors of the Federal Reserve System; accessed June 9, 2022; 
http://research.stlouisfed.org/fred2/series/TNWBSHNO

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4030.25 as this post is written

The following chart is from the CalculatedRisk post of June 9, 2022 titled “Fed’s Flow of Funds: Household Net Worth Decreased $.55 Trillion in Q1.” It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from the Federal Reserve’s Z.1 report, “Financial Accounts of the United States“:

(click on chart to enlarge image)

As seen in the above-referenced CalculatedRisk post:

The net worth of households and nonprofits fell to $149.3 trillion during the first quarter of 2022. The value of directly and indirectly held corporate equities decreased $3.0 trillion and the value of real estate increased $1.7 trillion.

As I have written in previous posts concerning this Household Net Worth (as a percent of GDP) topic:

As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength.  The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.

also:

I could extensively write about various interpretations that can be made from this chart.  One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4056.82 as this post is written

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 facets of 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 had undergone an outsized level of economic contraction in 2020. However, most people believe (and virtually all prominent economic forecasts indicate) that this historic level of contraction will have proven ephemeral in nature; i.e. an economic expansion will continue. 

As seen in the April 2022 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 2.57% GDP growth in 2022, 2.18% GDP growth in 2023, and 2.06% GDP growth in 2024.

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:

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Real Average Hourly Earnings

Various measures of (nominal) average hourly earnings continue to show significant growth. However, due to continuing high inflation, Real Average Hourly Earnings continues to decline. Shown below is a chart of earnings measures as seen in The Economics Daily of May 18, 2022 titled “Real average hourly earnings decreased 2.6 percent from April 2021 to April 2022”:

As seen in this The Economics Daily:

April 2022 is the thirteenth consecutive month of over-the-year decreases in real average hourly earnings; the last increase was 1.7 percent for the year ended March 2021.

source: Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily, Real average hourly earnings decreased 2.6 percent from April 2021 to April 2022 at https://www.bls.gov/opub/ted/2022/real-average-hourly-earnings-decreased-2-6-percent-from-april-2021-to-april-2022.htm (visited June 07, 2022).

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Real Disposable Personal Income (DSPIC96)

“Real Disposable Personal Income” (DSPIC96) has been volatile since 2020, and ongoing high inflation is presenting a hurdle to its continued growth. Shown below is this measure with last value of $15,153.2 Billion through April, last updated May 27, 2022:

Below is this measure displayed on a “Percent Change” (from prior month) basis with last value of 0.0%:

Below is this measure displayed on a “Percent Change From Year Ago” basis with value -6.2%:

Below is this same measure (“Percent Change From Year Ago” basis) but from the year 2000 onward:

source: U.S. Bureau of Economic Analysis, Real Disposable Personal Income [DSPIC96], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 7, 2022: https://fred.stlouisfed.org/series/DSPIC96

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Personal Income (PI)

“Personal Income” (PI), which is presented on a nominal basis, has been volatile; it continues to increase after the 2020 & 2021 spikes. Shown below is this measure with last value of $21,469.80 Billion through April, last updated May 27, 2022:

Below is this measure displayed on a “Percent Change” (from prior month) basis with last value of .4%:

Below is this measure displayed on a “Percent Change From Year Ago” basis with value 2.6%:

source: U.S. Bureau of Economic Analysis, Personal Income [PI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 7, 2022: https://fred.stlouisfed.org/series/PI

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Real Personal Income (RPI)

“Real Personal Income” (RPI), has been volatile; it is faltering following the 2020 & 2021 spikes. Shown below is this measure with last value of $17,696.358 Billion through April, last updated May 27, 2022:

Below is this measure displayed on a “Percent Change” (from prior month) basis with last value of .2%:

Below is this measure displayed on a “Percent Change From Year Ago” basis with value -3.5%:

source: U.S. Bureau of Economic Analysis, Real Personal Income [RPI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 7, 2022: https://fred.stlouisfed.org/series/RPI

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate slow economic growth 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 4154.84 as this post is written

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 on this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematical conditions, have presented a highly perilous economic environment that endangers the overall financial system.

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 – will occur. [note: the “next crash” and its aftermath has paramount significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts in the “Economic Depression” label]

As reference, below is a daily chart since 2008 of the S&P500 (through June 7, 2022 with a last price of 4148.55), 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)

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4155.29 as this post is written

On June 7, 2022, the Zillow Q2 2022 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the press release:

As home prices continue to break growth records, a panel of housing experts and economists surveyed by Zillow® does not believe the market is in a bubble. The latest Zillow Home Price Expectations Survey1 polled more than 100 experts from academia, government and the private sector to gather their opinions on the state of the housing market and future growth, inflation forecasts and recession risks. 

Of those surveyed, 60% said they do not believe the U.S. housing market is currently in a bubble, compared to 32% who think we are in a bubble, and 8% who are not sure. 

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Various Q2 2022 Zillow Home Price Expectations Survey charts are available, including that seen below:

As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index, will continually climb.

The detail of the Q2 2022 Home Price Expectations Survey is interesting.  Of the 114 survey respondents, only three (of the displayed responses) forecasts a cumulative price decrease through 2026.

The Median Cumulative Home Price Appreciation for years 2022-2026 is seen as 9.70%, 14.41%, 17.96%, 21.94%, and 25.82%, respectively.

For a variety of reasons, I continue to believe that these forecasts will prove far too optimistic in hindsight.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Residential real estate is an exceedingly large asset bubble. As such, from these price levels there exists potential for a price decline of outsized magnitude. 

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4115.36 as this post is written

In the November 13, 2013 post (“Not In Labor Force Statistic“) I featured editorial commentary from the Wall Street Journal, as well as an accompanying long-term chart, with regard to the number of people not working.

Also, on February 9, 2015 I wrote another post titled “Unemployment And The ‘Not In Labor Force’ Statistic,” in which I discussed various facets of this measure.

Below is an updated chart regarding this statistic.  The current figure, last updated on June 3, 2022 depicting data through May 2022, is 99.521 million people (Not Seasonally Adjusted):

Data Source: U.S. Bureau of Labor Statistics, Not in Labor Force [LNU05000000], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 3, 2022: 
https://fred.stlouisfed.org/series/LNU05000000

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4162.78 as this post is written