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Business Cycle Rotation Part 3Last year I produced several posts that described an exercise that utilizes long term momentum changes between asset classes and the relationship among asset classes to anticipate the business cycle. That series and parts 1 and 2 of this series are linked below. Parts one and two of the series described the general methodology, presented the matrix with the raw data and showed the process used to consolidate the raw data and begin to draw conclusions around the economy's position in the current business cycle. Before I plot the distilled sectors onto a stylized business/market cycle overlay, I plot equities, rates and commodities onto an overlay with the Organization for Economic Co-operation and Development (OECD) Composite Leading Indicator (CLI) for the United States. CLI readings above 100 (dashed red line) suggest economic expansion to come while below the 100 line suggests weakness, and perhaps recession to come. The index is currently below 100 but rising toward the 100 line. So still weakening but at a much slower pace. To help visualize the cycle I plot 10 year rates (inverted), SPX and the Thompson Core CRB index along with the CLI. Viewed in the manner the cycle that began with the bond top appears to be consistent in terms of sequencing. Rates topped, economy (CLI) topped, followed by equities and finally commodities top as the CLI enters the economic contraction phase. Fast forward to todays configuration. In this perspective, despite the sharp rally in early November, while there is room for a cyclic rally, there is no sign of a lasting bond bottom (see next chart). Commodities, while off their lows don't appear to be suggesting a new leg up in the cycle (but may be moving that way). I think of rates as the first mover in the cycle. To believe that the cycle has turned virtuous I like to see ten year rates make a solid top. The ten year note monthly chart has broken above the multi decade downtrend and above the 3.25% pivot. While a bit overbought in terms of momentum and a small RSI divergence is showing up, the structure from the 2020 low is completely intact. Until I see solid signs of a monthly perspective yield top in the two year and ten year, it will be difficult for me to label this as the kind of high that would lead a change in the economic cycle. The distilled sectors are placed onto stylized market and economic cycle sine curves. If markets (dark blue curve) are correctly anticipating the business cycle (grey curve) the business cycle is somewhere past peak, and should be expected to steadily deteriorate over coming quarters. In part 5 we will examine the totality of the evidence and draw conclusions around the current cycle and what it implies for 2024. And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum. Good Trading: Stewart Taylor, CMT Chartered Market Technician Taylor Financial Communications Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
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FRED:USALOLITONOSTSAM
by CMT_Association
9
Macro Monday 23 ~ US Factory Orders (released today 15:00 GMT)Macro Monday 23 US Factory Orders - ECONOMICS:USFO - Released Today U.S. Factory Orders (USFO) are reported by the U.S. Census Bureau at the start of each month. The next release for the month of October is today Monday 4th Dec 2023 at 15:00 GMT. The USFO Report provides information on the total dollar value of new orders, shipments, and unfilled orders for durable and non-durable goods. You might recall Macro Monday 18 where we looked at the at the Durable Goods Report (ticker: FRED:DGORDER ) which only provides data on new orders received on durable goods in isolation (goods lasting longer than 3 years) whilst the USFO Report is more comprehensive and includes durable goods, non-durables (items used once or not lasting a long time like light bulbs, detergent and clothing etc.), and also includes sub trends within durables and non-durables. Let’s have a quick look at the differences between the USFO report and Durable Goods Report below; U.S Factory Orders Versus Durable Goods The USFO Report is more comprehensive than the Durable Goods Report, the USFO Report examines trends within industries. For example, the Durable Goods Report may account for a broad category, such as computer equipment, whereas the USFO Report will detail figures for computer hardware, semiconductors, and monitors. This lack of detail in the Durable Goods Report is attributed to the speed at which it is released. Time Difference of the Releases: The Durable Goods Report for October was released almost two weeks ago on the 22ndNov 2023 whilst the USFO more comprehensive report (featured today) will be released today Monday 4th December 2023. It important to know this so you can get an early indication off the Durable Goods report as to how the later USFO Report may lean. The USFO Charts Whilst the figures within the USFO are reported in the billions of dollars, the chart shared today shows the percentage change month over month. Readings above 0% are more favorable and below 0% are less favorable. Essentially the increase or decrease shows the overall change in percentage terms orders from month to month. Chart 1 – US Factory Orders (USFO) ▫️ The grey line on this chart shows how the volatile the percentage month to month readings can be for the USFO. For this reason we have assigned a 12 month moving average which smooths out the data making it easier to assess the longer term trend (thin Dark Blue line). - On Chart 1 at present you can see that the 12 month MA recently came down to the just below the 0% level and has since started to turn upwards which is positive. - From July 2023 to present we have moved from -2% to +2.8% (a positive move indeed) Chart 2 – USFO 12 Month Moving Average (with S&P500 for reference) ▫️ In this chart we have isolated the US Factory Orders 12 month moving average and filled the area with the color dark blue from the 0% level to whatever reading was above it or below it. In other words, the USFO 12 month moving average is the exact same as in Chart 1 but illustrated differently, we just widened it vertically to make it easier to appreciate visually and we filled the area between the 0% line and whatever its reading was on the 12 month MA. I have included the S&P500 in purple as a rough reference of what the market was doing when we fell below the 0% level on the 12 month moving average (red zones on the chart). USFO Chart 2 informs us of the following: - The most obvious finding when you look at the chart is that the S&P500 can go down sideways or upwards even with the USFO 12 Month MA below zero, therefore it is not a good standalone indicator of a general market decline. For this reason I have not utilized it as a pre-recession indicator. - We can observe that sudden declines from high readings down to below 0% on the USFO 12 month MA can precede S&P500 market decline (see lower reddish arrows on the Chart 2). This appears to have happened before most market declines or as the market declines occur, its just that its happened also when the markets continued upwards, so it is a warning indicator but its not an absolute stand alone indicator. I think we can agree that if the USFO reading is going suddenly down and below 0% it is not a good thing for the market in general but price can be contrary and we need to keep in mind that the market can “climb walls of worry” for a long time. - If we look at the red shaded areas, we can see that during these specific periods when the USFO 12 month MA was below 0%, in three out of four of the red areas on the chart you could argue that the market was range bound and moved relatively sideways, meaning real returns during these periods would have been less than ideal (Real returns are what is earned on an investment after accounting for taxes and inflation). Inflation and taxes could have more easily corroded your returns during these periods as the entry price into the red zone was not all that different to the exit price. In reference to the real returns comment above, Lyn Alden a highly respected economist has been touting for months that she suspects a rangebound market, similar to the brief range bound markets in the first three red zones in Chart 2 (left to right). Worth keeping in mind that we recently dipped below the 0% level and should this occur again and we sustain a sub 0% level, it may indicate that real returns might be negative going forward (subject to below 0% reading). This is not a prediction and there are no guarantees. We are just looking at the data and trying to lean on the right side of probability. Three out of Four times in the recent past real returns were not great when the USFO 12 month MA fell below 0%. Durable Goods Report We mentioned the Durable Goods Report above which was released almost two weeks earlier than the U.S. Factory Orders (on 22ndNov 2023). Durable Goods is more specific and focuses on the obvious, durable goods (goods that last 3 years or longer) whilst the USFO Report is more comprehensive and in addition includes non-durables (items used once or not lasting a long time like light bulbs, detergent and clothing), and it also includes sub trends within durables and non-durables. Using New Orders for Durable Goods to Anticipate Market Direction ▫️ We previously shared how the Durable Goods chart can be used to help anticipate price movements on the S&P500, in addition to providing an advance insight into the USFO report release which is released two weeks later. ▫️ The 30 month moving average for Durable Goods can act as a threshold level for buy and sell signals for the S&P500 whilst also providing advance warnings of recession and/or capitulation events. This has been clearly illustrated in the chart. The main findings in the chart are as follows: 1. When Durable Goods Orders(blue) fall below the 30 month moving average(brown) this is sell signal 2. When Durable Goods Orders(blue) break above the 30 month moving average(brown) this is a buy signal 3. Declining durable goods and/or a fall below the 30 month moving average has offered advanced warning of recession and/or capitulation. The chart demonstrates that using the 30 month moving average for Durable Goods New Orders can very useful in determining market trend. At present we are above the 30 month moving average and the moving average appears to be trending upwards however the release on the 22ndNov 2023 came in lower dropping from $294 billion down to $279 billion. This provides insight into the USFO, with durables on the decline, will we see non-durables on the decline too and a lower USFO today Monday 4th Dec 2023? We can continue to monitor the Durable Goods chart and watch for a cross of the 30 month moving average as an additional confirmation of a change to a bearish trend for the S&P500 when or if it happens. For now this is just another chart to help us identify bearish/bullish trend changes by using the economic data from Manufacturers New Orders for Durable Goods. Similarly the USFO Report (inclusive of non-durables) which is released today should be interesting, I wonder could we see a drop down below the 0% level or a decline from the 2.8% MoM level in line with the Durable Goods decline already observed on the 22nd Nov 2023. We will find out later today. SUMMARY In summary, when the USFO 12 Month Moving Average drops and remains below 0% there is an increased probability of a rangebound market with an increased likelihood of negative real returns. Separately, the Durable Goods Chart 30 month moving average has been apt at indicating buy and sell triggers for the S&P500. At present we are falling down towards the 30 moving average but we have not crossed it yet so no trigger event here. We wait for todays USFO report release and the next Durable Goods Report later in December as we do not have any trigger events on either, just cautionary data to keep an eye on. I hope you found this useful in understanding and making use of both these important metrics which capture consumer spending habits and sentiment. PUKA
ECONOMICS:USFO
by PukaCharts
Ominous Signals Possible Slowdown In EconomyThere are several economic indicators showing ominous signals that the economy may be slowing down specifically in the manufacturing sector and here is why. The ISM Manufacturing PMI has been contracting in recent months signaling there is a slowdown in manufacturing which can have several consequences including slower economic growth, job losses and a decrease in consumer spending if workers are laid off due to lower disposable income. The slowdown in manufacturing is further validated by the build up in U.S Crude oil inventories and falling durable goods orders. What this means is the demand for oil is going down and factories and manufacturing plants are actively reducing their use of crude oil which is a much needed commodity to conduct manufacturing. Durable goods are goods that have a life span of 3 years or more which could include new business equipment or new machinery. This has been declining in recent months signaling that investment in new equipment has been contracting which could be a sign that businesses are growing more pessimistic about the future and may want to allocate their money to other areas or just save more money in case of further manufacturing slowdown. Last but certainty not least consumer sentiment has been trending down signaling that despite the historically low unemployment something is driving consumers to remain pessimistic and this could be for a variety of different and complex reasons including the effects of inflation possibly even this slow down in manufacturing or the fact that personal savings are very low and many people feel they are working so hard for so little. Anyways with all being said these are defiently things to keep a watch on I would continue to monitor the ISM Manufacturing PMI, U.S Crude Oil Inventories, Durable Goods Orders and Consumer Sentiment. Some additional indicators to watch could be - Unemployment rate / If this starts to rise this can be a very bad sign that the weakness could spread. - Strength Of Consumer Spending / If this starts to weaken it could signal that consumers are beginning to grow more worried and may not want to spend as much due to the fear of losing their job which could have a huge host of issues. - Interest Rates / If interest rates continue to rise this can further put pressure on the economy by increasing the interest people must pay on their debt which can put further strain on consumers pockets. Overall there are signs that things may not be completely breaking due to the historically low unemployment rate and consumers continuously showing their resilience and continuing to spend despite all of the negative consumer sentiment. However if the slowdown spreads and manufacturing continues to prolong the slowdown it could be an ominous signal that the economy is slowing down which can lead to a recession.
ECONOMICS:USBCOI
by FlippaTheShippa
Federal Home Loan Bank is Draining Off LiquidityThe chart below is comparison between Schiller Housing Index (barchart) vs Federal Home Loan Bank (FHLB) balance sheet (linechart). In case you don't know what is FHLB - it's a second to last resort of lender that provides liquidity to US home loan after the FED. Quite recently FHLB is reducing their balance sheet from 1T to around 800B to take out liqudity from housing system. If these trends continue it will make it difficults for the bank to provide mortgage to the homeowners, which in turns will bring a cooling measure to housing price. In 2008 when the US housing crash happen, FHLB increase their balance sheet to provide support for housing market from crashing too fast. Which cause the housing market to cool down substantially. However, in 2020 during pandemic, FHLB is reducing their balance sheet in line with the reduction of housing supply, so the housing price remains goes up until 2023. However, in the end of 2023 FHLB starts to reduce their balance sheet to break-stop the housing price from overshooting. Which they quickly realized it's a big mistake because it triggers several banking collapse such as SVB, First Republic, Signature Bank, etc. So they reverse it to quantitative easing called BTFP (Bank Term Funding Program) to provide 1 years liquidity to prevent contagions of local banking collapsed until mid of 2024. Which at the same time there will be increase supply of housing in the next couple years that will definitely cool down or even bring down the housing price from mid 2024 onward. So I believe housing price will start to continue downward direction from mid 2024 until probably 2027 at least when the corporate debt wall are deteriorating causing several mass layoffs in the next couple of years.
FRED:BOGZ1FL403069330QShort
by danny_peanuts
US CPI UpdateUS CPI US Headline and Core CPI for October both came in lower than expected (decrease). US Headline CPI: YoY – Actual 3.24% / Exp. 3.3% / Prev. 3.7% (Green on cha rt) US Core CPI: YoY – Actual 4.02% / Exp. 4.2% / Prev. 4.13% (Blue on chart) The chart below illustrates the direction of the current YoY down trend for both Headline and Core CPI however we are still not at the historical moderate levels of inflation desired. You can see these moderate levels of inflation between 1 – 3% from 2002 – 2020 below. Nice to see the Core CPI come down, almost down, into the moderate historical averages PUKA
ECONOMICS:USIRYY
by PukaCharts
US & Headline CPI - October Release/Overview US CPI US Headline and Core CPI for October both came in lower than expected (decrease). US Headline CPI: YoY – Actual 3.24% / Exp. 3.3% / Prev. 3.7% (Green on chart) US Core CPI: YoY – Actual 4.02% / Exp. 4.2% / Prev. 4.13% (Blue on chart) The chart below illustrates the direction of the current YoY down trend for both Headline and Core CPI however we are still not at the historical moderate levels of inflation desired. You can see these moderate levels of inflation between 1 – 3% from 2002 – 2020 below. Nice to see the Core CPI come down, almost down, into the moderate historical averages PUKA
ECONOMICS:USIRYY
by PukaCharts
We are not in a recessionary bear market yet....This analysis overlays US Recessions over CBOE:SPX on the top pane. Bottom pane is a technique shared by famous trader , Larry William - recently presented at a NAAIM Conference. The technique looks at US job market as % of population. You can find more on Sentimentrader. Larger declines in stock market are usually accompanied by a recession. There is clearly a softening of the labor market but hanging above the recession territory. Unless we dip into a recession and Oct 2022 lows on SPX holds - we are not in a recessionary bear market.
FRED:EMRATIOLong
by RayonMarkets
Japan Inflation Overview JAPAN CPI Japan Headline and Core CPI for Sept both came in lower than expected. Japan Headline CPI: YoY – Actual 3.0% / Exp. 3.2% / Prev. 3.2% (green on chart) Japan Core CPI: YoY – Actual 4.2% / Exp. 4.3% / Prev. 4.3% (blue on chart) The chart below illustrates that Core CPI appears to be plateauing with Headline CPI decreasing from 4.3% to 3% since Jan 2023. Similar to the Eurozone chart you can we are long way from the moderate levels of inflation between -1.5 – 1.5% from 2015 – 2020 below. Japan’s economy contracted by 2.1 per cent during the third quarter of 2023, following an expansion in the previous two quarters. Analysts fear the country might slip into a recession. The contraction was sparked by a combination of sticky core inflation holding close to its 4.2 – 4.3% ceiling since May 2023, the slowing of exports, and low pay rises that appear to have led to weak domestic consumption. “Given the absence of a growth engine it wouldn’t surprise me if the Japanese economy contracted again in the current quarter. The risk of Japan falling into recession cannot be ruled out.” - Takeshi Minami – Chief Economist Norinchuckin Research Institute
ECONOMICS:JPCCPI
by PukaCharts
Quantitative Tightening Effects on the Markets This video tutorial discussion: • What is QE and QT? • Each impact to the stock market • The latest QT, how will the stock market into 2024? Dow Jones Futures & Its Minimum Fluctuation E-mini Dow Jones Futures 1.0 index point = $5.00 Code: YM Micro E-mini Dow Jones Futures 1.0 index point = $0.50 Code: MYM Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
FRED:WALCLEducation
by konhow
2
Understanding GDP Growth: A Key Indicator of Economic HealthIntroduction Gross Domestic Product (GDP) growth is a crucial economic indicator that provides insight into the overall health and performance of a country's economy. As a comprehensive measure of a nation's economic activity, GDP growth reflects the value of all goods and services produced within a country over a specific period. In this article, we will explore the significance of GDP growth, its components, and the impact it has on various aspects of a nation's well-being. Definition and Components of GDP GDP is the total value of all goods and services produced within a country's borders in a given time frame. It is commonly calculated quarterly and annually. There are three main ways to measure GDP: the production approach, the income approach, and the expenditure approach. Each approach provides a unique perspective on economic activity. Production Approach: This method calculates GDP by adding up all the value-added at each stage of production. It includes the value of intermediate goods and services to avoid double counting. Income Approach: GDP can also be measured by summing up all the incomes earned by individuals and businesses within a country, including wages, profits, and taxes minus subsidies. Expenditure Approach: This approach calculates GDP by summing up all the expenditures made in the economy. It includes consumption, investment, government spending, and net exports (exports minus imports). Importance Here are some of the primary reasons why GDP growth is considered important: Economic Health - GDP growth is a fundamental measure of a country's economic health. A positive growth rate indicates that the economy is expanding, producing more goods and services over time. This growth is essential for creating jobs, increasing incomes, and improving overall living standards. Job Creation - A growing economy often leads to increased employment opportunities. As businesses expand to meet rising demand for goods and services, they hire more workers, reducing unemployment rates and contributing to a more robust labor market. Income Generation - GDP growth is linked to the overall income generated within a country. As the economy expands, incomes generally rise, providing individuals and households with more financial resources. This, in turn, contributes to an improvement in the standard of living. Investment Climate - Investors and businesses often use GDP growth as a critical factor in assessing the attractiveness of a country for investment. A growing economy suggests potential opportunities for businesses to thrive, encouraging both domestic and foreign investments. Government Policy - Policymakers use GDP growth data to formulate economic policies. High GDP growth rates may lead to expansionary policies aimed at sustaining economic momentum, while low or negative growth rates may prompt policymakers to adopt measures to stimulate economic activity. Consumer and Business Confidence - Positive GDP growth contributes to increased confidence among consumers and businesses. When people perceive a growing economy, they are more likely to spend money, and businesses are more inclined to invest and expand. International Competitiveness - A country with a strong and growing economy is often viewed as more competitive on the global stage. A robust GDP growth rate enhances a nation's economic influence and can attract international trade and investment. Government Revenues - Higher GDP growth rates can lead to increased tax revenues for the government. This additional income can be used to fund public services, infrastructure projects, and social programs, contributing to the overall development of the nation. Debt Management - Economic growth can help manage a country's debt burden. A growing economy typically generates more revenue, making it easier for the government to service its debt without relying excessively on borrowing. Poverty Reduction - Sustainable GDP growth is often associated with poverty reduction. As the economy expands, opportunities for employment and income generation increase, helping to lift people out of poverty. Conclusion In conclusion, Gross Domestic Product (GDP) growth stands as a cornerstone in understanding and evaluating a nation's economic well-being. Through its comprehensive measurement of all goods and services produced within a country, GDP growth provides valuable insights into economic health, job creation, income generation, and various other facets that collectively contribute to the overall prosperity of a nation. The three approaches to measuring GDP—production, income, and expenditure—offer distinct perspectives, ensuring a holistic understanding of economic activity. The importance of GDP growth cannot be overstated, as it serves as a fundamental gauge of a country's economic trajectory and influences crucial decision-making processes at both the individual and policy levels. The positive correlation between GDP growth and job creation underscores the role of a thriving economy in fostering employment opportunities and contributing to a robust labor market. Additionally, the impact on income generation translates into an improved standard of living for individuals and households, reflecting the tangible benefits of economic expansion. Investors and businesses keenly observe GDP growth as a key indicator when evaluating the potential for investment. Government policymakers, armed with GDP data, craft strategies to either sustain economic momentum or stimulate activity, underscoring the pivotal role GDP growth plays in shaping economic policies. The ripple effects of GDP growth extend to consumer and business confidence, international competitiveness, government revenues, and effective debt management. A growing economy not only instills confidence but also attracts global trade and investment, positioning the nation favorably on the international stage. Perhaps most importantly, sustainable GDP growth is intricately linked to poverty reduction. As the economy expands, opportunities for employment and income generation increase, contributing to the uplifting of individuals and communities from poverty. In essence, the study of GDP growth goes beyond mere economic statistics; it serves as a compass guiding nations towards prosperity, inclusive development, and an improved quality of life for their citizens. Recognizing the multi-dimensional impact of GDP growth enables policymakers, businesses, and individuals to make informed decisions that foster long-term economic well-being and societal advancement.
FRED:GDPEducation
by financialflagship
MV=PQ RevisitedHistorical data can be hard to compare against modern ones. The longer back an analyst goes, the better the results of their analysis. 100 years of yield rate analysis may seem enough... 5000 years of interest rates however is a whole new story. Money has been as cheap as it has been for the past 5000 years. Incredible numbers... Source: www.trustnet.com Fun Fact: Banks have existed since the early days of humanity! Unsurprisingly, trading is not a modern invention. Many agree that yield rates have been too low and equities too high. Some go against the flow and suggest that the stock market bubble has yet to come. I have been looking here and there, trying to find the reason the .com bubble was created in the first place. With that in mind I hoped that I would find when the next one will come... Price has just skipped through the previous ceiling, and is now in a new territory. The drawn channel suggests that SPX hasn't reached the top of its channel. There are many more comparisons that may suggest that equities haven't peaked. By comparing DJA with one of its subsets (DJI) we have concluded that the DOW hasn't saturated yet. This analysis above is as classical as it gets. While many thought equities would die ... ... the Bane of Traders has trapped many of us, myself included. Big-Tech dominance inside Nasdaq Composite suggests that a .com bubble may be brewing inside IXIC, just like we saw in SPX/CPIAUCSL in 1994. Onto the basics of financial now. MV=PQ is one of the foundations of how economies function. For more information read my previous idea: For simplicity reasons, we merge PQ. I don't have financial data for each one of them. PQ for the US is considered as the GDP. Another example of GDP can be SPX, which extends beyond the limits of US soil. GDP has been slowing down... USGDP is the total cost of all products produced in the US. A slowing GDP means a slowing net-production of the US market. If productivity hasn't changed significantly in the past decade, a slowing GDP may be due to falling prices. And with yield rates nearing zero in 2020, we can safely say that inflation has turned negative in the US. A slowing GDP may also mean that equities have slowed down. This gives more importance to the incoming-equity-bubble scenario. An equity bubble may come for some, but not for all. The tide has turned in favor of NDX against IXIC, and DJI against DJA. Charting suggests wealth accumulation in a smaller part of the main idices. GDP may be breaking out. With money velocity (main chart) in record-low values, we can expect faster money flow in the years to come. That means increased productivity/inflation/GDP. As expected, long-term inflation may also be breaking out of its decreasing trend. Don't forget: High inflation may be a problem for some. An increased GDP growth caused by high inflation will certainly help the chosen big-ones. There cannot be high GDP with nobody profiting from it. To get rich you must inherit or steal. -Aristotle Onassis In the end, trading hasn't changed at all in 5000 years. There are still pirates, kings, queens, emperors and peasants. Markets will march upwards with or without us. Tread lightly, for this is hallowed ground. -Father Grigori
FRED:GDP
by akikostas
1
Modeling a shift in SRAS and AD over the past year, I think. I used the U.S PCE YoY as the base, I then overlaid the M1 YoY and Real GDP YoY. I used the beginning of this years as a reference point as that is roughly when the fed began increasing interest rates. As the price level declines demonstrated by a decline in the money supply and PCE YoY declining Real GDP YoY is seen increasing To my understanding this visualizes how SRAS and AD have shifted to the left over the past year
ECONOMICS:USPCEPIACEducation
by MostlyFXcharts
Macro Monday 19~Nonfarm Payrolls Macro Monday 19 Total Non-Farm Payrolls: Pre-Recession Observations What is Non-Farm Payroll? The nonfarm payroll measures the number of workers in the U.S. includes 80% of US workers. The figures exclude farm workers (Nonfarm) and workers in several other job classifications such as military and non-profit employees. Data on nonfarm payrolls is collected by the Bureau of Labor Statistics (BLS) and it is included in the monthly Employment Situation report (the “Employment Report”) which includes two surveys, the Household Survey, and the Establishment Survey. Nonfarm Payroll is included in the latter the Establishment Survey. The Establishment Survey gathers data from approximately 122,000 nonfarm businesses and government agencies for some 666,000 work sites and about one-third of all payroll workers. Anyone on the payroll of a surveyed business during that reference week, including part-time workers and those on paid leave, is included in the count used to produce an estimate of total U.S. nonfarm payrolls The Full Employment Report is released by the BLS on the first Friday of each month at 8:30 AM ET and reflects the previous month's data. The Chart ▫️ The Chart highlights the last four recessions (red shaded areas) ▫️ The aim of the chart is to identify what Non-Farm Payroll movement occurred prior to each recession (in the blue shaded areas) so that we create a gauge that identifies the early warning signals of such recessions. ▫️ From reviewing the data (illustrated in the data chart), prior to each recession there was a either a confirmed decline in Non-Farm Payrolls prior to recession or an increase of less than 0.0300 mln in Non-Farm Payrolls prior to recession (a tapering off or sideways move). This was evident prior to all four recessions reviewed. Main Findings: 1. The four most recent recessions all seen a decline in Non-Farm Payrolls prior to recession or an increase of less than 0.030 mln in Non-Farm Payrolls prior to recession (the “Signal”). Advance notice of recession was 1 to 12 months depending on recession (final column) 2. Currently we do not have a decline or an increase of less than 0.030 mln in Non-Farm Payrolls thus suggesting we do not have an advance recession warning triggering at present. 3. From a review of the data chart we are now aware that a pre-recession signal can trigger and provide us with 1 months advance notice or 12 months advance notice. In the event the parameters of number 1 above are met to provide a Signal, we can then add this chart/metric as a recession warning chart. Breakdown of Each Recession Signal (signal defined in 1 above): ▫️ The 1990 recession gave us a 1 month advance warning of recession. ▫️ The 2000 recession provided 2 advance warnings (2 & 3 in the chart), one signal gave us a 9 month heads up and the other a 3 month advance notice. ▫️ Similarly, the GFC 2007 recession provided 2 advance warnings (4 & 5 in the chart), one gave us 5 month advance warning, and the second was the signal the recession had started. ▫️ COVID-19 provided a 12 month advance warning with a decline registered from Jan – Feb in 2019. Side Note: Interestingly this has some alignment with last week’s chart on Durable goods. In Feb 2019 one year before the COVID-19 Crash the Durable Goods Moving Average provided an advanced sell/recession signal, and whilst the S&P500 did rally c.13.5% after the signal over the subsequent 12 months, the S&P500 ultimately fell 23% thereafter in a matter of months taking back all those gains and more. Durable Goods is also included in the Establishment Survey so maybe it should come as no surprise that we have synchronicity between both charts on the COVID Crash. The Durable goods chart is also not presently signaling a recession similar to this Nonfarm payroll chart. Both charts appear to demonstrate some resiliency in the employment market (echoing Jerome Powell's sentiment that Employment is tight). False Signals ▫️ Unfortunately there are a number of false signals throughout the chart whereby a decline in payrolls or an increase of less than 0.0300 mln is observed with no follow up recession however most of these false signals are either 1 month in duration or happened in the direct follow up years after the recession slump (when a recession is no longer of concern). Regardless, for this reason the Non-Farm Payrolls Recession Signal cannot be utilized as a standalone indicator, we need other charts and data to help identify the risk of recession. ▫️ Other data should be utilized in conjunction with Non-Farm Payrolls such as the following closely aligned charts all of which are show concerning pre-recession patterns in one way or another; 1. Total Non-Farm Layoffs and Discharges 2. Total Nonfarm Job Openings 3. US Continuing Jobless Claims 1. Total Non-Farm Layoffs and Discharges is signaling a similar trend to the 2007 Great Financial Crisis were there was an initial increase of c.450k (up to the first peak) and eventually a total increase of c.885k from lows to peak recession high. - At present we are trending upwards and had an initial peak of c.507k (it could be the only peak or the initial peak, time will tell). 2. Total Nonfarm Job Openings is signaling a significant decline in job openings much larger than the prior two instances where job opening declines led to recession. - A quick glance at the chart and you can see that we have exceeded the typically level required for recession and exceeded the typical timeframe (using GFC and COVID as reference points). 3. US Continuing Jobless Claims -Prior to the last 8 recessions the average increase in cont. claims was a 424k increase over an average timeframe of 11 months. - Since Sept 2022 Cont. Claims have increased from c.1.3m to 1.818m (an increase of c.518k over a 13.5 month period). We are above both pre-recession averages number of increase and time. In summary: ▫️ Last week’s Durable Goods Chart and this week’s Nonfarm payrolls chart are not triggering a recession warning at present. Both charts appear to emphasize a resilient labor market. ▫️ In stark contrast all three of the additional charts I provided above are incredibly concerning on the recession probability front. In particular Cont. claims , the most concerning of the bunch, is surpassing all pre-recession averages, highlighting that people are finding it harder to recover from a job loss and find a new job. This chart alone would suggest that the labor market is beginning to significantly soften. ▫️ Over the past week we have also had an update to the Purchaser Managers Index which declined further into contractionary territory from 49.0 to 46.7 (est. 49.0). Another signal towards a softening labor market. ▫️ It would be remiss of me not mention that I have seen a Month Over Month (MoM) Chart of the Nonfarm payrolls doing the rounds and it appears to illustrate a softening and slowing of labor conditions (will share in the comments). Such a trend could translate to a gradual tapering and/or decline on our monthly Nonfarm chart over time. When you consider all of the above, you would have to expect a market decline is around the corner but also expect some continued lag before we see it due to those few charts that are not even showing the pre-recession signals, never mind an actual recession signal. The charts holding out are Durable Goods, Nonfarm Payrolls and ill throw in Major Market Index TVC:XMI as a complimentary chart that has not lost its support as of yet. We are also aware that the Dow Theory has confirmed a bear market and has been expecting a market rally before bear trend continuation (the sell into rally). All the same these moving parts can change and pivot so we have to keep an open mind but its hard not to lean very cautiously as it stands. We can keep an eye on these final charts that remain defiant as they may be the final strongholds and provide us with the final warnings in the event of.... As always folks stay nimble out there PUKA
FRED:PAYEMS
by PukaCharts
Are we in a recession? (spoiler: no)I wanted to aggregate some of the things that the NBER considers when determining a recession, and provide three links that people can follow to monitor for recession likelihood. The NBER uses lagging data so they officially declare recessions after they've been under way for some time and sometimes at their conclusion. However, we can monitor the data points that they consider to view whether they are expanding or contracting. I've included: Non-farm payrolls Consumption Household employment Real GDP Gross industrial output Real personal income less transfer payments You can see that, despite the rightening monetary conditions, real economic variables continue to expand. I've also included the Sahm Recession indicator by WeatherUmrella. This uses a 0.5 increase in unemployment over 3 months to indicate that a recession is underway. www.tradingview.com Links: I'll keep this chart public (hopefully it's helpful). www.tradingview.com Sahm Rule official at the Federal Reserve fred.stlouisfed.org Smoothed probability of recession fred.stlouisfed.org The last uses the same criteria as the NBER, using some matrix algebra to use what's available to extrapolate a real time determination. It's been very accurate.
FRED:NPPTTL
by Ben_1148x2
🔥 The Number 1 Recession Indicator Signals Great Danger 🚨 The Sahm Rule Recession Indicator (white) is on the rise. Historically, a rise in this indicator has always signaled a recession and a corresponding fall in asset prices. How it's calculated: "The Sahm Rule identifies signals related to the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months." In other words, once unemployment starts to rise quickly, this indicator moves up and a recession is on the horizon. Since it's inception in the 1950's, every time this indicator reaches above 0.3, the trend seems to be irreversible and only reverses back after the recession is "over". See the orange line for the performance of the SP500: it has an inverse relationship with the SAHM indicator. Keep a close eye on this indicator. Seeing how fast it's rising, there's historically a huge probability that the US economy will see a recession somewhere in the next few months. Keep an eye out for bearish price action in stocks and crypto during this time.
FRED:SAHMCURRENTShort
by FieryTrading
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