Penserra U.S. Economic Watch
August 9, 2016
Penserra Securities LLC
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Contact Information:
Capital Markets Group
Jose Reyes
646.459.0589
jose.reyes@penserra.com
Francisco de Bocos
925.272.4414
francisco.debocos@penserra.com
Review of the Economic Indicators and Fed Funds Rate
Penserra periodically analyzes economic data and various economic indicators for signs that point towards an
increased probability of an economic downturn and market stress. Our review for the most recent monthly period
shows continued economic stability in the U.S. as exhibited by positive factors including steady unemployment
levels, controlled inflation, a low probability of the Smoothed Recession Probability Index, and a favorable St. Louis
Fed Financial Stress Index. However, surprisingly the U.S. economy grew less than expected in Q2, 2016, at an
annualized rate of 1.2% versus a forecast of 2.5%.
The most recent GDP figures are in some ways dissenting with other gauges of the economy. Most notably, the
unemployment rate continues to remain strong at 4.9%. In addition, consumer spending was up 2.83% and inflation
is in check with less than a percent growth this year. Another indicator also showing negative results is productivity
growth. Quarter on quarter productivity growth continues to be sluggish with an average of 0.7% over the past four
readings which is far below the long-term average of 2.2%. The continued low productivity may entail that business
are not boosting capital spending to increase output.
Looking forward, the Atlanta Federal Reserve is currently forecasting a whopping 3.8% real GDP growth for Q3, 2016
using its GDPNow model. Even with a wide forecast error, growth in Q3 will likely beat that of Q2. Meanwhile, the
interest rate environment has had U.S. Treasuries rallying in 2016 as the Fed held off on raising interest rates while
central banks in Japan and Europe maintained unprecedented stimulus. The current probability of a Fed Funds
increase on September 21st ranges from 18-26%.
Summary of Economic Indicators
Indicator/Index
Treasury 2/10 Spread
St. Louis Fed Financial Stress Index
Chicago Fed National Activity Index
U.S. Recession Probability Index
Bloomberg FedWatch
CME FedWatch
CPI (Rolling Annual)
Real GDP (Rolling Annual)
Unemployement Rate
Civilian Labor Force Participation
Source Date
8/5/2016
7/29/2016
6/1/2016
5/1/2016
8/9/2016
8/9/2016
6/1/2016
4/1/2016
7/1/2016
7/1/2016
© 2016 Penserra Financial Ventures LLC. All rights reserved. Do not reproduce or distribute electronic copies.
Indicator
0.87
-1.13
0.16
3.60
26%
18%
0.22%
1.23%
4.90
62.80
Note
Positive territory; negative trend.
Positive. Below average financial market stress.
Neutral. Expanding at historical trend
Positive. 3 months below 20%
Probability of a September rate hike.
Probability of a September rate hike.
Positive. Inflation in check.
Positive. Slow growth.
Positive. Steady decrease.
Negative. Continued decreased participation.
-1.0
0.0
-2.0
-3.0
-5.0
© 2016 Penserra Securities LLC. All rights reserved. Do not reproduce or distribute electronic copies.
Chicago Fed National Activity Index
2.0
1.0
CME
60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
08/01/2016
07/22/2016
07/12/2016
07/02/2016
06/22/2016
06/12/2016
0.2
06/02/2016
0.0
05/23/2016
0.4
05/13/2016
1.0
05/03/2016
0.6
04/23/2016
2.0
04/13/2016
0.8
04/03/2016
3.0
03/24/2016
1.0
03/14/2016
4.0
03/04/2016
1.2
02/23/2016
7.0
02/13/2016
5.0
02/03/2016
1.4
01/24/2016
6.0
01/14/2016
St. Louis Financial Stress Index
Forecasted Rate
01/07/2016
01/07/2015
01/07/2014
01/07/2013
01/07/2012
01/07/2011
01/07/2010
01/07/2009
01/07/2008
01/07/2007
01/07/2006
01/07/2005
01/07/2004
01/07/2003
01/07/2002
01/07/2001
01/04/2016
-3.0
Probability of Increase
10/01/2015
01/01/2015
04/01/2014
07/01/2013
10/01/2012
01/01/2012
04/01/2011
07/01/2010
10/01/2009
01/01/2009
04/01/2008
07/01/2007
10/01/2006
01/01/2006
04/01/2005
07/01/2004
10/01/2003
01/01/2003
04/01/2002
07/01/2001
10/01/2000
-2.0
01/07/2000
-1.0
01/01/2000
Penserra U.S. Economic Watch
10-Year/2-Year Treasury Spread
(Constant Maturity)
0.0
Fed Funds Watch
-4.0
Bloomberg
2 of 5
-1.00%
-2.00%
-3.00%
-4.00%
03/01/2016
05/01/2015
07/01/2014
09/01/2013
11/01/2012
01/01/2012
03/01/2011
05/01/2010
07/01/2009
09/01/2008
11/01/2007
01/01/2007
03/01/2006
05/01/2005
07/01/2004
09/01/2003
11/01/2002
01/01/2002
03/01/2001
05/01/2000
-1.00%
-2.00%
© 2016 Penserra Securities LLC. All rights reserved. Do not reproduce or distribute electronic copies.
6.0
64.0
63.0
4.0
62.0
2.0
61.0
0.0
Particiapation %
65.0
01/01/2016
66.0
04/01/2015
8.0
07/01/2014
10/01/2013
01/01/2013
0.00%
04/01/2012
1.00%
07/01/2011
4.00%
10/01/2010
3.00%
01/01/2010
5.00%
04/01/2009
2.00%
Unemployment Rate
07/01/2008
4.00%
10/01/2007
Consumer Price Index
01/01/2007
0.0
04/01/2006
20.0
07/01/2005
40.0
10/01/2004
10.0
01/01/2004
100.0
04/01/2003
12.0
07/01/2002
60.0
01/01/2000
08/01/2000
03/01/2001
10/01/2001
05/01/2002
12/01/2002
07/01/2003
02/01/2004
09/01/2004
04/01/2005
11/01/2005
06/01/2006
01/01/2007
08/01/2007
03/01/2008
10/01/2008
05/01/2009
12/01/2009
07/01/2010
02/01/2011
09/01/2011
04/01/2012
11/01/2012
06/01/2013
01/01/2014
08/01/2014
03/01/2015
10/01/2015
05/01/2016
Smoothed U.S. Recession Probability Index
10/01/2001
80.0
Unemployment %
120.0
01/01/2001
01/01/2000
08/01/2000
03/01/2001
10/01/2001
05/01/2002
12/01/2002
07/01/2003
02/01/2004
09/01/2004
04/01/2005
11/01/2005
06/01/2006
01/01/2007
08/01/2007
03/01/2008
10/01/2008
05/01/2009
12/01/2009
07/01/2010
02/01/2011
09/01/2011
04/01/2012
11/01/2012
06/01/2013
01/01/2014
08/01/2014
03/01/2015
10/01/2015
05/01/2016
Penserra U.S. Economic Watch
Unemployment & Workforce Participation
68.0
67.0
60.0
59.0
Workforce Participation %
Rolling Annual Real GDP Growth
3.00%
2.00%
1.00%
0.00%
-3.00%
-4.00%
-5.00%
* See Sources on Page 5
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Penserra U.S. Economic Watch
Overview of Economic Indicators
Treasury 2/10 Spread: This recession indicator is the spread (difference) between interest rates on 10-year U.S. Treasuries and 2-year U.S. Treasuries.
This indicator has a decent track record of going negative before a recession starts. (Emphasis added.) In other words, it’s a leading indicator.
St. Louis Fed Financial Stress Index: The average value of the index, which begins in late 1993, is designed to be zero. Thus, zero is viewed as representing
normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average
financial market stress.
Chicago Fed National Activity Index: A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth;
negative values indicate below-average growth; and positive values indicate above-average growth.
Smoothed U.S. Recession Probabilities: University of Oregon economist, Jeremy Piger, compiles a Recession Probability Index. It tracks the four monthly
variables used by the National Bureau of Economic Research (NBER), the official organization tasked with declaring recessions. The four variables are: 1)
nonfarm payroll employment, 2) the index of industrial production, 3) real personal income excluding transfer payments and 4) real manufacturing and
trade sales. Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while
three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion.
Consumer Price Index: The Consumer Price Index for All Urban Consumers: All Items (CPIAUCSL) is a measure of the average monthly change in the price
for goods and services paid by urban consumers between any two time periods.(1) It can also represent the buying habits of ur ban consumers. This
particular index includes roughly 88 percent of the total population, accounting for wage earners, clerical workers, technical workers, self-employed,
short-term workers, unemployed, retirees, and those not in the labor force. The CPIs are based on prices for food, clothing, shelter, and fuels;
transportation fares; service fees (e.g., water and sewer service); and sales taxes.
Civilian Labor Force Participation Rate: The series comes from the 'Current Population Survey (Household Survey)' and measures the labor participation of
the civilian workforce.
Bloomberg FedWatch Probability: The probabilities of various interest rate level outcomes as implied by the futures, options, and OIS markets, to quantify
to what extent the markets are “pricing in” future central bank interest rate changes. This financial instruments allow for the calculation of probabilities
for various interest rate levels on central bank announcement days. Based on Bloomberg World Interest Rate Implied Probability (WIRP).
CME Group FedWatch Probability: The probability of a rate hike is calculated by adding the probabilities of all target rate levels above the current target
rate. Probabilities of possible Fed Funds target rates are based on Fed Fund futures contract prices assuming that the rate hike is 0.25% (25 basis points)
and that the Fed Funds Effective Rate (FFER) will react by a like amount. FOMC meetings probabilities are determined from the corresponding CME
Group Fed Fund futures contracts. Visit the CME Group website: http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html.
© 2016 Penserra Securities LLC. All rights reserved. Do not reproduce or distribute electronic copies.
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Penserra U.S. Economic Watch
Regulatory Disclosures
All materials are provided for informational purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a
recommendation for any security. Penserra Securities LLC is not responsible for gains/losses that may result in the trading of these securities. All
information is believed to be obtained from reliable sources, but there is no guarantee that the information supplied is accurate, complete, or timely.
There is no guarantee or warranty with regard to the results obtained from the use of Penserra’s research. There is no guarantee of suitability or
potential value of any particular investment or information source. You acknowledge that your requests for this information are unsolicited and shall
neither constitute nor be considered investment advice. Penserra has not received or is not entitled to receive compensation from any covered company
in any of our reports over the last 12 months. Past performance is not an indication of future performance. Investors are encouraged to consult a
registered broker or investment adviser before making any investment decisions.
The interpretations and opinions expressed herein are solely those of the author and not of Penserra Securities LLC as an organization. Penserra
Securities LLC 2016. Member: SIPC, MSRB, FINRA.©
Indicator/Index
Frequency
Treasury 2/10 Spread
Daily
Source Data
Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant
Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis
St. Louis Fed Financial Stress IndexWeekly
Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index© [STLFSI], retrieved from FRED,
Federal Reserve Bank of St. Louis.
Chicago Fed National Activity IndexMonthly
Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED,
Federal Reserve Bank of St. Louis
U.S. Recession Probability Index Monthly (Delayed)Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N],
retrieved from FRED, Federal Reserve Bank of St. Louis
Bloomberg FedWatch
Daily
Based on Bloomberg World Interest Rate Implied Probability (WIRP)
CME FedWatch
Daily
CME Group. http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
CPI (Rolling Annual)
Monthly
US. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items [CPIAUCSL],
retrieved from FRED, Federal Reserve Bank of St. Louis
Real GDP (Rolling Annual)
Quarterly
US. Bureau of Economic Analysis, Real Gross Domestic Product [GDPC1], retrieved from FRED, Federal
Reserve Bank of St. Louis
Unemployement Rate
Monthly
US. Bureau of Labor Statistics, Unemployment Level [UNEMPLOY], retrieved from FRED, Federal Reserve
Bank of St. Louis https://research.stlouisfed.org/fred2/series/UNEMPLOY
Civilian Labor Force Participation Monthly
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate [CIVPART], retrieved from FRED,
Federal Reserve Bank of St. Louis
© 2016 Penserra Securities LLC. All rights reserved. Do not reproduce or distribute electronic copies.
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