For a recent analysis of the national outlook see here.

S & P 500


The following chart shows the weekly closing price of the S & P 500 beginning the first Friday in January to date.


The following table shows the summary of the actual and forecasts and actual and forecast for the weekly change in the S & P 500 for 2019.


The sum of the actual forecasts to date for 2019 = 265.61

(NEW) The market appears to resume its upward climb. The market responded positively during the past weeks to rumors/announcements/proclamations about the ongoing negotiations with China.  America and China are not close to resolving the trade differences, though Trump continues his usual spin. The ebb and flow of the daily news cycle continues to dominate the market.  During the recent couple of weeks, the market’s anxiety about corporate earnings has diminished.  In addition, the prospect for the resolution of trade conflicts with China has increased.  If some resolution is reached, expect Trump to make a grand announcement even if the elements are minor. (END)

The market seems to be reacting only to Trump’s and China’s comments and initiatives.

The forecasts for the U.S. GDP shown in a section below show a decline in the growth rate but no negative values.

Note further that the change in the growth rate of GDP is significantly affected by unknown and unforeseen future events.  Once future events occur, their effect on GDP can be measured.

The market followed a marked upward trend until the first of May.  The non-farm employment report release Friday showing continued employment growth presents consternation to the Fed. The downward trend continues thru early June when the upward trend resumed.  This month long downturn reflects new uncertainties heaped on the market by the outlook for the global economy, Trump’s daily harangues attacking the FED, and the outlook for the U.S. economy.

The FED reduced interest rates during its July meeting.  Trump rejoiced saying to the effect …”The FED is following my leadership in pursuing a reduction in interest rates.” He added that the 1/4 point decline was insufficient, and it should have been a 1/2 point decline (in the target federal funds rate).

However, the FED makes interest rate decisions reflecting its outlook on the forecasts of the U.S. employment, inflation, growth rate of GDP and the outlook for the world economies.  The outlook for employment and GDP are not rosy while the outlook for inflation shows no threat. The fracas over Brexit in Britain only adds to uncertainty.

The immediate effect of the FED’s action was a 30+ point increase in the S & P index.  This was followed by Trump’s outburst targeting China with a 10% increase in tariffs.  The net effect of the FED’s action and the Trump outburst was a 93 point decline in the Index for the week. All of the increase in the variation in the Index since Trump took office is attributed to his seemingly irrational Tweets and poor economic decisions. Do not expect his irrational behavior to diminish.


Investors always seek signals indicating the future level of the S & P index. Some of the traditional indicators include the price / earnings ratio, future earnings, international trade and many others.  The following chart offers a graphic picture of a signal.


Using any Friday’s closing of the S & P index, a statistical forecast is calculated for the close on the next Friday.  A 95% confidence interval is calculated around the next Friday’s forecast. The interval is shown in the above chart as ‘Lower’ and ‘Upper.’

When the next Friday’s actual close occurs, it appears on the chart as ‘Actual.’  So the chart shows the forecast interval and the actual.

The signal is the actual close compared to the forecast interval (Upper and Lower) and is shown in the chart as the yellow line ‘Signal.’  Note on 9 February 2018 the actual close  was below the ‘Lower’ forecast signalling a change in direction of the S & P index. The up and down movement in the ‘Signal’ continued until 13 April when the actual Friday close returned to close between the ‘Lower’ and ‘Upper.’  The upward trend in the weekly closing price of the index resumed until 19 October.

On 19 October 2018 the actual close fell below the forecast ‘Lower.’  The upward trend in the S & P index stopped to be replaced by a declining trend until 2 January 2019. Beginning on 2 January 2019, the upward trend resumes and continues.

How do investors use the signal?  When the ‘Signal’ equals one, then a change in upward direction of the index follows.  Do not buy the S & P index until the ‘Signal’ returns to zero.

Investors can buy the S & P index anytime the signal is zero.

In summary, the ‘Signal’ indicates a period of a ‘market correction’ when there is a pause in the upward momentum.


Another slant on the market’s direction uses a measure of uncertainty.


The chart above shows the same time period as the preceding chart showing the ‘Signal.’

The uncertainty index is the difference between the ‘Upper’ and ‘Lower.’  From 5 January 2018 uncertainty slowly drifted up settling around 125.  Then, uncertainty abruptly increased on 11 January 2019. It fluctuated around 275 and slowly drifted down to near 230 today.

The exact cause of the increase in uncertainty is unknown. The increase is most likely the result of a number of factors – Trump, China, Brexit and ….


The following chart shows the weekly closing price of the S & P 500 for 2018


The following table shows the summary of the actual and forecasts and actual and forecast for the weekly change in the S & P 500 for the year 2018.


The total of the actual forecasts of -144.56 is not so good. One of the reasons for the negative value is the forecasting algorithm is that it is trend following. One of its characteristics is that the statistical methodology identifies statistically significant deviations from the trend after they occur.  Unknown and unforeseen events will occur in the future, which will affect the underlying trend; but, their effects can only be identified after they occur.

Such unknown effects occurred during 2018.  Most of the effects originate in the White House, i.e., trade wars, brow-beating and name-calling, etc. and the market reacts.


The S&P 500 began the year on 30 December 2016 at 2338.83.  On 29 December 2017 the S&P 500 closed at 2673.61.  The total change in points = 334.71, which is a 14.31% increase.

Forecasting of the weekly closing price of the S & P 500 began for the week ending 23 February 2017.  The chart below shows the weekly actual closing price.


The following table shows the summary of the actual and forecasts and actual and forecast for the weekly change in the S & P 500 for the year 2017.


Last updated on 7 December 2019

Source: FRED, S&P 500, weekly, aggregation method – end of period


(NEW) The week ending 25 August has been hectic. The source of the churn is Trump’s Tweets followed by commentators attempting to identify the true meaning of his comments and their effects. What is clear is that the trade war continues unabated, the FED is doing its best to read the tea-leaves about the effect on GDP from all the variables affecting the U.S. economy, and Trump and the White House refuse to accept any responsibility for the turmoil.

What is clear is that the future path of GDP is uncertain.  The daily and weekly swings in the S & P index reflects the uncertainty.

During the past couple of weeks, commentators have focused on the negative spreads between the 10-year Treasury securities and the 3-month and 2-year securities.  Commentators offer graphs of the different spreads visually displaying the negative spreads preceding a recession. The reader can view numerous spreads on the FRED link on St. Louis FED’s website.

While graphic displays are handy aids for analysis, this commentator has estimated statistical relationship between the quarterly values of GDP and four different spread.  The investigation focused on two spreads. One is the 10-year Treasury and the 2-year Treasury and the other is 10 year Treasury and the 3-month Treasury.

Since the spread series are reported daily, both have to be converted into quarterly data series.  There are different ways to covert the daily data to quarterly observations.  One quarterly series is the average of the daily values, and the other is the last daily value in the quarter (End-of-Period).

The analysis included four separate statistical equations.  Only one of the spread series was statistically related to GDP.  It is the 10-year Treasury minus the 2-year Treasury using the last observation in the quarter, i.e. the end-of-period.

There is one ‘however.’  When the estimated equation is used to calculate the effects of spread on GDP, the effects are numerically small.

Summary:  Analysts and pundits should focus on the graph relationship between GDP and the spread between 10-year Treasuries and 2-year Treasuries.(END)

During Trump’s campaign, he asserted that he alone would undertake policies that would increase the growth rate of GDP to 3 – 4% per year.  His promise included moving jobs back to the U.S., a large increase in infrastructure expenditures, and the promised ‘Wall.’ These promises may come to pass, but in the meantime the actual and expected growth rates are shown below.

The meantime is upon us!  Trump started a trade war that no country can win.  Trump said ‘it is easy to win a trade war.’  The U.S. cannot.  Trump has two fundamental problems when discussing tariffs.  First, he does not understand one of the few ‘economic laws’.

For an excellent summary of the current status (as of 23 June 2018) of the trade war see:

The average growth rate for the four quarters in 2016 = 1.82%.  The growth rate for the four quarters of  2017 is 2.56%.  The growth rate for 2Q2018 = 1.54%.  The forecast for the average growth rate for the four quarters in 2018 is 2.02%.  The historic four quarter moving average of GDP’s growth rate is shown below.  The forecast of the downward path thru the first quarter of 2019 is not hopeful.


The massive corporate tax cut, expected acceleration in the federal debt and the FED’s response increases the uncertainty about the future GDP growth rate. Most recently Trump has precipitated a trade war with our most valuable allies and China. This trade war is another of his ‘shoot-from-the-hip’ pronouncements not based on sound economic analysis. No party wins a trade war, and the first round followed by the second and third round effects are yet to come.  All effects will be slow (2 – 8) quarters to be reflected in GDP, but the negative effects are certain.

The future GDP growth rates shown below reflect the underlying/historic pattern of GDP.  The effects of the massive tax cut directed towards high income individuals and corporations has dissipated.


(NEW) The graph above reflects the revised GDP released on 30 August.  The revisions include a reduction in the 2Q growth rate from 3.1% to 2%.  The forecasts are for a gradual reduction in the growth rate from the 2.0% in 2Q2019 to a 1.8% in 2Q2020.  At this time there is no indication that the growth rate will become negative, but the slowly declining forecasts cannot be good news for individuals and firms making investment decisions. (END)

The Bureau of Economic Analysis releases its first estimate at the end of the month following the end of the quarter (in October) and its second release during the last week at the end of the second month following the end of the quarter (in November).

With all the troubles Trump has instigated, the forecast for GDP growth rates as the November 2020 election approaches cannot be good news.

Now turn to Trump’s continuing attacks on the FED. These attacks originate from two sources.  First, the U.S. economy is softening as evidence by the declines in the forecasts of GDP as data is revised and updated. Trump and his advisors are well aware of these forecasts.  Trump’s refuses to accept responsibility for the second-round effects of his previous decision, so he lashes out.  In this case, the thrust is directed at the FED.  In effect, Trump asserts the FED is the source of the problem, and he bears no responsibility.

The second is the FED’s response to the forecast slowdown.  In the following sections of this posting note the forecasts of the growth rate of payroll employment and inflation.  Both are declining.  If the reader was a member of the FED’s Board of Governors, what would you recommend?

Analysis updated on 25 August reflecting the first release of GDPC1 using data thru 2Q2019.

SOURCE: FRED, series – GDPC1


The graph below shows the actual and forecast of the 12 month percent change in CPI. The forecast thru March 2020 shows that the CPI will decline to .86%.    The actual decline will have some practical lower limit absent a recession.  The FED’s lower target rate is 2%.  The continued decline in prices results in consternation at the FED.

The statistical model includes 25 intervention variables, including two seasonal pulses.  For those who are interested the R² = .9999.

A word of caution:  Trump’s continued harangue about the current trade deficit with China and his imposition of additional tariffs (in the last few days, the White House indicates the latest increase will be moderated) will eventually produce an increase in the CPI.  The impact on the CPI will depend on a host of factors where the magnitude is unknown at this time.  In the end, American consumers will shoulder the price increases.

The forecasts suggest that an increase in inflation is not a threat.   The FED’s actions and printed commentary indicate it is either overly concerned about immediate inflationary pressures or desires to slow the overall economy in an attempt to forestall any future inflation.

Both this month’s and last month’s updated forecasts show a precipitous decline in the 12 month % change in CPI.  The decline in the forecast % change in CPI suggests the FED will be under less inflation pressure to reduce interest rates.  Other pressures are heavier suggesting the targeted federal funds rate will be reduced by 1/4 percent during the next meeting.


The Bureau of Labor Statistics releases the previous months estimate of CPI in the middle of the current month.

Updated on 15 October using data thru September 2019.



The U.S. unemployment rate continues to flatten at below 4.0%.  The graphic pattern suggest that normal job turnover, along with new hires and layoffs, result in the 3.5% minimum.

The FED has to contend with the small monthly fluctuations in the unemployment rate, expected small increases in inflation and slow increase in wages when it considers another rate increases.  Furthermore, there is continued chatter from the political class (lead by Trump last year )that interest rates should increase to increase the earnings of savers. This argument is most mysterious, since the traditional Keynesian view is that investment decisions are influenced by the spread between the expected rate of return and the interest (cost of funds) rate.

The flat line forecasts of the unemployment rate at 3.5%  suggests the FED will view the outlook as non-treating to the U.S. economy.

The FED is under increasing pressure from Trump. The outlook for the U.S. economy is becoming more questionable every day.  The spread between the U.S. Treasury 10 year constant maturity and the 3-MO bill rate is negative.  This is not a good sign.  The longer the spread is negative the greater the chances that the economy enters a slowdown.


The flat forecast of the unemployment rate reflects the estimated statistical equation that summarizes the historical data. The equation is very simple – stationary using first differences and only pulse intervention variables. It does not include any AR or MA terms.  The future forecast values are the actual unemployment rate for the previous month.

Updated on 5 October using data thru September 2019.

SOURCE: The unemployment rate is calculated to six decimal points using data from FRED, series – CLV16oV and LNS13000000.


The average monthly change in U.S. payroll employment for the 12 months ending October = 182,000.

The month-to-month change in total payroll employment is more of interest and more closely watched that the monthly total.  The following graph shows the actual monthly change from January 2018 thru October 2019 and the monthly forecasts November – April 2019.

The statistical estimate for 12 month change to November 2019 employment is 182,000.  This follows an increase of 128,000 in September.

The FED watches the monthly change in payroll employment closely.  It, along with the unemployment rate and the forecasts of GDP,  guide the FED in its interest rate decisions.  The following graph shows normal month-to-month changes in payroll employment along with the expected monthly changes during the remaining months in 2019 and early 2020..


the forecast suggest the 12 month change in employment is declining, but robust averaging near 170,000 for the next six months.

The FED reduce its target federal funds rate by another 1/4% earlier this month.  The discussion now turns to identifying the FED’s next move.  Early indications is the FED will not reduce its target rate for federal funds anytime soon.

Updated on 15 November 2019 using monthly data thru October 2019.

SOURCE: FRED, series PAYEMS, seasonally adjusted