The US economic trend remains modestly positive as the second quarter comes to a close, based on a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +4.8% yesterday (June 25). Although that’s close to the lowest level for the past year and reflects slower growth, the current reading is still comfortably above zero, which implies that business-cycle risk remains relatively low. A decline below 0% in MMRI would indicate that recession risk is elevated while readings above 0% imply that the economy will expand in the near-term future. Analyzing price data in the financial and commodities markets with a probit model also suggests that macro risk is low.
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● US consumer spending in May posted its biggest increase in six years while personal income perked up to its strongest advance in 14 months…
● Meanwhile, US initial jobless claims remained below the 300,000 mark for a 16th week…
● The revival in consumer spending “portends well for second-quarter growth and the broader momentum of economic activity in the second half of the year, and keeps the prospect of a September rate hike squarely on the table,” said Anthony Karydakis, chief economic strategist at Miller Tabak…
● Even the recently slumping Bloomberg Consumer Comfort Index made a positive U-turn, delivering its biggest gain for last week’s reading since April.
● On a relatively weak note among yesterday’s updates, Markit’s US Services PMI posted a slower growth rate at the end of Q2…
● Nonetheless, the Q2 GDP outlook improved a bit: the Atlanta Fed’s GDPNow estimate ticked up to 2.1% in yesterday’s update–the model’s highest Q2 forecast to date.
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History shows rather clearly that the stock market is prone to extreme events, aka crashes. The challenge is deciding when the risk for a repeat performance is unusually high. The literature offers endless possibilities, which is a reminder that the market can crumble for any number of reasons. The leading factor, of course, is the business cycle. But internal market issues can’t be ignored either, including abnormally high valuation. All of which inspires a relatively broad-minded system for monitoring the key risk factors.
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● US Q1 GDP Shrinks Less Than Previously Estimated | Bloomberg
● US Mortgage Applications Rose 1.6% Last Week: MBA | ON
● Fund investors flee US stock funds | USA Today
● German Consumer Climate To Fall First Time In 8 Months In July | MNI
● Greece bailout crisis: talks enter last-minute search for a deal | Guardian
● Lack of Greek deal weighs on European stocks | Reuters

The economic news remains mixed for the US, but the Treasury market continues to anticipate that the Federal Reserve’s first interest rate hike since 2006 is near. That’s the implied message in the upward momentum in Treasury yields.
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● US durable goods orders data suggest mfg. stabilizing | Reuters
● New US home sales rose to 7-year high in May | USA Today
● US manufacturing PMI drops to its lowest since Oct 2013 | Markit
● China Leading Index Climbs 1.1% In May – Conference Board | RTT
● Germany’s Ifo Index Drops For Second Straight Month In June | MNI
● Divisions Remain as Eurozone Ministers Meet Over Greece Deal | WSJ

The Chicago Fed National Activity Index’s three-month average (CFNAI-MA3) posted a fractional increase in May. Although growth remains below trend, the business cycle benchmark’s three-month average ticked higher for the second month in a row and is currently at its highest level since January. As such, recession risk remains low, based on the three-month average of the index, which rose to -0.16 last month—well above the -0.70 mark that signals the start of new recessions, according to Chicago Fed guidelines.
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US economic growth is projected to post a moderate rebound in the second quarter, based on The Capital Spectator’s average estimate for several econometric-based forecasts. GDP is on track to rise 1.7% (seasonally adjusted annual rate) in the “advance” Q2 report scheduled for release on July 30 via the Bureau of Economic Analysis. The average forecast is a relatively sluggish rate, although today’s revised outlook marks a revival after Q1’s 0.7% slump.
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● Chicago Fed Nat’l Activity Index: Growth Still Stunted in May | Morningstar
● US Existing-Home Sales Increase 5.1% in May | WSJ
● Eurozone flash consumer confidence indicator stable in June | EC
● Flash Eurozone PMI hits four-year high in June | Markit
● German PMI: output increases at stronger rate, new order growth slows | Markit
● China Manufacturing Sector Continues To Shrink – HSBC | RTT

Deaccumulation is the new new thing in finance for an obvious reason: the US population is aging, which means that retirement becomes an increasingly pressing issue for financial planning. Perhaps the leading challenge for this critical task (other than accumulating a sufficient pot of money) is managing the withdrawals from a retirement portfolio. The task is a delicate balancing act of maximizing deaccumlation in the short term (over a one-year period, for instance) without running out of money before a retiree shuffles off this mortal coil. An absolute solution will always remain elusive due to the standard issues that bedevil finance, but some basic modeling applications can wrestle the uncertainty down to a comparatively tame beast.
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