Deluged with outside data on the economy and businesses, we could also use some filters to separate wheat from the chaff. Based on what will be important in 2024, CFO has done just that. We’ve come up with five data points/charts that will be worth checking during the year to stay apprised of economic and market trends.
This year, we prioritized relevance and considered how readable and interactive the charts were for finance chiefs looking to grasp meaning quickly.
1. Easy Inflation Chart
While the financial markets have been thirsting for cuts in the Fed funds rate, some experts are skeptical that inflation will drop straight down to the Fed’s 2% target like a brick thrown from a window. Chief financial officers will still be tracking inflation in 2024, especially after December’s buoyant reading in the consumer price index (CPE). But how do you get a quick visual on inflation’s direction in the past few months or quarters without having to navigate the labyrinthine data tools menu of the Bureau of Economic Analysis?
We searched for an easy-to-understand chart of CPI and the personal consumption expenditures (PCE) price index and came up with the Cleveland Fed’s inflation charting page. You can click to drag and zoom and add/take away inflation measures based on how much you want to see on one graph. It’s the best inflation chart we’ve come across, and one worth bookmarking for 2024.
2. Financial Conditions Barometer
The Fed funds rate tells an incomplete story of current financial market conditions.
CFO asked Robert Phipps, a director and partner of Per Stirling Capital Management, for a data point that finance chiefs should follow in 2024. He chose the Chicago Federal Reserve Bank’s Adjusted National Financial Conditions Index (NFCI).
The index is a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and shadow banking systems. It statistically combines 105 different financial variables — from 1-month spreads on commercial paper to credit card delinquencies to the CBOE market volatility index.
Positive values indicate financial conditions that are tighter than average, while negative values indicate that financial conditions are looser than average. The adjusted version of the index “isolates a component of financial conditions uncorrelated with economic conditions to provide an update on financial conditions relative to economic conditions,” according to the Chicago Fed.
Said Phipps: “While Wall Street awaits rate cuts, financial conditions are not waiting for the Federal Reserve to act, as falling inflation, loosening labor market conditions, and last quarter’s pivot in Fed guidance has catalyzed a dramatic drop in longer-term rates.” That combined with other measures like the surge in stock prices “is causing a substantial loosening of financial conditions.”
According to Phipps, the index shows “financial conditions are as accommodative now, with an effective Fed funds rate of 5.33%, as they were back in February of 2022 when the effective Fed funds rate was a mere 0.08%.”
On January 6, Dallas Fed President Lorie Logan cited the index in stating that “in light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.”
The index comes out weekly, with the next update arriving January 18.
3. Wage Growth Measure
When the current inflationary cycle took off, the worry was larger wage hikes and a tight jobs market would produce a wage-price spiral. But that fear has faded. Indeed, some economists suggest wage growth in the past two years hasn’t fueled inflation as much as commonly thought.
But there are two different reasons finance chiefs should track wage trends in 2024, besides the general desire to know whether their people costs will ease: (1) wage growth needs to slow to about 3% year-over-year to move the Fed’s inflation target to 2% and (2) because wage growth is now higher than 12-month inflation, it’s one of the few things sustaining the consumer (and therefore economic growth) now that pandemic-era savings have dwindled.
To track wages, we prefer the Atlanta Fed’s Wage Growth Tracker. It’s constructed from the Bureau of Labor Statistics’ Current Population Survey and represents a three-month moving average of the median 12-month percent change in the hourly wage of individuals. The tracker can graph different work and demographic characteristics. Worth a look in particular is the difference in wage increases for “job stayers” and “job switchers.” In December 2023, for example, people who changed jobs saw a 12-month wage growth of 5.7%, versus 4.9% for those who didn’t switch.
The Wage Growth Tracker usually updates on the second Friday of the month and is also available on the Atlanta Fed’s handy EconomyNow mobile app.
4. Bank Checkups
Given the collapses of Silicon Valley Bank and Signature Bank are less than a year old and bank balance-sheet problems from the surge in interest rates, it would be wise to track the financial health of your banks in 2024. Since information from credit rating agencies is often too late to be actionable, we recommend using the Texas Ratio to gauge bank credit risk and spot overall credit troubles at financial institutions. It was developed by RBC Capital Markets and was first used to predict savings and loan failures in Texas during the 1980s.
The Texas Ratio for many U.S. banks can be found on the DepositAccounts website, a bank account comparison service. As described by DepositAccounts, the ratio compares “the total value of at-risk loans to the total value of funds the bank has on hand to cover these loans.” At-risk loans are more than 90 days past due and not backed by the government. “The amount of funds on hand consists of the loan loss allowance that the bank has set aside plus any equity capital,” according to DepositAccounts.
A Texas Ratio approaching the 100% threshold (when there’d be no capital cushion if all at-risk loans defaulted) means a bank is very risky. As of January 17, the highest Texas Ratio among U.S. banks with $1 billion or more of assets was Carter Bank & Trust’s 74.5%. When you click on the bank’s name, the site provides a letter grade of financial health based on the Texas Ratio trend, as well as trends in deposit growth and capitalization.
As risk professional Terrence Jameson pointed out in a LinkedIn post, the Texas Ratio is best used with other gauges. It does not consider overall economic conditions, for example, nor the composition of the problem assets, said Jameson. “Not all problem assets are created equal, and some are more problematic than others.”
5. Political Horse Races
U.S. politics has become distasteful, but keeping up with the potential winners in the race for president and Congress this year is essential.
For tracking polls on presidential primaries, the general election, and Congressional races, we like 538, now a part of ABC News. While founding editor Nate Silver’s compelling blogs are no longer part of the site (he’s now on Substack), 538 is worth visiting regularly
The polls page, updated daily, aggregates polling data from sources 538 deems reputable, like YouGov, Rasmussen Reports, Ipsos, and TIPP Insights. The site tracks everything from who’s ahead in the New Hampshire Republican primary to the popularity and approval rating of President Biden to the latest numbers on attempts to recall the governor of California.
As 538 states on its site, it ensures the polls it includes are based on sound survey methods. The site also boasts “a set of ethical standards aimed at ensuring pollsters are honestly engaged in the pursuit of truth and knowledge.” At a time when partisan surveys and polls are rampant, those practices, assuming they are followed, make 538 stand out.