Financial Stress Remains Muted
The Kansas City Federal Reserve issues a monthly report on their index of the US Financial Stress. The most recent one issued on August 8, 2012 had an index level of -.13 essentially unchanged from the June level of -.11. Negative levels indicate that there is less stress than a normal level of 0 and a positive number would indicate more stress.
For example, during the “Great Recession” of 2008-09, the level peaked out at about 6 (which is 6 Standard Deviations, not six times) Other than this time period, the index toggled between +1 and -1 from 1990-2007 and from 2010 to now. The least amount of stress occurred during 1991 to 1998 and from 2004-2006.
11 components make up the index. 8 of them are based upon yield spreads and 3 are based upon behavior of asset prices. The changes of each component for the month of July ranged from -.06 to .07.
Although not directly to farming, these indexes provide guidance on where the financial markets are headed which will affect lending and interest rates.
Paul Neiffer
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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