Note from dshort: This commentary has been updated to include the December Personal Income and Outlays Report for November.
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.
There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:
- Industrial Production
- Real Personal Income (excluding Transfer Receipts)
- Nonfarm Employment
- Real Retail Sales
The Latest Indicator Data
Personal Income (excluding Transfer Receipts) in November rose 0.44% and is up 4.0% year-over-year. However, when we adjust for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) rose an even higher 0.62%, its largest monthly gain in 22 months, and is up 2.84% year-over-year. The monthly decline in the PCE Price Index, largely a result of plunging gasoline prices, provided a big boost to this metric. This, of course, runs counter to the normal trend, in which inflation adjustment results in shrinkage rather than expansion for the underling number.
Real PI less TR is one of those indicators that really should be adjusted for population growth. Here is a chart of the series since 2000 adjusted accordingly by using the Civilian Population Age 16 and Over as the divisor.
The most recent data point in this adjusted is fractionally off the 2008 peak (excluding the 2012 year-end anomaly).
The Generic Big Four
The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. We now have all indicator updates for the 65th month following the recession. The Big Four Average is (gray line below).
Current Assessment and Outlook
The overall picture of the US economy had been one of slow recovery from the Great Recession with a clearly documented contraction during the winter, as reflected in Q1 GDP. Data for Q2 supported the consensus view that severe winter weather was responsible for the Q1 contraction — that it was not the beginnings of a business cycle decline. Subsequent to the dip last winter, 2014 growth has been excruciatingly slow. However the trend has accelerated over the past two months. This improvement is to some extent the result of the drop in gasoline prices, which impacted the deflator for the two inflation-adjusted metrics in this four-pack.
The next update of the Big Four will be the January release of the December Employment Report.
