Note from dshort: This commentary has been revised to include the January Real Personal Income (excluding transfer payments).
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:
|
The Latest Indicator Data
With today’s release of the January Personal Income and Outlays, we can calculate Real Personal Income less Transfer Payments. But first, let’s note that nominal Personal Income rose 0.3% in January, beating theInvesting.com forecast for a 0.2% rise. However, if we exclude Transfer Payments from the government, the MoM increase shrinks to 0.1%. And when we adjust for inflation using the quite conservative PCE Price Index, the MoM change is flat at one decimal place; at two decimal places we get a statistically insignificant 0.02% MoM change.
The chart and table below illustrate the performance of the Big Four and 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. The latest data point completes the 55th month.
Current Assessment and Outlook
The overall picture of the US economy had been one of a ploddingly slow recovery from the Great Recession. However, the data for the past two months have shown contraction. The general explanation in the popular economic press is that severe winter weather has been responsible for the bad data, and that we shouldn’t read the slippage as the beginnings of a business cycle decline. As we can see in the illustration of the average of the Big Four since its 2007 all-time high, the rate of post-trough growth had been slower since February of 2012, although the 2012 end-of-year tax-strategy blip has obscured the trend slope over the past two years. The declined for two consecutive months is a phenomenon rarely seen outside proximity to a recession. If indeed unusually severe weather has been the dominant factor in two-month contraction, then we should see a rebound as winter abates.
