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:
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The Latest Indicator Data
June nominal Personal Income rose 0.4% month-over-month, in line with most forecasts. When we subtract Transfer Payments, which accounts for 17.3% of PI, and adjust for inflation using the BEA’s Personal Consumption Expenditure Price Index, the MoM growth was a smaller 0.17%, and this indicator is up only 1.67% YoY. This is the only one of the Big Four that has yet to reach an all-time high, now 1.5% off that mark.
The chart and table below illustrate the performance of the 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 the fourth indicator update for the 59th month following the recession. The Big Four Average (gray line below).
Current Assessment and Outlook
The overall picture of the US economy had been one of a ploddingly slow recovery from the Great Recession, and the Winter data documented a sharp contraction. The early Spring appeared to support the general view that severe winter weather was responsible for the contraction — that it was not the beginnings of a business cycle decline. The May Industrial Production strengthened the optimistic view. Real Retail Sales for May were less encouraging. May Personal Income data was pretty much as expected.
Yesterday’s downward revision of Q1 GDP to -2.9% was completely ignored by the market, with major indexes rising on average volume. GDP, after all, is a backward-looking indicator. The consensus among economists is that Q2 will show a substantial rebound and that 2014 will ultimately have real GDP growth in the 3% to 3.5% range. For a snapshot of that optimism, here is a look at the WSJ’s June survey of economists on the subject of Q2 GDP.
