The Big Four Economic Indicators: Employment Update

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Note from dshort: This commentary has been revised to include this morning's release of the March data for Total Nonfarm Employment.


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 payments)
  • Employment
  • Real Retail Sales (a more timely substitute for Real Manufacturing and Trade Sales)

The Latest Indicator Data: Total Nonfarm Employment

total nonfarm employeesI've now updated this commentary to include the March Nonfarm Employment series, shown in the adjacent thumbnail and the blue line in the chart below. Today's employment report showed an increase of only 88,000 new nonfarm jobs, far below the consensus. But the unemployment rate dropped from 7.7% to 7.6%. How can that happen? The reason is that, quite apart from the 88K increase in jobs, the numbers for both the civilian labor force and the civilian employed shrank last month (-496K and -206K respectively). Since the labor force shrank more than the employed, the unemployment rate dropped fractionally.

The chart and table below illustrate the performance of the Big Four and simple average of the four since the end of the Great Recession.

big four indicators since end of last recession

Current Assessment and Outlook

Today's employment report was a disappointment. The number of new jobs was less than half the expectation, and the job declines in retail sales do not augur well for personal consumption data in the months ahead. The Federal Reserve is looking for a lower unemployment rate, but the mathematics of today's fractional decline is clearly not how they want the unemployment target to be reached.

Of course all recent data are subject to further revision, so we must view these numbers accordingly.

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