Note from dshort: This commentary has been revised to include May Retail Sales adjusted with yesterday's release of the Consumer Price Index.
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)
- Nonfarm Employment
- Real Retail Sales (a timelier substitute for Real Manufacturing and Trade Sales)
The Latest Indicator Data
With yesterday's release of the May Consumer Price Index, we can now establish that Real Retail Sales for May showed no growth. The month-over-month change was a statistically insignificant -0.01 percent. Year-over-year growth is an anemic 2.07 percent. For more details, see my nominal update, which includes Core Retail Sales (ex Autos), and my Real Per-Capita analysis.
Here is a close look at Real Retail Sales since 2009. I've included a linear regression through the monthly data points to help clarify the decelerating trend, which is rather concerning. We're beyond the three months of weather-related poor sales (December through February). We saw a strong bounce in March followed by weak growth in April and no growth in May.
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 third 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. But the Real Retail Sales number for May do not confirm the optimism.
Late last month the downward revision of Q1 GDP to -1.0% raised some alarms. But 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.
The next update of the Big Four will be the month-end Personal Income less Transfer Payments data for May.
