Note from dshort: I've updated this analysis to include today's release of the November Employment Report.
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
The employment report from the Bureau of Labor Statistics is without doubt the most closely watched of all monthly economic reports. The headline focus is consistently on the two headline numbers: Nonfarm New Jobs and the Unemployment Rate, the first of which is a member of the Big Four that I track here.
Here is a very wide snapshot of the monthly percent change in Nonfarm Employment since 1950. I've included a 12-month moving average to help visualize the trend. We see an obvious correlation with the business cycle (expansions and contractions as indicated by NBER designated recessions).
One caution on this indicator is that it is subject to substantial revisions.
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 the the first indicator update for the 65th month of recovery following the recession. The Big Four Average is (gray line below).
Current Assessment and Outlook
The overall picture of the U.S. 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. However, the average of these indicators in recent months suggests that, despite the Q2 and Q3 rebound in GDP, the economy remains near stall speed.
The next update of the Big Four will be the month-end Real Personal Income less Transfer Receipts.
