The Big Four Economic Indicators: Still No Recession
Note from dshort: This commentary has been revised to include today's release of the data for Real Personal Incomes Less 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:
- Industrial Production
- Real Personal Income (excluding transfer payments)
- Real Retail Sales
The weight of these four in the decision process is sufficient rationale for the St. Louis FRED repository to feature a chart four-pack of these indicators along with the statement that "the charts plot four main economic indicators tracked by the NBER dating committee."
Here are the four as identified in the Federal Reserve Economic Data repository. See the data specifics in the linked PDF file with details on the calculation of two of the indicators.
The FRED charts are excellent. They show us the behavior of the big four indicators currently (the green line) as compared to their best, worst and average behavior across all the recessions in history for the four indicators (which have start dates). Their snapshots extend from 12 months before the June 2009 recession trough to the present.
The Latest Indicator Data: Real Personal Income Less Transfer Payments
This morning I've added the final Big Four for November: Real Personal Income Less Transfer Payments, the red line in the chart below.
Nominal Personal Incomes rose 0.6% month-over-month, the largest increase since February. When we subtract Transfer Payments and adjust for inflation, the increase is 0.9%, the largest since January of 2011. The year-over-year increase is 2.8%, the highest since July of last year.
Current Assessment and Outlook
At this point, the average of the Big Four (the gray line in the chart) illustrates that economic expansion since the last recession had been hovering around a flat line for the past several months. But the November data for all four of these key indicators show encouraging improvement and appear contradict the claims from some that the US is now experiencing a recession.
As for the recent data, of course they are subject to revision, so we must view these numbers accordingly.
The behavior of these indicators will be critical as move from the fourth quarter to the new year. Superstorm Sandy has not been traumatic to the economy, and we have already seen some positive effects from rebuilding in the impacted areas. Holiday season sales will be something to watch in the next Retail Sales release, but the November Durable Goods data significantly exceeded expectations.
On the negative side, the outcome of Fiscal Cliff negotiations remains a near-term worrisome wild card in the economic hand.