Note from dshort: This commentary has been revised to include Monday's release of Industrial Production and yesterday's Retail Sales adjusted for inflation with today'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
The government shutdown delayed the release of September Industrial Production, Retail Sales and the seasonally adjusted CPI deflator we use the calculate Real Retail Sales. The adjacent pair of thumbnails illustrates the opposing directions of these two indicators with their September data points.
Industrial Production rose 0.6 percent in September with much of the increase attributable to a curious 4.4 percent surge in utilities. John Williams of Shadowstats.com does the math and concludes that "the unstable surge in utilities accounted for 74% of the aggregate growth in September production".
Headline Retail Sales before inflation adjustment shrank 0.1 percent in September, and when we adjust for inflation, the shrinkage worsens to -0.29%, which we conventionally round to one decimal place at -0.3%.
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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. The data points show the percent cumulative percent change from a zero starting point for June 2009. The latest data points are for the 51st month. In addition to the four indicators, I've included an average of the four, which, as we can see, was influenced by the anomaly in the Personal Income tax management strategy at the end of last year with a ripple effect in the opening months of this year.
Current Assessment and Outlook
The overall picture of the US economy remains one of a ploddingly slow recovery from the Great Recession. As we can see in the illustration of the average of the Big Four off its all-time high since 2007, the rate of post-trough growth has been slower since February of 2012, although the end-of-year tax-strategy has obscured overall trend slope over the past 18 months. The September average of the four (using the August data for Personal Income) looks encouraging. However, we should bear in mind that improvement owes much to the somehwat anomalous 0.6% jump in Industrial Production, which was largely attributable to Utilities.
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My next update will on November the 8th, when we get both the Nonfarm New Jobs and Personal Income less Transfer Payments for October.
