Note: This commentary has been updated to include the Real Personal Income Less Transfer Receipts for May.
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:
- Nonfarm Employment
- Industrial Production
- Real Retail Sales
- Real Personal Income (excluding Transfer Receipts)
The Latest Indicator Data
Personal Income (excluding Transfer Receipts) in May rose 0.61% and is up 4.3% year-over-year. When we adjust for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) rose 0.30%. The real number is up 4.07% year-over-year.
Real PI less TR is one of those indicators that warrants adjustment for population growth. Here is a chart of the series since 2000 adjusted accordingly by using the Civilian Population Age 16 and Over as the divisor.
A Note on the Excluded Transfer Receipts: These are benefits received for no direct services performed. They include Social Security, Medicare & Medicaid, Unemployment Assistance, and a wide range other benefits, mostly from government, but a few from businesses. Here is an illustration Transfer Receipts as a percent of Personal Income.
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.
Current Assessment and Outlook
The overall picture of the US economy had been one of slow recovery from the Great Recession. We had a conspicuous downturn during the winter of 2013-2014 and subsequent rebound. And weak Retail Sales and Industrial Production in recent months triggered a replay of the "severe winter" meme. However, we're now getting data points for Spring months, not the Winter, and aside from Industrial Production, we're seeing a rebound. Real Personal Income rebounded in April, and the May data was in line with mainstream expectations.
At this point, the average of these indicators in recent months continues to suggest that the economy is trending sideways, and the risk of a downturn remains a concern.
The next update of the Big Four will be the June numbers for Nonfarm Employment.
