Note from dshort: This commentary has been revised to include this morning's release of May data for Nonfarm Employment.
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 headline numbers in the May employment report were fairly unexceptional (more here). The 217K new Nonfarm jobs matched up with most forecasts, and the unemployment rate remained unchanged. Nonfarm Employment has historically been the least volatile of the Big Four, and the blue line below shows a relatively smooth advance over the past four years.
[Recommended: The Truth About the Jobs Report and the Economy]
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 first indicator update for the 59th month following the recession. The Big Four Average (gray line below) has essentially flatlined of late, with substantial April downward pressure coming from Industrial Production, although the decline in April Real Retail Sales is perhaps of more concern.
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 data for December and January months documented a sharp contraction. The recovery in February and March appeared to support the general view that severe winter weather was responsible for the contraction and that it was not the beginnings of a business cycle decline.
The picture took on a darker look with the downward revision of Q1 GDP to -1.0%. Still 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. However, at this point, the recent behavior of the Big Four does not support such optimism.
The next update of the Big Four will be the mid-month Industrial Production and Real Retail Sales.
