Note from dshort: This commentary has been revised to include today's surge in nonfarm new jobs.
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
Today's report of 288K new nonfarm jobs was well above the Investing.com forecast of 212K. Moreover, the unemployment rate fell to 6.1%, beating the Investing.com expectation of an unchanged 6.3%. Of the Big Four Indicators, this has historically been the least volatile.
Here is a column chart of monthly percent change for this indicator over the past fifty years. I've also included a 12-month moving average. We can see that consecutive MoM declines outside of recessions are quite rare. Recessions, other than the second half of the early 1980s double-dip, have followed a distinct downtrend in the 12-month moving average — not something we're currently seeing.
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 60th month following the recession. The Big Four Average (gray line below).
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 Winter data documented a sharp contraction. The early Spring appeared to support the general view that severe winter weather was responsible for the contraction — that it was not the beginnings of a business cycle decline. The May Industrial Production strengthened the optimistic view, as has today's release of the June Nonfarm new jobs data.
The next update of the Big Four will be the mid-month data for Industrial Production and Real Retail Sales.
