When it comes to dating US recessions, the National Bureau of Economic Research (NBER) wears the crown.
Not only are they the official in economic research, but their ‘Business Cycle Dating’ is the definitive guide to identifying economic downturns. The NBER are the ones who literally state there has been a recession. They employ PHD’s and some very smart people.
Zero indication of Recession ❌
The Background
NBER scrutinise a variety of monthly data, including but not limited to:
- Real retail sales
- Industrial Production
- Real manufacturing sales (wholesale)
- Non-farm payrolls
- Household employment
- Real Personal Consumption Expenditures (PCE)
- Real income
The seven recessionary indicators from NBER a give them a view of the overall health of the economy. An increase in these metrics shows robustness and growth. The opposite is true for decline. They look for downturns to indicate that we are in a recession.
The metrics
| Indicator | Current State | R? |
|---|---|---|
| Real Retail Sales Contracts | No contraction, sideways movement | ❌ |
| Industrial Production Contracts | Some contraction, but currently nearing all time highs | ❌ |
| Real Manufacturing Sales (Wholesale) turns down | Near all time high | ❌ |
| Non-farm Payrolls Reduce | At all time high | ❌ |
| Household Employment Falls | Sideways movement | ❌ |
| Real Personal Consumption Expenditures (PCE) Drop | Strong positive trend | ❌ |
| Real Income Dips | Sideways movement | ❌ |
The narrative
NBER’s version of events begins with a contraction in Real Retail Sales, an early indicator of shifting economic winds. This contraction is often a result of various factors such as reduced consumer confidence, or perhaps an anticipation of financial instability.
When consumers pull back on spending, the demand for goods slackens, which in turn, casts a long shadow on the industrial sector.
The immediate response to decreased demand is a retraction in Industrial Production. Factories dial down their production lines to adjust to the lowered demand, which has a knock-on effect on the wholesale market, translating to a downturn in Real Manufacturing Sales.
This downturn signifies a less robust trading environment within the wholesale market, a critical link between manufacturers and retailers.
As the industrial and wholesale sectors grapple with declining figures, the repercussions seep into the employment realm. A Non-farm Payrolls Reduction emerges as companies, striving to balance their books, trim their workforce.
This reduction in employment, unfortunately, leads to a Household Employment Fall. With fewer members of the household employed, spending power dwindles further, tightening the economic squeeze.
The cycle of reduced spending and employment challenges continues, reflecting in a drop in Real Personal Consumption Expenditures (PCE). The less households spend, the less revenue circulates within the economy, creating a feedback loop of economic contraction.
Finally, a Real Income Dip unveils itself, encapsulating the overarching theme of economic decline. With less income, both at an individual and aggregate level, the economic vibrancy dims, often marking a recessionary phase.
This dip in real income is not just a statistic, but a reality check on the financial health of the populace and the economy at large.
Where are we?
According to the (admittedly) high level data the NBER look at, there does not seem to be a recession on the horizon. In fact, not only are most of the metrics not in decline, some are still in expansive phases.
This framework, unlike some of the others, are not necessarily sequential, and in the case of a recession we might see many of them roll over into decline at similar points. Perhaps, this is one of the reasons the NBER have only ever been to officiate the start of a recession only after it is over.
For now, we’ll be keeping our eyes on real retail sale contractions as the potential first mover in these recession based indicators.
This lagging recession methodology shows no sign of current recession ❌
Credit
The National Bureau of Economic Research (NBER) is a private company that plays a pivotal role in identifying and dating the phases of economic cycles in the United States.
We must acknowledge the work of the The Business Cycle Dating committee, composed of a group of experts who meticulously review and interpret economic data to ascertain the onset and conclusion of recessions.
Thanks also to FRED, maintained by the Federal Reserve Bank of St. Louis. from whom the data for these indicators and on which the committee relies upon.
Check out the NBER here: https://www.nber.org/