The official arbiters of US recessions look at six monthly indicators in determining whether the nation is indeed in a downturn — and they’re not flashing red.
The National Bureau of Economic Research’s business-cycle dating committee rejects the notion that two negative quarters of gross domestic product is the definition of a recession. Instead, it looks at indicators ranging from consumption to jobs to industrial activity.
“There is currently a conflict between the robust growth of payroll employment and the modest declines in some other monthly indicators,” said Robert Gordon, a Northwestern University professor and member of the committee. He doesn’t comment on his view of recession.
On Thursday, government data showed gross domestic product fell at a 0.9% annualised rate in the second quarter after a 1.6% drop in the first three months of the year. Some economists consider that as an informal rule of thumb indicating a possible recession.
Below is a rundown of the six data points:
Real personal income less transfers
Personal income has been mixed this year, hurt by inflation. It fell 0.3% in June after two monthly advances, and has risen three of the six months this year.
The US has added 2.7 million jobs this year, a pace of about 450 000 jobs a month that’s much stronger than the average prior to the Covid-19 pandemic. Payroll growth has been slowing but continues to be positive, with July payrolls additions expected to total 250 000 when the government reports the figures Friday.
Real personal consumption expenditures
Adjusted for inflation, personal consumption has continued to expand this year, rising in five of the past six months. Consumer spending accounts for around 70% of the US economy, so it remains a key driver for growth.
Real manufacturing and trade sales
Real manufacturing and trade sales have been declining this year. Manufacturing has struggled this year amid supply chain difficulties, fewer orders as consumer spending has slowed and a stronger US dollar has made exports more expensive.
While the main monthly employment report comes from a survey of businesses, a separate survey of households gives a different perspective on the labor market. Household employment was strongly positive in the first quarter and has declined in two of the last three months.
Index of industrial production
Industrial production was positive in the first few months of the year and has flattened out more recently, showing a slight decline in June.
The NBER committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” So to meet the criteria, it’s looking for more than one or two indicators showing weakness and those declines being significant and lasting more than a few months.