Recession watch: How income data complicates the picture
As the U.S. economy slows, the question naturally arises: are we in a recession? The answer is more complicated than it appears for a number of reasons. First, the data economists use to assess the economy are available with a lag of at least one month. Second, the data are often subject to revision in subsequent months and years and these revisions can change the assessment significantly. Third, once the economy reaches a turning point (peak or trough), it takes at least a few months for that to become apparent in the data. These factors combine to make identifying the onset of a recession using economic data a backward-looking exercise.
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While some analysts define recessions as at least two consecutive quarters of negative real GDP growth, for the U.S. most economists rely on recessions identified by the National Bureau of Economic Research (NBER). The NBER is a private, nonpartisan organization that facilitates cutting-edge investigation and analysis of major economic issues.
Within the NBER, a group of economists serve on the Business Cycle Dating Committee. They have identified monthly peaks and troughs in the U.S. economy going back to the mid-1800s. They define a recession as a sustained, generalized, and significant decline in the level of economic activity. Slowing growth is not enough. Economic activity must have declined. See this article for more on the NBER process.
The graphs below show the latest data (as of this writing) for six key indicators of the U.S. economy. With two exceptions, the series do not show a clear downward trend in economic activity. The two exceptions are real personal income less transfers and real manufacturing and trade industries sales.
The data for real personal income less transfers were significantly revised this month and the data now suggest a peak in November 2021. This is very different from the trend in the data just one month ago and it illustrates why the NBER is cautious in making its assessment.
The data for real manufacturing and trade industries sales show a peak in January 2022, the same as last month.
Overall, the six series taken together do not yet provide a conclusive argument for a U.S. recession in the first half of 2022.
Exhibit 1: U.S. Real Personal Income Less Transfers, Seasonally Adjusted, Billions of Chained 2012 Dollars
Exhibit 2: U.S. Total Nonfarm Payroll Jobs, Seasonally Adjusted
Exhibit 3: U.S. Household Employment, Seasonally Adjusted
Exhibit 4: U.S. Total Industrial Production, Seasonally Adjusted
Exhibit 5: U.S. Real Personal Consumption Expenditures, Billions of Chained 2012 Dollars
Exhibit 6: U.S. Real Manufacturing and Trade Industries Sales, Millions of Chained 1996 Dollars
George W. Hammond, Ph.D., is the director and research professor at the Economic and Business Research Center (EBRC).