Some people think we’re in a recession now, some think it’s in the past (we’re currently in H2 2022). With new incoming weekly, monthly and quarterly data, should we still think those views are plausible [follow up on this post]?
First, let’s look at what the quarterly (Q2 second release for GDP) and new monthly consumption, income and GDP data show:
Figure 1: Nonfarm payroll employment (dark blue), Bloomberg consensus as of 9/1 (blue +), civilian employment (orange), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), official GDP (blue bars), all log normalized to 2021M11=0. Lilac shading denotes dates associated with a hypothetical recession in H1. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (9/1/2022 release), and author’s calculations.
Most of these series are now posted and updated on the St. Louis Fed’s NBER Turning Points dashboard.
From these data, recalling that the NBER Business Cycle Dating Committee (BCDC) does not place great reliance on quarterly GDP (because of the numerous revisions which can either erase a recession, or create a recession, over time — see this post regarding 2001), it doesn’t look like a recession occurred in H1. (The NBER BCDC now places greatest weight on employment and income.) The only clearly downward trending indicator is manufacturing and trade industry sales, and that reflects in part the consumption shift away from goods and toward services. Interestingly, monthly GDP (from IHS Markit, formerly Macroeconomic Advisers) peaked in December of 2021, and then fell in January, March and April (m/m). However, July is higher than April.
Considering that Q2 GDP will get one more revision, before the annual benchmark revision at end of September, it’s useful to acknowledge (again) that GDP is better measured in real time using a combination of expenditure side data (GDP) and income side data (GDI). A 50-50 weighting yields what BEA reports as Gross Domestic Output (GDO), which is only available with the second GDP release. Series that rely upon GDI show a different profile for output than GDP alone — as noted in the recent post by Jacobs, Sarfarez, Sturm and van Norden.
We also know that establishment survey data, while more precisely measured than household survey data, gets revised, and the preliminary benchmark data for March 2022 implies stronger employment growth than previously thought. This point was discussed in yesterday’s post. Putting together our knowledge of GDO and employment, this is the corresponding figure to Figure 1.
Figure 2: Nonfarm payroll employment (dark blue), civilian employment (orange), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), official Gross Domestic Output (blue bars), all log normalized to 2021M11=0. Lilac shading denotes dates associated with a hypothetical recession in H1. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (9/1/2022 release), and author’s calculations.
Second, let’s look at the weekly indices. The Lewis-Mertens-Stock Weekly Economic Index for the week ending 8/27 was just released today. With this release, we have the following high frequency picture of the economy.
Figure 3: Lewis-Mertens-Stock Weekly Economic Index (blue), OECD Weekly Tracker (tan), Baumeister-Leiva-Leon-Sims Weekly Economic Conditions Index for US plus 2% trend (green) Source: NY Fed via FRED, OECD, WECI, and author’s calculations.
The WEI reading for the week ending 8/27 of 2.5 is interpretable as a y/y quarter growth of 2.5% if the 2.5 reading were to persist for an entire quarter. The OECD Weekly Tracker reading of 2.6 is interpretable as a y/y growth rate of 2.6% for year ending 8/20. The Baumeister et al. reading of 2.1% for the week ending 6/25 is interpreted as a 2.1% growth rate in excess of long term trend growth rate. Average growth of US GDP over the 2000-19 period is about 2%.
So, I still don’t see a recession as having occurred in H1 2022. As for Q3, GDPNow newly updated today reads 2.6% (q/q SAAR), up from previous 1.4%; IHS Markit at 1.4%, and Goldman Sachs up at 1.1%.