Applying NBER’s Methodology of Dating Business Cycles
Today’s comment digresses from analysis of economic reports to an update of the variables the National Bureau of Economic Research (NBER) tracks to date business cycles. The NBER waits for revisions of data before it announces the dates of business cycle peaks and troughs. The peak of the expansion was officially identified only in December 2008, a complete year after the onset of the recession, which was in December 2007. It is a useful exercise to see how the economic variables used in business cycle dating are faring at the present time. The four variables the NBER uses are payroll employment, real personal income less transfer payments, industrial production, and real manufacturing and wholesale-retail trade sales.
Payroll employment continues to decline (see chart 1), with a loss of 598,000 jobs in January. Payroll employment has dropped 2.6% from the peak in December 2007.
Real personal income less transfer payments has declined in each month in the October 2007- September 2008 period. It rose in October and November but held steady in December (see chart 2). Real personal income less transfer payments is down 0.7% from the peak in October 2007.
Real manufacturing and wholesale-retail trade sales fell 1.6% in November. As chart 3 indicates, there is no sign of improving conditions in business sales. Inflation adjusted manufacturing and wholesale-retail sales are 7.7% lower than the peak seen in October 2007.
Industrial production continues to show significant weakness, partly due to the auto sector’s problems but widespread weakness is a reasonable representation of the factory sector. The industrial production index of January 2009 is 10% below the peak registered in January 2008 (see chart 4).
There are mixed opinions about when an economic recovery will occur – the range varies from second quarter to third quarter of 2009. We will update these charts periodically to pin down the turning point ahead.
