Calculated Risk: Recession and NBER Metrics

on Estimated risk per 07/03/2022 15:18:00

On the Dating business cycle from NBER:

The NBER definition emphasizes that a recession includes a significant slowdown in economic activity that extends throughout the economy and lasts for more than a few months. In our interpretation of this definition, we treat the three criteria—depth, spread, and duration—as somewhat interchangeable. That is, while each criterion must be met individually to some extent, the extreme conditions identified by one criterion may partially offset the weaker features of another. For example, in the case of a peak in economic activity in February 2020, the committee concluded that the subsequent drop in activity was so significant and so widespread throughout the economy that, even if it turned out to be rather short-lived, the downturn should be classified as a recession.

Since a recession should have a broad impact on the economy, and not be limited to one sector, the committee pays special attention to indicators of economic activity across the economy. The determination of the months of peaks and recessions is based on a number of monthly indicators of aggregate real economic activity published by the federal statistical authorities. This includes real personal income less transfers, non-agricultural employment, household survey employment, real personal consumption expenditure, price-adjusted wholesale and retail sales, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are taken into account in our decisions. In recent decades, the two measures we focus on the most are real personal income less transfers and employment in the non-agricultural wage bill.
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The following charts show two key metrics that NBER uses as a percentage of the previous peak. (Real personal income excluding transfers and non-agricultural employment).

Employment by measures of recessionClick on the graph to enlarge the image.

This schedule applies to employment through May 2022.

Employment is now down about 0.5% from its pre-crisis peak (dashed line). This is a significant improvement from 14.4% in April 2020.

Employment is still 822,000 below pre-pandemic levels.

Recession incomeAnd the second schedule is for real personal income excluding transfer payments until May 2022.

Real personal income excluding transfer payments hit a record high in May 2022.

These charts are useful when trying to identify the peaks and troughs of economic activity. none of them suggest a recession.