Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which it bases its decisions. This committee statement is about as close as it gets to identifying the method.
There is, however, a general belief that there are four big recession indicators that the committee weighs heavily in their cycle identification process. They are:
- Nonfarm employment
- Industrial production
- Real retail sales
- Real personal income (excluding transfer receipts)
The Latest Indicator Data: Real Personal Income (excluding transfer receipts)
Personal income (excluding transfer receipts) rose 0.23% in August and is up 5.4% year-over-year. However, when adjusted for inflation using the BEA's PCE Price Index, real personal income (excluding transfer receipts) was up 0.14% month-over-month and up 3.1% year-over-year.
A Note on the Excluded Transfer Receipts: These are benefits received for no direct services performed. They include Social Security, Medicare & Medicaid, Unemployment Assistance, and a wide range of other benefits, mostly from government, but a few from businesses. Here is an illustration of Transfer Receipts as a percent of Personal Income. This also includes emergency stimulus measures as a result of the COVID-19 global pandemic.
Real Personal Income Less Transfer Receipts
This data series is computed by taking personal income (PI) less personal current transfer receipts (PCTR) and deflated using the personal consumption expenditure price Index (PCEPI). We've chained the data to the latest price index value. The "tax planning strategies" annotation refers to shifting income into the current year to avoid a real or expected tax increase.
In the charts below we have illustrated three different data manipulations:
- A log scale plotting of the complete data series to ensure that distances on the vertical axis reflect true relative growth. This adjustment is particularly important for data series that have changed significantly over time.
- A year-over-year representation to help, among other things, identify broader trends over the years. Real personal income YoY is currently at or below the level at the start of 5 of the 9 recessions that have started since 1959.
- A percent-off-high manipulation, which is particularly useful for better understanding of trend behavior and secular volatility. Real personal income less transfer receipts is currently at its all-time high.
Transfer payments largely consist of retirement and disability insurance benefits, medical benefits, income maintenance benefits (more here). These also include the recent CARES Act as a result of the COVID global pandemic.
