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Business Cycle Indicators, End-2019

Summary:
Here are some key indicators tracked by NBER’s Business Cycle Dating Committee: Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M01=0.  Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (12/30 release), and author’s calculations. Industrial production remains nearly a percentage point below December 2018 levels, while manufacturing and trade sales are even with January 2019 levels. The other indicators’ growth rates have decelerated. What about some other indicators. First, consider the Chicago Fed National Activity Index: Figure 2: Chicago Fed National Activity Index (black),

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Here are some key indicators tracked by NBER’s Business Cycle Dating Committee:

Business Cycle Indicators, End-2019

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M01=0.  Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (12/30 release), and author’s calculations.

Industrial production remains nearly a percentage point below December 2018 levels, while manufacturing and trade sales are even with January 2019 levels. The other indicators’ growth rates have decelerated.

What about some other indicators. First, consider the Chicago Fed National Activity Index:

Business Cycle Indicators, End-2019

Figure 2: Chicago Fed National Activity Index (black), and three month trailing moving average (chartreuse). Source: Chicago Fed via FRED. 

November registered a big jump, but the 3 month trailing moving average remains mired in negative territory. Further discussion here.

Keeping in mind manufacturing is only a portion of aggregate activity in advanced and emerging economies, it is worrisome that manufacturing PMI’s have declined worldwide (US is orange).

Business Cycle Indicators, End-2019

Source: Merk.

Finally, for some unconventional measures: (1) freight activity and (2) RV sales. I use the Cass indices for the former:

Figure 3: Cass Freight Index – Shipments (blue, left log scale); Expenditures deflated by CPI-all (brown, right log scale). Source: Cass Information Systems via FRED.

From the October report (the November one is not online, but the November figures were not an improvement, so I assume that the general conclusions stand):

Continued deterioration in the Cass Freight Shipments Index concerns us:

• With the –5.9% decline in October, following the string of declines in May through September (ranging from -3.0% to -6.0%), we repeat our message from the previous five months: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
• We acknowledge that: all of these negative percentages were against tough comparisons (some extremely tough), and the Cass Shipments Index has gone negative before without being followed by a negative GDP. However, demand is weaker across almost all modes of transportation, both domestically and internationally.
• Several key modes, and key segments of modes, are suffering material increases in the rates of decline, signaling the contraction is getting worse.
• We know that freight flows are a leading indicator, so by definition there is a lag between what they are predicting and when the outcome is reported.

Nevertheless, we see a growing risk that GDP will go negative by year’s end.

For more on recession probabilities imputed through freight indices, see this post.

What about RV sales? Except September, monthly sales are down.

Source: rvia.org.

Cumulative through November 2019 are down 16.9% relative to 2018. For more on imputing recession probabilities, see this post from August (notice in that post, a 30% decline is used, which is greater than the 16.9% YTD).

Final note: It is hard to argue for a decided slowdown as long as nonfarm payroll (NFP) employment continues to rise consistently. Latest estimates indicate deceleration, but not decline.

Figure 4: Nonfarm payroll employment, November 2019 release (blue), stochastic trend 2014-2016 (red), and March preliminary benchmark revision from August 21, 2019 (blue inverted triangle), all on log scale. Light green shading denotes Trump administration. Source: BLS via FRED, BLS, and author’s calculations.

One cautionary note: Employment figures from October 2018 onward have not been benchmark-revised. The March preliminary benchmark is shown as a inverted blue triangle in Figure 4. In other words, employment growth might be less than currently believed.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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