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Business Cycle Indicators: August 3, 2020

Summary:
Here are five key indicators referenced by the NBER’s Business Cycle Dating Committee in 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 2019M02=0. 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 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations. We will soon get July employment numbers. Goldman Sachs employment tracker indicates a

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Here are five key indicators referenced by the NBER’s Business Cycle Dating Committee in 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 2019M02=0.

Business Cycle Indicators: August 3, 2020

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 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations.

We will soon get July employment numbers. Goldman Sachs employment tracker indicates a loss of 1 million jobs, using data through 7/15. The picture looks a little less V-ish then.

Business Cycle Indicators: August 3, 2020

Figure 2: 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), Goldman Sachs Employment Tracker using data through 7/15 implied level of employment for July (light blue). all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations.

Finally, I place the IHS Markit estimate of GDP in the context of the official data.

Business Cycle Indicators: August 3, 2020

Figure 3: GDP (blue bar), Monthly GDP (red line), all bn. Ch.2012$ SAAR. Source: BEA 2020Q2 advance, IHS Markit (8/3/2020).

The IHS Markit estimate implies a quarterly GDP 0.02% less than the BEA advance estimate. Today’s letter observes:

…zero growth of monthly GDP in each month of the third quarter would imply 20.4% annualized growth of GDP for the third quarter. This is about what we expect (we currently look for 20.1% annualized growth in the third quarter).

A zero m/m GDP growth in July is consistent with Goldman Sachs employment tracker estimate for a 1 million decline in nonfarm payroll employment, shown in Figure 2. So…we might either get a 2 month recession (for monthly data), or — depending on what happens to GDP and employment in August — a longer recession with zig-zags.

Addendum, 3 August:

Here is a graphic depicting the IHS Markit forecast for monthly GDP, to make more concrete my view it’s likely to look “W”-ish or may “reverse radical”.

Business Cycle Indicators: August 3, 2020

Source: IHS Markit, 8/3/2020.

For me, it’s an incomplete V so far, and we have a chance of W or reverse radical going forward if IHS Markit is prescient.

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

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