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Business Cycle Indicators for End-July 2021

Summary:
Consumption, personal income and St. Louis Fed’s real manufacturing and trade industry sales were released today. The July employment situation will be released next Friday. This is the picture today. Figure 1: Nonfarm payroll employment from June release (dark blue), Bloomberg consensus as of 7/30 for July nonfarm payroll employment (light blue +), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), all log normalized to 2020M02=0. NBER defined recession dates shaded gray. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (7/1/2021 release), NBER, and author’s calculations. Personal income

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Consumption, personal income and St. Louis Fed’s real manufacturing and trade industry sales were released today. The July employment situation will be released next Friday. This is the picture today.

Business Cycle Indicators for End-July 2021

Figure 1: Nonfarm payroll employment from June release (dark blue), Bloomberg consensus as of 7/30 for July nonfarm payroll employment (light blue +), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), all log normalized to 2020M02=0. NBER defined recession dates shaded gray. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (7/1/2021 release), NBER, and author’s calculations.

Personal income excluding current transfers growth has stalled out. Relative to the NBER peak in 2020M02, employment continues to be the laggard, down 4.5% (log terms). If nonfarm payroll (NFP) in July rises as forecasted by Bloomberg consensus by 900K, it’ll still be down by 3.9%.

Manufacturing and trade industry sales declined as suggested by retail sales ex-food services (as noted in this post from mid-July).

Business Cycle Indicators for End-July 2021

Figure 2: Retail sales excluding food services, in 1982-84$ (teal), manufacturing and trade sales in bn. 2012$ SAAR (black), both in logs, 2020M02=0. Retail sales ex-food deflated using CPI-all. NBER defined recession dates shaded gray. Source: Census via FRED, BLS, St. Louis Fed via FRED, NBER, and author’s calculations.

Continued, albeit slower, decline in June is implied (a regression of growth in manufacturing trade sales on growth in retail sales 2019-2021 yields an adjusted-R2 of about 0.84).

Retail sales provided little information on the June change in consumption, as shown below.

Business Cycle Indicators for End-July 2021

Figure 3: Retail sales and food services, in 1982-84$ (teal), consumption, in2012$ SAAR (light blue), both in logs 2020M02=0. Retail sales using CPI-all. NBER defined recession dates shaded gray. Source: Census via FRED, BEA, BLS, St. Louis Fed via FRED, NBER, and author’s calculations.

The personal income and outlays release also provided information regarding inflation.

Business Cycle Indicators for End-July 2021

Figure 4: Personal consumption expenditure (PCE) inflation (blue), PCE core inflation (orange), PCE trimmed mean (green), CPI-all inflation (red), all month-on-month annualized. Source: BEA, Dallas Fed, BLS via FRED and author’s calculations.

PCE inflation of 6.3% was considerably less than CPI inflation of 11.4% — and less than Chained CPI inflation of 10.9%. That June reading was also less than April’s reading of 7.2%; unfortunately, the trimmed mean inflation rose from 4.8% to 5.7% — so inflationary pressures do exist.

The level of the PCE price index has risen and exceeded the trend defined by 2% from January 2020.

Business Cycle Indicators for End-July 2021

Figure 5: Personal Consumption Expenditure (PCE) price deflator (black), Cleveland Fed nowcast (gray line), WSJ survey mean (teal line), 2015M01-20M01 trend (light blue), 2% trend from 2020M01 (pink), all 2012=100, on log scale. Source: BEA release of 7/30/2021, Cleveland Fed (accessed 7/29), WSJ July survey, and author’s calculations.

It might not be obvious in the graph, but the 1.1% gap between June actual and trend is the same in absolute value as the -1.1% gap in April and May of 2020.

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

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