Recession Indicators Reported As Of 1/19/2019

Summary

The series highlighted by the NBER's business cycle dating committee.

All last-reported observations of these indicators are rising, save perhaps real manufacturing and trade sales (October).

The best guess is no recession in December 2018.

Editor's note: This article was originally published on January 20, 2019, by Menzie Chinn here.

I focus on the series highlighted by the NBER's business cycle dating committee (BCDC).

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$ (teal). GDP in BEA interpolated until October 2017, Macroeconomic Advisers thereafter, all log normalized to 2009M06=0 (NBER defined trough). Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers, and author's calculations.

All last-reported observations of these indicators are rising, save perhaps real manufacturing and trade sales (October). Note, we are in January, and we have personal income only through November, and monthly GDP through October. We have no readings of these series later than December (employment, industrial production).

So, best guess (I won't pull an Ed Lazear and be more definitive) is no recession in December 2018. What about in a year? Well, here's the 10 year-2 year spread, and economic policy uncertainty (EPU) as measured by Baker, Bloom and Davis.

Figure 2: Ten year-two year spread, % (red, left scale), and 7 day centered moving average of Economic Policy Uncertainty index (gray, right scale). Light orange denotes Trump administration, orange line at beginning of Federal government partial shutdown. Source: FRED, policyuncertainty.com, and author's calculations.

A standard probit model using the 10 year-3 month spread laggged a year says the probability of being in a recessionary month in December 2019 is 27%. As discussed in this post, augmenting with measured policy uncertainty yields a higher probability.

Addendum: From Goldman Sachs today:

Source: Goldman Sachs, Learning from a Century of US Recessions, Jan. 20, 2019.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.