The monthly indicators of employment, consumption and personal income (excluding transfers) all rose in April. But the GDO and GDP+ show a decline for 2022Q4 and 2023Q1.
Figure 1: Nonfarm payroll employment, NFP (dark blue), 5/26 Bloomberg consensus (blue+), civilian employment (orange), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing sales and trade in Ch.2012$ (black), consumption in Ch.2012$ (light blue) and monthly GDP in Ch.2012$ (pink), GDP (blue bars), all log normalized to 2021M11=0. Bloomberg Consensus Level calculated by adding the forecast change to the previous unrevised employment level available at the time of the forecast. Source: BLS, Federal Reserve, BEA 2023Q1 2nd release via FRED, S&P Global/IHS Markit (née Macroeconomic Advisors, IHS Markit) (5/1/version 2023) and author’s calculations.
Given the NBER Business Cycle Dating Committee’s focus on employment and personal income, one would be fairly confident that no recession was in place in April 2023, of course bearing in mind that all of these figures will be revised over time. GDP in particular will be revised many times so that an increase in this series would not be decisive to rule out a recession (just as the drop in 1-Q2 2022 would not be decisive to rule out a recession).
We know that reported GDP is actually not the best indicator of where GDP will eventually be revised. GDI and GDP+ are the two series most likely to fulfill this condition. Here we see worrying signs.
Figure 2: GDP (black), GDO (blue), GDP+, scaled to Q4 2019 (tan), potential GDP (grey line), GDPNow of 5/26 (red square), SPGMI tracker of 5/26 (sky blue triangle) in billions.Ch.2012 $SAAR. Source: BEA, Philadelphia FedCBO (February 2023), Atlanta FedS&P Global Market Insights and author’s calculations.
While GDP has been revised up to 1.3% SAAR, GDO (average of GDP and GDI) and GDP+ are at -0.5% and -1.2% SAAR respectively. As Jason Fourman As noted, the gap between GDP and GDI is very large, highlighting the uncertainty we face in discerning the evolution of economic activity. This translates into a gap in bean counting exercises, with GDPNow at 1.9% SAAR, but SPGMI (formerly Macroeconomic Advisers and IHS Markit) at 0.4% – essentially zero.
As Furman notes, if GDP and RIB were the only series we observed, we would look to GDO. But, to emphasize again, we have a lot of evidence regarding the strength of the labor market. A summary measure is the Philadelphia Fed’s coincident index for the United States. In Figure 3, I show the coincident index, compared to non-agricultural wage employment and consumption.
Figure 3: Coincident index (chartreuse), non-agricultural salaried employment (blue), Bloomberg consensus of 5/26 (blue +), consumption (sky blue), all in logs, 2021M11=0. Source: Philadelphia Fed, Bloomberg, BLS and BEA via FRED, and author’s calculations.
The coincident index is based primarily on labor market indicators and has steadily risen even in the first half of 2022, when some observers argued that a recession had arrived. Consumption, which is mainly supported by wages and salaries, has also increased significantly over the past year and a half, and surprised on the upside in April.
So, in short, uncertainty reigns!