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Are we still in a recession?

What to expect from the NBER business cycle dating committee

Posted on November 12, 2020

The Downturn and Rebound

  • April 29, 2020: In its advance estimate, the Bureau of Economic Analysis (BEA) reported that real GDP for the first quarter of 2020 fell at a 4.8% annual rate.
  • May 8, 2020: The Bureau of Labor Statistics reported that nonfarm payrolls fell by 20.5 million in April—the largest one-month percentage decline on record (dating back to 1939).
  • June 8, 2020: The National Bureau of Economic Research Business Cycle Dating Committee (NBER BCDC) announced that the 128-month expansion (the longest in U.S. economic history, dating back to 1854) ended sometime in February 2020.
  • Since then, the U.S. economy has rebounded sharply, posting large increases in real GDP and nonfarm payroll employment and a large decline in the unemployment rate. But the NBER BCDC hasn’t yet announced an end to the recession…

The BCDC’s Methods

The BCDC patiently assesses business cycle peaks and troughs. For example, they announced that the trough of the 2007-2009 recession occurred in June 2009 only on September 20, 2010—which is a lag of 15 months.

The BCDC also emphasizes economywide economic indicators. In their view, dating peaks and troughs is best accomplished by looking at measures of activity that cut across all sectors of the economy, rather than a small number of key sectors (such as the Federal Reserve’s industrial production index, which measures output produced by the nation’s manufacturers, utilities, and mining industry). In their June 8 announcement, the BCDC indicated that real GDP and real gross domestic income (GDI) are the two “most reliable” comprehensive measures of economic activity.

The FRED graph above shows real GDP data from the BEA: Real GDP fell in the first and second quarters of 2020, but then rebounded in the third quarter. However, unlike real GDP, real GDI isn’t yet available for the third quarter because the BEA hasn’t yet reported corporate profits—a key component of GDI. Corporate profits will be reported in the second estimate of GDP, scheduled for release on November 25.

What Else Do They Look At?

Over time, the BCDC has examined several comprehensive monthly indicators, such as real manufacturing and trade sales, nonfarm payroll employment, and civilian employment. In its September 2020 announcement, the BCDC emphasized that real personal consumption expenditures and real personal income excluding current transfer payments are the two broadest measures of aggregate expenditures and aggregate income. Use this FRED dashboard to follow such comprehensive indicators. April 2020 was the trough month of all five of these indicators. Moreover, each of the indicators has since risen sharply, consistent with the increase in real GDP.

What’s Different This Time?

As noted above, the BCDC generally prefers to wait until there’s conclusive evidence that the economy has transitioned from a period of recovery to expansion. The unique features of this pandemic-spawned recession have, as the BCDC noted on June 8, 2020, “resulted in a downturn with different characteristics and dynamics than prior recessions.” So, while the data suggest that an economywide trough in economic activity occurred sometime in the spring, the pandemic remains a key driver of economic policy and the behavior of many governments and individuals worldwide. From that standpoint, the length and strength of the recovery is uncertain.

How this graph was created: Search FRED for real GDP, select the series, and start the sample period on 2014-01-01.

Suggested by Kevin Kliesen.

View on FRED, series used in this post: GDPC1

From inflation targeting to average inflation targeting

The Fed’s new long-run monetary framework

Posted on November 9, 2020

Since 1996, it has been understood among Fed policymakers that the (undeclared) target for inflation was around 2%. In January 2012, Chairman Ben Bernanke made this implicit inflation target explicit and official, thereby aligning the Fed’s inflation target with that of all the major central banks. In this framework, when inflation has approached or exceeded the traditional 2% target, even temporarily as it did in 2018, the FOMC has responded by raising the baseline federal funds rate to combat rising prices.

In August 2020 at the online Jackson Hole conference, Chair Jay Powell announced a revision to the Fed’s long-run monetary policy framework by re-framing this goal as an average inflation target (AIT) of 2% over the long-run. With this new framework, the FOMC is communicating that it will tolerate inflation above its target for a period of time to offset periods when inflation was below its target. In other words, the FOMC is targeting average inflation of 2% in the long run.

So, what does past inflation data say about the feasibility of the new AIT? The FRED graph above plots two lines of data points over the past 25 years:

  • the FOMC’s preferred inflation measure, the core personal consumption expenditures index (core PCE), in blue and
  • the 2% target in red.

Given the recent asymmetric history of inflation, the concept of a symmetric target would represent a substantial change: Since the Great Recession of 2008-2009, there have been only two brief periods when the preferred inflation rate has exceeded the 2% target.

The FRED graph above also demonstrates how the new AIT guidance on inflation represents a substantial shift in thinking. In the past, the Federal Reserve has rarely tolerated rates above 2% and has raised interest rates whenever approaching the target. This new policy suggests that, if inflation can return to a range above 2%, the Federal Reserve will have to tolerate higher inflation than it has for much of the past 20 years—and tolerate it for significantly longer periods. Yet, given the pandemic, it could be challenging at this time to sustain average inflation above 2%.

How this graph was created: Search for and select “Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Index).” Select the time period January 1995 to the present month. Then select “Percent Change from a Year Ago” as the units. Next, use the “Add Line” tab to search for and select the same series. In the formula box type (a*2)/a, which results in a horizontal line of 2% for the target.

Suggested by Matthew Famiglietti and Carlos Garriga.

View on FRED, series used in this post: PCEPILFE

How to read Indeed job posting data

Posted on November 5, 2020

This blog post is obsolete. Indeed changed the methodology for its data in January 2021.

Tracking the availability of new jobs is no easy task. But FRED recently added online job postings data from Indeed. These data are presented in an interesting way, so some explanation is in order.

First, the data cover a 7-day moving average of job postings on Indeed.com as well as other online platforms. Indeed makes every effort to remove duplicate job postings from these counts, but doesn’t include job postings that are not found online. The proportion of online postings has been steadily increasing, and this brings us to our second point.

If you measure only some of the job postings—in this case, online only—and know that this proportion is increasing, it’s unrealistic to compare the data from previous years with the data from the current year without making any adjustments. An unadjusted measurement would likely systematically show an increase every year simply because the proportion of online postings is increasing.

So one needs to reset every year of statistics, and that’s what happens with this dataset: Every February 1 is set to a value of 100 for every year of data. This adjustment allows us to see how the postings are evolving.

For example, in the graph above, we see that on April 6, 2020, the 7-day moving average of new job postings was at –51.2%. This means that postings on April 6, 2020, as compared with February 1, 2020, were 51.2% lower than postings on April 6, 2019, as compared with February 1, 2019. But this figure of 51.2% doesn’t include any changes that may have happened between 2019 and 2020.

Despite our best efforts here, we know this may still be a bit confusing. So, a short explanation is that the data are useful for looking at patterns within the year, but not as useful for looking at patterns across years. Of course, 2020 has been pretty special, with all its dramatic changes, which show up in the graph. At present, we have less than a year of data, so we’ll need to wait a bit for all those interesting yearly patterns to show up. As with any FRED data series, you can check in at any time to see what’s new.

How this graph was created: Start from the release table, check the series you wish to display, and click “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: IHLCHGNEWUS, IHLCHGUS


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