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Used car inflation has started to slow down

In the early stages of the pandemic, stimulus checks and other factors made vehicles a popular large purchase for households. But disruptions in supply chains resulted in a shortage of new vehicles, which are strongly reliant on global supply chains. The shortage in semiconductors played a big role here, given their importance in the production of cars and their components. New vehicle production slowed down as a result, decreasing inventories and increasing prices.

The reopening of the economy and the shortage of new vehicles increased demand for used vehicles, which led to substantial inflation. Indeed, over the course of the pandemic, used car inflation was considered a major driving force of headline inflation.

In January 2022, however, the trend reversed: Used car inflation has started to decline. And, as supply chains are returning to normal, new cars have become more readily available and the excess demand previously directed toward  used cars has shifted back to new cars.

Used cars dealers had been setting their prices or selling their cars at auction for a profit, but they’re now forced to negotiate with buyers, thus pushing prices down. Whether or not these trends continue in the medium term will partially depend on how supply chain disruptions will affect the manufacturing of new vehicles.

How this graph was created: Search FRED for “CPI Used Vehicles” and select “Consumer Price Index for All Urban Consumers: Used Vehicles and Trucks in U.S. City Average.” From the “Edit Graph” panel, change the units for both lines to “Percent change from a year ago.”

Suggested by Ana Maria Santacreu and Jesse LaBelle.

Is the economy growing? Depends on how you measure it

GDP vs. GDI

One of the most watched U.S. economic indicators is the growth of real gross domestic product (GDP). A similar but lesser-known economic indicator has also been in the news lately—real gross domestic income (GDI). According to the Bureau of Economic Analysis, both real GDP and real GDI measure the real output of the U.S. economy. Real GDP measures the value of goods, while real GDI measures the income of employees and corporations. In theory, the growth rates of real GDP and real GDI should be equal.

Lately, this hasn’t been the case. The FRED graph above displays the compounded annual rate of change of real GDP and real GDI over the past 10 years. As the graph shows, growth in GDP and GDI have both slowed recently and have also diverged, with real GDP growth turning negative and real GDI growth remaining positive.

What’s going on here? Although there’s no consensus, a few possible explanations include

  • measurement error
  • missing data
  • sampling errors
  • non-sampling errors such as survey nonresponse
  • business cycles

Although the statistical discrepancy tends to change quarter to quarter, some scholars have found predictability in this change. When GDP and GDI data are revised, the revisions tend to be smaller for GDI, which may make it a more-accurate indicator than GDP. See Owyang (2016) for more details. For example, GDI growth is currently higher than GDP growth; in the past when this has occurred, GDP has typically been revised up.

There’s room for debate on whether GDP or GDI should be the primary economic indicator for determining the health of the economy. GDP is released in a more timely manner, which may explain why it garners more attention. However, it’s clear that both measures of economic output offer valuable information on the health of the economy.

How this graph was created: Search FRED for “real gross domestic income” and select the series “A261RX1Q020SBEA.” The default graph will be a quarterly graph of the gross domestic income in terms of billions of chained 2012 dollars. Use the “Edit Graph” button to open the editing box: Here, change the series into a rate of change and add the real gross domestic product series. In the “Units” dropdown menu, change it to “Compounded Annual Rate of Change.” Next, use the “Add Line” tab to “Create user-defined line.” Search for “real gross domestic product” or equivalently the series name “GDPC1.” Click “Add series” and make sure the units are also in compounded annual rate of change. Return to the main graph. Use the date range boxes to set the beginning date to “2012-04-01.”

Suggested by Charles Gascon and Cassie Marks.

The data and determinations behind dating business cycle peaks and troughs

FRED has a new recession-dating dashboard for you

The FRED graph above shows that real gross domestic product (GDP) has declined over the first two quarters of 2022, after increasing by an average of 5.3% over the previous five quarters. In the eyes of some economists and financial market participants, two consecutive quarters of negative real GDP growth is sufficient evidence to declare a recession.

In the 75-year history of quarterly estimates of real GDP growth, there has been only one episode when two consecutive quarters of negative real GDP growth was not associated with a recession episode: the second and third quarters of 1947. So, from a historical standpoint, two consecutive quarters of negative real GDP growth is a pretty consistent signal for dating recessions. But what do the arbiters of dating business cycles have to say?

The dating committee

The National Bureau of Economic Research Business Cycle Dating Committee (hereafter NBER) maintains a chronology of monthly and quarterly dates of the peaks and troughs (i.e., turning points) of the business cycle. Rather than the popular two-quarter definition, the NBER employs a more comprehensive approach to dating the beginnings and ends of recessions. Specifically, they determine both the months and the quarters when economic activity peaked and troughed. Typically, the peak month occurs in the same quarter—but not always. For example, the NBER’s monthly peak of the pandemic-spawned recession occurred in February 2020, but their quarterly peak occurred in the fourth quarter of 2019.

The indicators

To determine the months of peaks and troughs, the NBER looks at several data series, such as industrial production, nonfarm payroll employment, civilian employment, and real personal income less transfer payments. The NBER also considers two other monthly series: real personal consumption expenditures and civilian employment. Civilian employment is measured using the household survey (Current Population Survey), while nonfarm payroll employment counts the number of jobs and is measured using the establishment survey (Current Employment Statistics).

The NBER also looks at estimates of the expenditure- and income-side measures of aggregate economic activity—otherwise known, respectively, as real GDP and real gross domestic income (GDI). Theoretically, GDP and GDI should equal each other in dollar terms, but they rarely do. (This difference between the two series is known as the statistical discrepancy.) The NBER also examines average GDP and GDI.

A new resource in FRED

This is a lot of information to gather, so FRED now offers some help navigating the ebbs and flows of these key data series with a new dashboard that compiles all these series on one page.

As with any user-created FRED dashboard, it updates automatically. Now, there won’t be any commentary on the current or prospective trends in the dashboard. But FRED users can make their own determination as to the likelihood of a turning point in the business cycle. Users can also use the dashboard as a starting point for creating their own variations.

Suggested by Kevin Kliesen.



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