Business Cycle Indicators: August 3, 2020

Here are five key indicators referenced by the NBER’s Business Cycle Dating Committee in 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$ (pink), all log normalized to 2019M02=0.

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$ (pink), all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations.

We will soon get July employment numbers. Goldman Sachs employment tracker indicates a loss of 1 million jobs, using data through 7/15. The picture looks a little less V-ish then.

Figure 2: 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$ (pink), Goldman Sachs Employment Tracker using data through 7/15 implied level of employment for July (light blue). all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations.

Finally, I place the IHS Markit estimate of GDP in the context of the official data.

Figure 3: GDP (blue bar), Monthly GDP (red line), all bn. Ch.2012$ SAAR. Source: BEA 2020Q2 advance, IHS Markit (8/3/2020).

The IHS Markit estimate implies a quarterly GDP 0.02% less than the BEA advance estimate. Today’s letter observes:

…zero growth of monthly GDP in each month of the third quarter would imply 20.4% annualized growth of GDP for the third quarter. This is about what we expect (we currently look for 20.1% annualized growth in the third quarter).

A zero m/m GDP growth in July is consistent with Goldman Sachs employment tracker estimate for a 1 million decline in nonfarm payroll employment, shown in Figure 2. So…we might either get a 2 month recession (for monthly data), or — depending on what happens to GDP and employment in August — a longer recession with zig-zags.