The Big Four Economic Indicators: March Employment

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

We will update this article with data since the current recession only when it is officially called as "over".

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

The Latest Indicator Data

This commentary has been updated to include this morning's release of Nonfarm Employment. March's 916K increase in total nonfarm payrolls had revisions that resulted in 156K more jobs than previously reported. ("Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.") The consensus was for 647K jobs gained and the unemployment rate to fall to 6.0%.

The chart below shows the monthly percent change in this indicator since the turn of the century, a period that includes two recessions. We've included a 12-month moving average to help visualize the trend.

The Problem of Revisions

At first glance, this indicator appears to have a strong correlation with the business cycle. However, there is a major problem with this assumption: The data in this survey of business establishments undergo multiple revisions. The initial monthly estimate is subject to a first and second revision, subsequent benchmark revisions, and annual revisions that stretch back many years (the most recent includes revisions back as far as February 1990). The cumulative size of the revisions is quite stunning, much of which is owing to the "hindsight" of those annual revisions.

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William K. 2 weeks ago Member's comment

Certainly this is an interesting ad exhaustive analysis, although the question of does it prove we are into a recession or not is less clear. Certainly the situation is not like it should be, and undoubtedly that is due to meddling with the natural process, whatever that might be.

The unfortunate fact is that letting either fools or misguided folks steer the ship usually results in less than the best path being followed. And letting a group with a conflicting personal agenda steer is always a worst choice, with the present situation being an example.

How the general "helicopter" dispersion of funds is going to help those in need is not clear. The funds that I received did nothing to alter my economic situation, while they would have been a great benefit to somebody facing foreclosure or eviction. So applying a bit more evaluation and thinking as to who should get the money would have been a whole lot smarter, but totally against the liberal bleating about fairness.

And so now we see the detailed analysis about recessions and what seems obvious but not stated is that they are a recurring thing that happens. In engineering terms we attribute that to excessive feedback of the incorrect magnitude and phase, translating to "excessive correction at the wrong times.

So what is missing is a description of what the federal reserve folks were doing relative to what was happening. That might show where changes in the response should be. Those who do not learn from mistakes will probably make them again, if they survive.