The Big Four Economic Indicators: Real Personal Income In June 2020

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.

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

Personal Income (excluding Transfer Receipts) in June rose 1.78% and is down 2.9% year-over-year. However, when adjusted for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) MoM was up 1.41%. The real number is down 3.6% year-over-year.

Real Personal Income

A Note on the Excluded Transfer Receipts: These are benefits received for no direct services performed. They include Social Security, Medicare & Medicaid, Unemployment Assistance, and a wide range of other benefits, mostly from government, but a few from businesses. Here is an illustration of Transfer Receipts as a percent of Personal Income.

The Generic Big Four

The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009.

Big Four Since the 2009 Trough

Here is a percent-off-high chart based on an average of the Big Four. The average of the four was at an all-time high in November 2019.

Average Since 2007

The next update of the Big Four will be the numbers for Nonfarm Employment for June.

Background Analysis: The Big Four Indicators and Recessions

The charts above don't show us the individual behavior of the Big Four leading up to the 2007 recession. To achieve that goal, we've plotted the same data using a "percent off high" technique. In other words, we show successive new highs as zero and the cumulative percent declines of months that aren't new highs. The advantage of this approach is that it helps us visualize declines more clearly and to compare the depth of declines for each indicator and across time (e.g., the short 2001 recession versus the Great Recession). Here is our four-pack showing the indicators with this technique.

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