The Big Four: Real Personal Income In December

Big Four Since 1959

The charts above focus on the Big Four individually, either separately or overlaid. Now let's take a quick look at an aggregate of the four. The next chart is an index created by equally weighting the four and indexing them to 100 for the January 1959 start date. We've used a log scale to give an accurate indication of growth and also added an exponential regression to assist us in seeing the secular patterns of faster and slower growth. As we can readily see, growth of this aggregate indicator has slowed dramatically since the end of the last recession.

Big Four Aggregate Since 1959

Now let's plot the percent off high for this aggregate index. As we immediately recognize, it is completely worthless as a leading indicator of recessions. The aggregate index set a new high the month before the recession began for five of the eight recessions since the early 1960s.

Big Four Aggregate Percent off Highs

We can construct a better leading indicator by plotting the average of the percent off highs for each of the four, which is the technique we've used in the next chart. Here we've highlighted the months when all four indicators were at all-time highs. The dashed line shows the -0.93% average of the four at recession starts.

Big Four Average Since 1959

The chart clearly illustrates the savagery of the last recession. It was much deeper than the closest contender in this timeframe, the 1973-1975 Oil Embargo recession.

Appendix: Chart Gallery with Notes

The indicator discussed in this article is illustrated below in three different data manipulations:

  1. A log scale plotting of the complete data series to ensure that distances on the vertical axis reflect true relative growth. This adjustment is particularly important for data series that have changed significantly over time.
  2. A year-over-year representation to help, among other things, identify broader trends over the years.
  3. A percent-off-high manipulation, which is particularly useful for a better understanding of trend behavior and secular volatility.
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