Tuesday, January 15, 2008

Kudlow 101: Recession Indicators

Here’s a quick snapshot of the official recession indicators. These are from National Bureau of Economic Research. There are four indicators.

Number one (and most important) is employment.

Is a recession at hand? Well, there is an issue here on the households survey. It’s down a million. The payroll survey is fine. It’s the households that is causing some concern.

Next up is industrial production. It’s a crucial indicator.

Here too, there may be a slight issue. We are down from the peak. It’s only about 4/10ths of 1 percent, but it is worth thinking about because it’s when the level of these indicators fall that we could be in for trouble.

The next two look much better.

Let's take a look at real personal income.

No problem there. As you can see, it’s still growing nicely. In real terms, it’s actually up over 2 percent, year on year.

And finally, we have manufacturing and trade, adjusted for inflation.

Again, as you can see, there’s absolutely no problem there. That too, is growing over 2 percent per year.

My point is a simple one: Keep you eye on employment—particularly households—that one is slower. Industrial production is also slower. The levels are giving way. So we are not completely out of the woods.

No, we are not in a recession. Yes, we need to keep our eyes open.