Thursday, April 17, 2008

Coincident Indicators Indicate U.S. Recession Began In November 2007

While the financial media focuses almost exclusively on the leading economic indicators published by the Conference Board, I find the coincident economic indicators to be at least, or even more, interesting than the leading indicators. One reason for that is that the coincident indicators are the one the NBER use to determine when a recession has started. The coincident index has four components: nonfarm payroll employment, real disposable income excluding transfer payments, industrial production and real business sales. And the current numbers certainly shows the U.S. is in a recession, and that this recession started November last year.

While they now claim that the coincident index rose in March, I first of all think this number will be revised down. Previous months numbers have systematically been revised down (Two months ago, they claimed that the coincident index in January 2008 were 0.2% higher in January 2008 compared to October 2007. Now they say the index fell 0.2% in that three month period) and considering the fact that two of the components, real disposable income and real business sales, are a mere imputation due to lack of actual data and considering that the industrial production number looks unrealistically high. And secondly, even if it isn't downwardly revised, the level will still be 0.2% below the peak reached in October 2007. The numbers thus clearly indicates a recession, and that this recession began in November 2007, although it is still a relatively mild one, particularly if I am wrong in my prediction of downward revisions.


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