Coincident Indicators Indicate Continued U.S. Recession

The coincident indicator index from the Conference board, which is used by the NBER to determine the existence of a recession, fell in both March and April. As have been the case for every month during the last two quarters, this represented a downward revision of the initial estimate. The coincident index thus fell for every month from November 2007 to April 2008, with only a very marginal increase in January attributable to a temporary surge in power production due to unusually cold weather. Even so, the index was 0.6% lower in April 2008 compared to the peak in October 2007.

The Conference board now says the index rose 0.1% in May, but that seems highly likely to be revised down to a decline just as initially reported increases in previous months were revised to show declines. Also, both the April and even more so the May numbers for personal income were temporarily and artificially boosted by the so-called tax rebates sent out by the Federal government. As these rebates are only excluded to the extent they are classified as transfer payments and as most rebates are instead classified as tax reductions, this means that the April and May coincident indicator numbers will be artificially high. However, once they stop sending out the rebates, the index will again fall to fairer levels.

Considering that the decline has been going on for more than 6 months, it seems clear that a recession will eventually be formally declared, and that the starting point for this recession will be declared to be November 2007.