Recession Indicator Shows Q3 Recession In The US
Part of this mystery can be explained by a worsening terms of trade (adjusted for that, real GDP rose 2.8%), but most of it seems to be the result of an ever widening "statistical discrepancy". Most likely, the truth lies somewhere in between the negative change of the value of real income and the 3.5% official increase in the value of real production.
Illustrating this fact is that at least two of the five official recession indicators used by the NBER to determine when recessions begins and ends, are still negative. These two indicators are payroll employment and real disposable income excluding transfer payments (Transfer payments are properly excluded because increases or decreases in those have no link to the value of economic activities and is instead the result of fiscal policy decisions).
Real disposable income excluding transfer payments peaked in Q3 2007 at $9,671.1 billion (in 2005 dollars) and has fallen every quarter (except Q4 2008 when the economic slump caused a big increase in real wages while retained corporate earnings dropped sharply) since then. In Q3 2009 it dropped 3% at an annual rate from the previous quarter to $8,967.1 billion. In September, the number was even lower than the third quarter average, at $8,941.7 billion.
While real disposable income excluding transfer payments is not a perfect indicator because it does not take into account fluctuations in retained corporate earnings, it still gives us a good hint about how the economy develops. While retained corporate earnings probably rose from the previous quarter it is difficult to see how it could have risen enough to make real national income increase even close to 3.5% (It would have to have a quarterly rise of $75 billion just to push it above zero) or even 2.8%.