The Six Signs of Recession

Recess was fun, Recessions less so

I remember growing up in Illinois, waiting for recess to arrive while learning my multiplication tables, wishing I was Walter Payton, and wondering why the July 4 celebrations had been so intense in 1976. Now, as an adult, I make part of my living wondering when the next recession will arrive.

Because they are rather extraordinary, many economists don’t like to definitively predict recession. They’ll look you straight in the eye and say, “Well, we might have one,” which is of use to precisely no one. I (the GenX economist known to myself as Economist X) have been predicting that a recession would break out at some point in 2023 since early last year when I made my first proclamation at the Maryland Bankers Association First Friday event in January. I stand by that assertion.

I’m far from alone. According to the April Wall Street Journal Economic Forecasting Survey, the median forecaster puts the odds of a recession during the next 12 months at 65%.

Zack, my younger, stronger, handsomer, and perhaps more naïve Millennial coauthor, has tended to remain more bullish. Ah, the insanity of youth. Of course, he could turn out to be right.

Here’s the thing about recessions: there are infinite potential causes, including stock or housing bubbles, interest rate hikes, a global pandemic, an asteroid strike, a debt crisis, collapse of the U.S. dollar, labor strikes, a tsunami, earthquake, or volcano, nuclear war, alien invasion, zombie apocalypse, etc.

While the potential causes are endless, the symptoms used to diagnose a recession are better defined. Some people think the definition of a recession is two consecutive quarters of negative GDP growth. That might be a definition, but it’s not the definition, at least according to most economists.

The NBER (the arbiter of these things) uses six indicators to determine if the economy is in recession. This piece looks at each of these indicators, tracks their progress over the past couple years, and muses a bit about how they might trend over the next couple months. Importantly, the NBER says that the two measures they put the most weight on are real personal income and nonfarm payroll employment, which are the first two we cover in this post.

Real Personal Income Less Transfer Receipts