A recession is (probably) yet to come (and unlikely earlier this year), employment is likely to continue to grow, and real wages, on average, are higher than they were before the pandemic. First, key business cycle indicators following the NBER BCDC continued their upward trend in October, with the exception of the civilian employment series based on the household series.
figure 1: Nonfarm Payrolls, NFP (dark blue), Bloomberg Consensus as of 11/3 (blue+), civilian employment (orange), industrial production (red), excluding personal income transferred mid-2012 ( Green), Manufacturing and Trade 2012 dollar sales (black), 2012 dollar consumption (light blue), 2012 dollar monthly GDP (pink), GDP (blue bars), all log normalized to 2021M11=0. Q3 GDP comes from GDPNow on 11/1. The lilac shading indicates a hypothetical recession for 2022H1. Sources: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (published Nov. 1, 2022), GDPNow (Nov. 1), and author’s calculations.
Note that the NBER BCDC primarily emphasizes employment and personal income (not necessarily GDP).
What about employment? Recall that the nonfarm payrolls data series is generally considered to be more informative about the business cycle than the civilian payrolls series, and is less variable. However, agency series sometimes undergo substantial annual revisions as more tax information becomes available (eg, from the Quarterly Census of Employment and Wages, QCEW). I calculated the series implied from the preliminary benchmark revision (for March 2022 data) and plotted it along with the official series and the household series adjusted to fit the nonfarm payroll concept.
figure 2: Nonfarm payrolls (blue), implied benchmark nonfarm payrolls (light blue), and household survey employment adjusted for nonfarm payrolls concept (tan), all in the 000s, sa Source: United States BLS calculations by FRED, U.S. Bureau of Labor Statistics, and authors.
Notice the rising trajectory in the build series. While the family series flattened out in 2022H1, overall and adjusted for NFP concepts, 2022M06 values were higher than 2022M01 values. These observations suggest that there will be no recession in the first half of 2022, nor a prolonged one (although – informally – the decline in the household series does seem to be a better predictor of a longer recession than the institutional series).
Much has been said about the decline in real wages over the past year. Figure 3 shows the decline in CPI-adjusted wages for private sector non-regulated jobs.
image 3: Feb 02, 2020 On a log Feb 02, 2020, the CPI reduces hourly wages in private (blue) manufacturing (tan) and leisure and hospitality (green) for non-supervisory, non-managerial jobs. The NBER uses shades of grey to define the peak and trough dates of the recession. As of Nov. 4, October CPI estimates using Cleveland Fed’s nowcast. Source: BLS via FRED, Cleveland FedNBER, and the authors’ calculations.
Note that real average hourly earnings for leisure and hospitality workers have increased relative to pre-pandemic levels — and remain high. Those interested in the equitable aspects of labor market restructuring should take note. Manufacturing, on the other hand, is down nearly 16% relative to pre-pandemic levels. Presumably, some of that was driven by a strong dollar.
