Are We Still Sure We’re Not in a Recession? More on the Employment Situation

I hate to pile on, perhaps in a repetitive fashion given Jim’s post, but a mere three weeks ago, Donald Luskin was asserting “Things today just aren’t that bad.” And, pulling a comment out from mid-September, we have this definitive statement: “But in the final analysis let’s just stick to facts. We are not in a recession.”

I’m not saying I know we are in a recession — the NBER BCDC decides that [0], [1]; but I think the case is getting pretty strong. The consensus was for a decline of 100,000 jobs. The actual was 159,000 jobs. Figure 1 shows the September release data, as well as releases for every other month going back to the January 2008 release.

octrec1.gifFigure 1: Nonfarm Payroll employment, seasonally adjusted, various releases. Source: BLS, employment situation, various releases.

Notice that whenever the numbers are revised, they are revised downward. Moreover, the September figures manifest an acceleration in negative net job creation (since the figures are plotted in log terms). Relative to December 2007, nonfarm payroll employment is down by 0.76 million, or 0.55% in log terms.

How do these figures compare to those surrounding previous recessions. Keeping in mind that I am using final revised figures, Figure 2 shows the nonfarm payroll series and the civilian employment series (based on the household survey) adjusted to conform to the NFP concept that I have reported in previous posts [2] [3], extending back to encompass the last two recessions. The “adjusted” series is not revised on a monthly basis.

octrec2.gifFigure 2: Log nonfarm payroll employment (blue) and log civilian employment adjusted to conform to NFP concept (red). NBER defined recessions shaded gray. Sources: BLS via FRED II, and BLS, and NBER.

Since it is difficult to see exactly the rate of employment decrease, I plot the twelve month percentage change (in log terms) in Figure 3 for both series. The blue line is the same as the series plotted in the 4th graph in Jim’s post.

octrec3.gifFigure 3: 12 month log-change in Nonfarm payroll employment (blue) and in civilian employment adjusted to conform to NFP concept (red). NBER defined recessions shaded gray. Sources: BLS via FRED II, and BLS, and NBER.

What this graph makes clear is that — not only are both series’ growth rates negative — they are both at levels that are consistent with recession.

Here’s the latest monthly figures I have.

octrec4.gif

Figure 4: Estimated log GDP from e-forecasting (blue), and from Macroeconomic Advisers (Ch.2000$). Dashed line at beginning of Q3. Source: e-forecasting 10/3 release and Macroeconomic Advisers [xls] 9/16 release.

The figure plots the e-forecasting series released last Friday, and the Macroeconomic Advisers series released about three weeks ago. Deutsche Bank’s forecast released 10/3 is for -0.5% growth (q/q annualized) in 2008Q3, and -2.0% in 2008Q4.

Now, it’s true I haven’t discussed the other variables the NBER BCDC looks at: industrial production, manufacturing and trade sales, and income less transfers; but these are still on their negative trajectory, and (in the latter two cases) less timely.

Hence, I think it safe to say that there is a good chance we are in a recession.


Originally published on Oct 5, 2008 at Econbrowser and reproduced here with the author’s permission.