The Economy Peaked, Entered Recession, in February 2020
Longest Expansion in History is Over
The NBER Business Cycle Dating Committee determined that a peak in quarterly economic activity occurred in 2019Q4 and a recession started in February.
The expansion lasted 128 months, the longest in the history of U.S. business cycles dating back to 1854. The previous record was held by the business expansion that lasted for 120 months from March 1991 to March 2001.
Month of the Peak
In determining the date of the monthly peak, the committee considers a number of indicators of employment and production. The committee normally views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a clear peak in February. The committee recognized that this survey was affected by special circumstances associated with the pandemic of early 2020. In the survey, individuals who are paid but not at work are counted as employed, even though they are not in fact working or producing. Workers on paid furlough, who became more numerous during the pandemic, thus resulted in an overcount of people working in recent months.
Accordingly, the committee also considered the employment measure from the Bureau of Labor Statistics household survey, which excludes individuals who are paid but on furlough. This series plateaued from December 2019 through February 2020, and then fell steeply from February to March. Because both series measure employment during the week or pay period containing the 12th of the month, they understate the collapse of employment during the second half of March, as indicated by unprecedented levels of new claims for unemployment insurance. The committee concluded that both employment series were thus consistent with a business cycle peak in February.
Quarter of the Peak
In dating the quarterly peak, the committee relies on real GDP and real GDI as published by the BEA, and on quarterly averages of key monthly indicators. Quarterly real GDP and real GDI peaked in 2019Q4.
The fact that the monthly peak of February occurred in the middle of 2020Q1 while the quarterly peak occurred in 2019Q4 reflects the unusual nature of this recession. The economy contracted so sharply in March (the final month of the quarter) that in 2020Q1, GDP, GDI, and employment were significantly below their levels of 2019Q4.
Surprise: The BLS Admits Another Phony Jobs Report
The NBER confirms what I said last Friday in Surprise: The BLS Admits Another Phony Jobs Report
BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.
If the workers who were recorded as employed but absent from work due to "other reasons" (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis).
Unlike others, I do not claim the BLS did this on purpose.
Regardless, the result is the same: For the second consecutive month the BLS significantly understated the unemployment rate.
Epic Collapse in Demand
With so many people out of work, an epic collapse in demand is underway.
Consumer Credit Declines an Amazing $68.7 Billion
Revolving credit fell an annualized 64.9%.
Clearly, consumers have a lot more rebalancing to do. Equally clearly, the Fed wants to prevent just that.
$68.7 billion is an unprecedented decline, but what's coming (or doesn't) is more important.
Decline in Mortgage Forbearance Plans But Payments Drop Too
The good news is a Decline in Mortgage Forbearance Plans. The Bad News is Payments Drop Too.
A rebound is underway, but realistically, where is it going?
Percentagewise, the rebound may look good, but it will take years just to get back to where the economy was before Covid-19 hit.