The Big Four Recession Indicators: Real Personal Income Flat in April

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which it bases its decisions. This committee statement is about as close as it gets to identifying the method.

There is, however, a general belief that there are four big recession indicators that the committee weighs heavily in their cycle identification process. They are:


The Latest Indicator Data: Real Personal Income (excluding transfer receipts)

Personal income (excluding transfer receipts) rose 0.3% in April and is up 4.4% year-over-year. However, when adjusted for inflation using the BEA's PCE Price Index, real personal income (excluding transfer receipts) was flat (0.0%) month-over-month and up 1.7% year-over-year.

Real Personal Income less transfer receipts

A Note on the Excluded Transfer Receipts: These are benefits received for no direct services performed. They include Social Security, Medicare & Medicaid, Unemployment Assistance, and a wide range of other benefits, mostly from government, but a few from businesses. Here is an illustration of Transfer Receipts as a percent of Personal Income. This also includes emergency stimulus measures as a result of the COVID-19 global pandemic.

Transfer receipts as a percent of personal income

Real Personal Income Less Transfer Receipts

This data series is computed by taking personal income (PI) less personal current transfer receipts (PCTR) and deflated using the personal consumption expenditure price Index (PCEPI). We've chained the data to the latest price index value. The "tax planning strategies" annotation refers to shifting income into the current year to avoid a real or expected tax increase.

In the charts below we have illustrated three different data manipulations:

  • A log scale plotting of the complete data series to ensure that distances on the vertical axis reflect true relative growth. This adjustment is particularly important for data series that have changed significantly over time.

Real Personal Income Log Scale

  • A year-over-year representation to help, among other things, identify broader trends over the years. Real personal income YoY is currently at or below the level at the start of 7 of the 9 recessions that have started since 1959.

Real Personal Income year over year since 1960

  • A percent-off-high manipulation, which is particularly useful for better understanding of trend behavior and secular volatility. Real personal income less transfer receipts is currently 0.1% off its all-time high.

Real Personal Income Percent Off Highs Since 1960

Transfer payments largely consist of retirement and disability insurance benefits, medical benefits, income maintenance benefits (more here). These also include the recent CARES Act as a result of the COVID global pandemic.

Read more updates by Jen Nash