A recession can be hard to spot in its infancy, and even hard for some people to recognize when we are in the midst of it. Most of the time, we don’t know we’ve been in a recession until it’s over, which makes it that much harder to spot. Some people claim we are in the middle of the worst recession ever, and others claim our economy has never been better. So how can you tell for yourself that we are in a recession?
Signs Of Recession
The major indicators of the beginning of a recession are:
- The number of applicants for unemployment is significantly higher than in previous months.
- The U.S. stock market drops significantly and unexpectedly.
- Demand for consumer goods and services begins to decline drastically.
What Each Indicator Can Mean
The first and foremost method of detecting that we are in a recession is simply by looking at unemployment rates. When unemployment suddenly jumps to a high percentage, it’s a major sign that employers are beginning to struggle. When employers are struggling, the employees will struggle too. Ultimately the struggle of both employee and employer will affect the economy overall. With more unemployed citizens, less money is being put back into the businesses that can’t afford to keep their employees in the first place, resulting in more lay-offs, and perpetuating a vicious cycle.
The U.S. stock market has also been a long standing method of detecting recession. While the stock market fluctuates constantly on a daily basis, a sudden and large drop can mean we’re in the middle of a financial disaster. The stock market can normally recover by the end of the day, but when the problem persists for a longer period of time, a recession can be to blame. It is important to note, however, that while the stock market may be a good indication, almost 50% of all stock market drops were not the result of a recession, either past, present, or future. For this reason, the stock market is usually viewed as a secondary factor and not a primary indicator in whether or not we are in a recession.
The demand for consumer goods is a great way to determine the possibility of a recession. There are expected drops that shouldn’t be factored in, such as the drop in consumer spending directly after a major holiday. Unexpected drops around the time when spending is usually presumed to go up, however, can be a tell-tale sign of a recession. When consumers are suddenly spending less money on goods and services, it can be linked to the drop in employment rates, and perpetuate the cycle that causes an ultimate recession.
While these are not explicitly implicative of an impending or current recession, these can be signs that help consumers detect an impending recession, and prepare themselves appropriately. Ultimately, the best, and probably only, way to positively identify a recession is only after it has happened. But, by being aware of these signs, you can prepare yourself for a possible pending recession, and the crunch won’t feel so restricting.
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