Warning Signs of a Recession

Recession is the economic term used to describe a certain period of general slowdown in the economy. The last recession that happened in the US was back in 2001, although the extent of that recession is not comparable to the global recession happening today. Here are some of the warning signs that the economy is about to enter a recession in easy, non-technical terms. Increase in Unemployment Usually, the unemployment rate is more or less the same every month. If there is a steady increase in the rate of jobless people, it’s usually a sign that a recession is looming. Another bad sign is when companies stop hiring people to fill in vacant positions, or worse off – when companies begin laying off workers. Decrease in Profits If too many companies from different sectors are reporting a continuous decrease in profits and sales, it’s usually a sign that the economy is slowing down. Generally, if multiple companies from a single sector are failing, it does not signal a coming recession, but a problem with that sector. Increase in Credit Card Usage If the volume and number of purchases via credit cards increase, it’s usually a sign that people don’t have enough cash to pay for their needs. Thus, they have to resort to credit cards to pay their bills, despite the high interest rates. Increase in credit card usage usually signals recession. Increase in Defaults If borrowers cannot pay back their debts – whether it’s a car loan, home mortgage or credit card – it’s usually a sign that there’s something wrong in the economy. Here in the US, even lenders such as banks have begun defaulting as well. This is because of the large number of their borrowers who are defaulting on them too. Decrease in Value of Property If the price of property falls drastically, but nobody wants to buy them, it’s a sign of recession. The cause of the price decline is because the property is usually repossessed by the bank or lending institution because the borrower has defaulted. Increase in Volatility of Stock Prices If the price of stocks begin to rise and fall more than usual and at levels not usually seen in the stock market, it’s usually a signal that the market is restless. This is usually a warning sign that a recession is looming in the horizon. Increase in Prices If the price of fuel, food and other utilities rise steadily, it’s sometimes a sign of recession. The increase in prices of various commodities is called inflation. Decrease in GDP If the country’s Gross Domestic Product or GDP decreases year after year, then it’s a sure sign that the economy is in the verge of a recession. After all, the GDP is a measure of the country’s economic performance for the year. Last of all, if you are worried about any of these warning signs and you feel that one or more of these are currently happening right now, it’s usually a sign that you’re in the middle of a recession. After all, during non-recession times, non-economists usually don’t bother to watch any of these statistics. GP