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Confidence -

When people lose confidence in the economy and become more tight-fisted, consumer spending will slow down.

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When people stop spending -

Consumer spending money keeps economies ticking, so when this slows down, it indicates that a recession has arrived.

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Consumer confidence is measurable -

Morgan Stanley economists have found that a 15% drop in the consumer confidence index from one year to the next indicates a recession.

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Treasury securities -

When US Treasury securities behave unusually, it’s another indication that a recession is coming.

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More interest for shorter investments -

You should expect to get back more interest on a 10-year treasury bill than a three-month one because your money is locked away for longer.

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Every treasury bond yield went inverted during every recession for 50 years -

One indicator that something is wrong is when the long-term treasury bonds are worth less than the short-term ones. This is because there is less demand for them amongst investors, who have become less optimistic about the future.

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Manufacturing -

The manufacturing index goes below 50, indicating that factory activity is shrinking. Vice versa, when it is above 50, factory activity is growing.

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A steep drop in manufacturing -

A steep drop in this number by just three points indicates that the economy is in trouble. If it drops to 45, it means there is a recession.

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Rise of unemployment -

A rapid rise in unemployment, which is compared to the previous 12 months, means that the economy is going into recession.

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A rapid rise in unemployment -

An unemployment rate of around 5% is typical. In 2008, when there was a recession, the unemployment rate in the US was 13.2%.

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Less opportunities for temporary workers -

Temporary workers are generally only hired when the economy is good. This is because businesses are thriving and need more hands to fulfill demands.

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People don't quit their jobs -

Not only are temporary workers let go, but the number of full-time employed people quitting their jobs is significantly less. 

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People don't feel secure about the future -

A lot of what the economy does is down to how secure everyday people feel about spending, how easily they will find another job, and how secure the future is.

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New car sales slow down -

Cars are generally the most significant purchase that someone will make besides their home. When the economy is slowing down, people stop buying new cars.

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Just before a recession, new car sales peak -

Also, the rate at which consumers purchase brand new vehicles usually peaks right before it slows down–then buyers hit the brakes.

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The stock market -

The stock market is volatile. Short-term drops and rises in stock prices are expected and are usually pretty temporary.

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Many stocks experience a significant drop for a significant amount of time -

However, when many stocks drop for a prolonged amount of time (weeks or months) by 20% or more, it can send the economy into a spiraling descent.

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Credit card debt and late payment rates rise -

Another sign that a recession may be approaching is that the level of credit card debt and late payments on loans or mortgages rises.

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Functioning businesses and households on borrowed money -

People still need to live and eat, so they borrow more money than they can afford to pay back, especially since interest rates can get high.

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Credit card delinquency and bankruptcy -

Credit card delinquency (not making payments on time) and bankruptcy rates rise when a recession is approaching. 

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Construction -

When construction slows down or ceases, it’s often a sign that the economy is entering a recession, especially if the specific economy relies on its construction industry for a large proportion of its GDP. 

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Construction permits -

In the US, prices of construction permits dropping significantly (because there is less demand) is also a standard indicator.

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National and regional banks struggle -

Large numbers of businesses declaring bankruptcy puts a massive strain on banks, which rely on this money to survive. Banks are crucial in keeping the economy running.

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Big banks -

In turn, if national banks aren’t paid back, they will borrow money from larger banks, such as the European Central Bank. However, these larger banks charge the national bank high interest on these loans. The smaller national bank then minimizes risk by becoming pickier with granting loans and mortgages, for example.

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Loans and mortgage approval rates drop -

Then people can’t get loans. If people can’t get loans for big purchases, or even small assets, they can’t spend. If they can’t spend, the economy crashes.

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High levels of inflation, and fast -

Low levels of annual inflation are expected if an economy is healthy. However, if it happens too quickly, the government will usually try to stop it because if it goes too high, it’s hard for businesses to function.

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SMEs and inflation -

Suppose a coffee shop’s expenses rise very fast. They can’t really raise their prices by 20% overnight because customers wouldn't stand for it. In that case, it becomes tough to make rent, pay wages, and so on.

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GDP -

According to Investopedia, a recession is defined by a national GDP shrinking for two quarters in a year. It is either growing or shrinking, because for it to stay the same is simply unlikely for numbers as large as the entire value of goods and services produced by a country.

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Not knowing the signs could cost you everything -

Knowing the red flags is extremely valuable for everyone because these kinds of signs indicate recessions that cause people to lose their homes, jobs, and livelihoods.

Sources: (Global News) (MoneyWise) (Investopedia) (U.S. Bureau of Labor Statistics) (Investopedia)

See also: How to save money like our grandparents

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