Be Aware of These Five Signs That a Recession Is Near
- Declines in Manufacturing
- Decrease in Employment or Job Growth
- Poor Consumer Expectations
- Drop in Building Permits
- Fast Supply Delivery Times
Recessions are short-term economic events lasting from nine to 18 months that affect everyone who participates in the economy. Just like business owners and economists watch economic numbers, so should individuals. Being aware of these five signs of a recession could help a person avoid a personal financial disaster.
Declines in Manufacturing
Declines in manufacturing are often one of the first signs of a faltering economy. Businesses may place fewer orders for consumer goods when there is a lower demand. The lower demand results when people do not have the money to buy things. People may also cut back on purchases in anticipation of:
- a cut in pay
- decrease in hours
- loss of their job
A decline in manufacturing in just one segment of the economy can have a ripple effect across many other sectors. It may affect manufacturing-heavy areas before other areas of the country.
Decrease in Employment or Job Growth
A decrease in employment, increase in unemployment applications or a drop in job growth rates are also signs of recessions. These signs often occur at the same time. Each month, employers report how many jobs they added to the economy. If this growth slows, it may be taken as a sign of a faltering economy even if there is some growth. A certain number of jobs must be added every month to accommodate the number of people seeking employment. Increases in unemployment applications mean that people cannot find jobs. Decreases in total employment numbers mean that there are fewer jobs in the national economy.
Poor Consumer Expectations
Each month, economists at the University of Michigan conduct a survey of consumers to gauge their expectations or sentiments around the economy. The survey has a random sampling design and asks many questions about the person’s current economic situation and their expectations for the short-term and medium-term future. This data is available online, and it is updated every month. When people have lowered expectations and negative sentiments about their personal situation and the economy in general, this is suggestive of an impending recession.
Drop in Building Permits
A drop in new construction and building permits also suggests that recessions are in the near future. The building of new housing units declines when people cannot afford to pay the required deposits for labor and materials. Companies that build housing units in anticipation of needs will halt new projects if they anticipate a low demand, explains Forbes.
Fast Supply Delivery Times
When there is a high demand for materials and supplies, the suppliers may take a while to fulfill those orders. A lot of orders means that the economy is booming. When those orders slow down, supplier inventory builds up. They are able to use the accumulated inventory to quickly fulfill the orders that they do receive. Fast delivery times for materials or supplies suggest that suppliers are not selling as much as they had expected.
Conclusion
Awareness of what is going on with the American and worldwide economy is critical for everyone’s financial health. The ripple effect means that recessions do not just affect one location or one type of industry. Being aware of these five key signs of a recession allows a person, business or organization to take actions to mitigate the potential financial effects.
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