Five Recession Warning Signs: Be Prepared, And Don’t Freak Out!
We all know that history repeats itself, and there are lots of red-flags associated with recessions. The media is always talking about it, but this time it might be a reality. Don’t let that freak you out just yet! Let’s go over the basic patterns that are typical before a recession hits.
Is A Recession Really Going To Happen?
No one knows exactly when a recession will occur. Lots of different factors can change, and any economic situation can reverse under the right circumstances. We aren’t claiming to know the future, but we do know the past. Several puzzle pieces need to fall into place before the economy starts to decline. That’s what we are focusing our forecasts on. It’s not a guarantee of a recession. The current situation is looking bleak, and here’s why we think it’s going to get much worse.
1. The US Treasury
If you want to know what the last seven economic declines had in common, then you don’t need to look any further than US Treasury Bonds. The whole world is losing their mind over it. It’s almost turning into mass hysteria. That’s because the yield curve has inverted. It shows that the economic future of the US economy is uncertain. Most economists think of this as a foolproof indicator of a recession looming over the country, but that’s a subject of debate among experts. The bottom line is that all recent recessions happened shortly after the US Treasury Bonds yield changed for the worse. It doesn’t prove that a decline is around the corner, but it makes it a realistic possibility. Some experts are completely convinced that the old world of economics is over, and they believe that this increase of uncertainty in the market will have little effect on the value of the dollar. It could be possible that technology has sped up value tracking to the point that the market seems more fluid than it actually is. That might mean our feedback could be more volatile, and it could make trends extremely unpredictable.
2. Probability Models
The most accepted probability models of an economic recession are by the Federal Reserve Bank of New York. If you’re already worked up, then just take a minute to collect yourself before we go into this point. The Federal Reserve has estimated that there is around a 30 percent chance of a recession occurring within the next twelve months. Their estimates have stayed at less than ten percent since January of 2009. This a big deal, and their predictions are continuing to lean towards a coming recession. Economists who rely on the Federal Reserve’s index are assuming that we’re going to feel the results of these statistics midway through 2020. If something doesn’t change fast, then you might only have a little less than a year to prepare yourself. Conclusions are easy to draw from the Federal Reserve’s data, but that doesn’t mean it’s set in stone. We could bounce back within the next few months, and the US economy hasn’t come close to tanking yet.
3. Employment Statistics
Unemployment rates have been stable for most of the last several decades. Everyone wants to focus on unemployment, but the real insight is found within the employment data. What’s the first thing that businesses cut when they are uncertain about the economy? It’s always going to be the wages of their workers. That doesn’t mean people are getting paid less, but it does mean that employees are working fewer hours. The average number of hours worked per week have slowly been declining since 2017. It’s not enough for us to freak out about, but it’s enough to get our attention. A growing economy should show substantial stability, and that’s the opposite of what we’re seeing this year. The next big issue is the increase in temporary positions among employers. Our jobs are shifting more towards temporary employment than ever before. These type of opportunities are great for companies who are unsure about the stability of their business because they can easily downsize with very few repercussions. That tells us that businesses want to keep their workforce fluid and expendable. A strong market is made up of skilled workers with specialized training. A growing economy is built through high-demand production. The going outlook is more based on convenience than quality. This could be detrimental to the employment rate in the event of a financial collapse.
4. Confidence Indexes
One of the most important factors in any economic system is the opinion of the people. The United States is the financial trend-setter of the world economy, and the ongoing trade conflicts with China are having a huge impact on businesses. Many companies have been more reluctant to make new investments until the situation is resolved. It’s having clear effects on the confidence of businesses in almost every market. The indexes don’t lie, and that’s why we’re convinced that this is an important indicator in the coming recession. Supply and demand can change overnight based on the opinions of the public. Is this a sign that investors are nervous about what the future holds for North America? It certainly seems that the ongoing trade war might be the tipping point that leads us over the edge financially. Several Consumer Sentiment Indexes have been published over the last few years that show an obvious dissatisfaction across the board. Consumer confidence is higher than in decades past, but we saw the first major hurdle in the begging of 2019. Business indexes have dropped to their lowest point in three years. Opinion matters more in the long-term than it does at the moment. If we continue to see the presence of pessimism from the coming studies, then it could encourage less spending. It becomes a problem when that increased pessimism becomes a trend for a few years in a row.
5. Personal Debt Increases
Spending habits tend to change significantly when a recession is about to happen. People buy fewer cars, but they borrow more money to maintain their current lifestyle. You’ll also see a decrease in the number of new homes that are built, and the number of home renovations will slow down. That’s what we’ve noticed over the last ten years. The debt of the average American keeps growing, and that might be the only thing that’s giving the economy life. The debt-bubble is bound to pop at some point. Don’t be surprised if it gets a lot tougher to acquire a business loan in the coming years. Banks will have to make up for their loses on unpaid personal loans by cutting back somewhere.
Conclusion: Don’t Freak Out
We are at a point in time that’s filled with uncertainty, and that’s why you should maintain your certainty. Don’t freak out, and don’t panic! It’s only going to add to the problems we have at hand. The main point we want you to focus on is being prepared if a recession occurs. You don’t have to cut back, but you should shoot to hit a surplus on your budget for the next year. Getting ready isn’t about counting on the worst outcome. We just don’t want you to be taken by surprise! Work on reducing your expendable costs, and you’ll make it out just fine.