Every time the national and global debts increase, economists are concerned about the next big economic recession. It is a hot topic that is always at the center of discussion, not just for the experts but also for the masses. There are many factors involved that affect the economic stability of a country or the world. So it can be quite difficult to predict when a slowdown is going to get triggered and wipe away trillions of dollars off the markets. The following signs are seen as important indicators of an approaching potential recession.
1. Decline in Consumer Spending
When consumers notice that the values of their assets decline, they are highly likely to spend less money. This is especially true when overinflated assets like real estate lose their values. Therefore, a decline in consumer spending is seen as a sign of recession. This is why the monthly sales performance of major retailers are considered excellent indicators of the condition of the economy.
2. Increased Defaults on Loans
Increased rates of loan defaults mean that household debt is increasing and there is significant credit growth. These factors are also signs of approaching economic recession. When the default rates on home loans and auto loans increase, it can be a warning sign. This also includes credit card default rates.
3. Rise in Unemployment Rate
An alarming increase in unemployment rate is another sign of economic recession. When people start losing their jobs, there is reduced spending. This is going to affect businesses in terms of revenues and profits. When businesses start releasing workers, it means that there is slowing business.
4. Rapid Oil Price Increase
Rising oil prices are always a concern for government, economists, businesses, and consumers. If there is rapid increase in oil prices, it is going to affect both businesses and consumers. Since the mid-1970s, there has always been oil price increase before all the major economic recessions. Thus, significant increase in gas prices can also be signs of an approaching economic slowdown.
There are many other market movements that can mean that there is an impending economic recession. This can include high inflation, reduced yield, reduction in tax revenues, falling real estate prices, stock market crashes, and rising interest rates.