Predictors of a Recession

Many people in this day and age are concerned about the prospect of a recession in the not distant future.  If that is the case, you may be wondering what are some of the predictors of a recession.  Through this article you are provided a brief overview of some of  the predictors of a recession.  By coming to a basic understanding of this information you will be in a better position to understand whether or not a recession is in the offing.

At the outset it is important to keep in mind that not one of the predictors of a recession is anything close to be totally reliable.  In the end, even using these more widely recognized predictors of a recession as indicators, the fact is that even the most experienced and educated experts in the field can be 100% certain if a recession actually will occur.

In many cases, a stock market drop of a significant amount - of at least 10% of the overall value of the market - is considered by by many to be one of the more reliable predictors of a recession.  However, with that noted, about half of the drops in the stock market of 10% or more since the end of the Second World War have not been followed by a recession.

Other experts tend to rely on a three month change upward in the unemployment rate and the filing of initial jobless claims as one of the more reliable predictors of a recession. However, there are a number of instances in which there have been some pretty significant increases in the filing of jobless claims during a particular quarter since World War II that have not been followed by a recession.

In this day and age, many experts rely on the Index of Leading Economic Indicators when it comes to predictors of a recession.  This Index includes a number of different factors - including inflation, unemployment rates, consumer spending and so forth in order to make at least a basic determination pertaining to the state of the economy as a whole.

Interestingly, when considering predictors of a recession, there even have been instances when a recession as identified as existing but then ended nearly as quickly as it was announced.  For example, in November of 2001, the NBER - the agency charges with officially declaring a recession - did in fact accurately announced that the nation was in the midst of a recession.  However, the recession had officially ended by the conclusion of that very same month.

At the present time, some members of the NBER have suggested that if the announcement of a recession is going to be made any time soon in the United States that likely will not occur until the latter part of 2008.