How to Spot a Recession Early

The United States economy is in a recession when the Gross Domestic Product--or GDP--has declined for 2 or more consecutive quarters. Other economic factors should be taken into consideration as well, so keep an eye on the following to spot a recession early.

Instructions

Difficulty: Moderately Challenging

1. Watch the value of the U.S. dollar. If the value of the dollar is falling in comparison to other currencies it can be an early indication of an impending recession.
2. Keep tabs on the Gross Domestic Product. Decrease in the GDP for more than a single, consecutive quarter is an indicator of economic recession.
3. Look to the Leading Economic Indicators (LEI). There are a number of LEIs used for assessing a possible recession such as Money Supply (M2), manufacturing workers' average number of hours, vendor delivery performance, stock prices, consumer expectations, building permits, and capital goods orders.
4. Identify how LEIs determine a recession. Decreases in stock prices, consumer expectations, building permits, manufacturing workers' average number of hours, and capital goods orders are indications of an impending recession.
5. Know how the Money Supply (M2) affects the economy. The M2 Money Supply includes savings accounts, bank deposits and retail money market funds. Decreases in the dollar amounts of the M2 Money Supply are an early indicator of an economic recession.

Tips & Warnings

• Listen to what people are saying. Watch news programs or read magazines with differing opinions on the state of the economy.
• Understand that LEIs are used in aggregate, so a decrease in a few of the LEIs does not necessarily indicate a recession.
• Don't assume that the government will acknowledge a recession immediately. The government is usually the last to acknowledge a recession because they do not want to cause panic among consumers and investors.
• Understand that an economic recession can last for an indefinite period.