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Five ways to tell about a decline will be a recession

Since 1982, he has sold keyboards and mice produced at his facility in Landover, Maryland, and he has been through a few setbacks. Each time, he gets the feeling that one comes when foot traffic seems to be down on the exhibits he visits to attract new customers.

This year, he received only half the usual number of managers at an industrial conference in Chicago. He knows what happens next.

"When you start to see these things, it's like dead with a thousand cuts," says Broumand. "You see a cut here, a cut there, and suddenly it adds."

It is particularly difficult to predict setbacks, which have only been officially declared good after they have already begun. Eight months into the so-called "Great Recession" in 2008, many economists continued to discuss whether the economy was actually in a recession.

The fact that the economy is strong right now is not shielded from a recession. In fact, the recession usually begins when the economy is at its peak and has nowhere to go but down.

Most economists expect a slower growth in 2019, but the big question is whether it will be a full-blown recession – or if the Federal Reserve can successfully lead the US economy to a "soft landing" where the economy slows but not vice versa.

Every economist has his favorite advance warning system.

Business Confidence

An indicator that tends to run well ahead of setbacks: the National Federation of Independent Business measurement of the member's subjective well-being, known as the small business optimism index. It peaked in the third quarter of 2004, while the US economy grew faster than it is now, and then began to fall to its bottom in early 2009.

More recently, the index was spiked after President Donald Trump was elected, reaching his highest reading ever in august – and has been sagging since.

Small business is important because it can determine whether these companies are hiring new employees and investing to grow their business, or whether they are starting to retire. And small businesses account for about half of the country's economic activity.

Car Sales

Bill Dunkelberg, CFO of NFIB, is watching medium-sized businesses – all who take orders directly from consumers and can grab any tough in the sector that accounts for 70% of the gross domestic product.

"Car dealers are the ones who start to notice," says Dunkelberg. "When the car dealer doesn't sell, he sends the message to GM," I don't need the cars. ""

Sale of vehicles usually takes a trip to the worst at least a few months before the recessions officially begin. But recently announced layoffs at GM, anyway, car sales have been close to historically high levels since early 2015.

Workers in the automotive and other supply chain roles see signs of a slowdown fall even earlier.

Work Hours

A recession may roll with some seemingly irregular events like the recently announced GM plant closures. It can also be a warning sign in major buyouts, such as those offered to 10,400 Verizon employees a few weeks ago or FedEx buyouts due to a slowdown in global trade disputes.

But the most common first step is not asked to be late and arrive on Saturdays.

"When production weakens, companies will not put off workers, they will reduce their overtime," said economist Ed Leamer, who heads the UCLA / Anderson Business Forecast Project. So far, production work is still very long for historical standards after reaching its longest point since World War II in spring 2018.

Surprisingly, low unemployment can help accelerate a slide.

The United States is on which economists are considered full employment, with more positions than workers seeking employment. But employers who do not find the workers they want are more likely to turn to automation to do the work they need.

Increasing wages, either due to market conditions or increases in minimum wages in many states, also make increased use of automation more attractive. Another factor is the 2017 tax reform, which allows companies to increase tax cuts on capital expenditures, such as robots and data kiosks that can be used by customers, than on new employment.

The problem comes when the economy begins to slow, and it is the workers who are beaten, not machines.

Therefore, it can only be a matter of months for a labor market to go from very low unemployment to job losses and a recession that occurred in 2000 and 2001.

The housing market

Residential has historically been a return of recession – most dramatic in the financial collapse in 2008, which was caused by a property bubble driven by for easy credit. This time may be different.

Home sales and housing investment have begun to decline over the last couple of quarters. But there was no construction boom, demand for mortgage insurance has been much more solid, and some housing market falls have been blamed by rising interest rates – as well as high house prices.

Continuing home construction and real estate account for a significant portion of the US economy and a decline in housing, for whatever reason, constitutes a slowdown in economic activity, although it is not the disaster of the recent recession.

Growing deficits

Michael Stritch, chief investment officer with BMO Wealth Management, says that clients are most concerned about balloon government deficits possibly being able to force painful cuts in other areas and lead to political unrest even at a time of record corporation profit and low unemployment.

"We don't think it's going to be an acute problem unless people lose faith in the US government's full faith and credit," Stritch says. "It's likely to just eat out at potential GDP growth over time."

The rising federal deficits, which for the first time will burst $ 1 trillion, may lead to higher interest rates, as the Treasury has to pay more to sell the bonds needed to fund the government. Rising corporate debt can have a similar effect on prices.

And higher bond yields, combined with the Fed setting its prices higher, can increase the cost of doing business and living expenses for households. This, in turn, contributes to economic growth – especially if deficits are only used to finance tax deductions, rather than priorities such as infrastructure and education that will provide investment returns over time.

Other parts of the economy seem more likely to cause a slow drag than to suddenly crater and take the rest of the country with them. For example, tariffs have only begun to increase prices in some industries, which may lead to lower orders.

Although most analysts do not see large "imbalances" – or bubbles – in the real economy that would internally lead to a recession, each recession is slightly different.

And this time it has been long enough since the United States went through a serious downturn that a whole generation of business owners have not necessarily experienced.

For Clifton Broumand, who has learned through hard experience, how to prepare contingency plans as soon as it appears the business may disappear, they are fading memories of concern.

"Many have not lived through a recession before," Broumand says. "And this is the dangerous part. It's been so long, people may not recognize the signs."

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