Are We In a Recession? And How To Predict One (With Charts)
Last updated: Sep 9, 2022
Look at these charts to easily see if we're currently in a recession. You can also try to predict recessions with a few other charts here.
These indicators clearly show us if we're in a recession right now.
The hard part is to try to predict the next recession. But, there are yet some indicators that can work. But those are often, but not always very close to, the actual recession.
The gray spots on all the charts below mean a previous recession.
The charts are there to see how right or wrong they have been in the past.
Recession Meaning
In short, a high decline in economical activity. Higher unemployment, less industrial production, less real personal income, and fewer trade sales. And anything else that will lower the business activity.
In other words, it means anything that will lower people's. And company's ability to create, buy & sell.
Recession Indicators
These are not the best ones to predict a recession, but they can help tell us if we're in a recession right now.
The gray area means a previous recession. These have worked as indicators in the past.
Smoothed U.S. Recession Probabilities
There are a few times this hasn't worked however it often does. The one time it was above 30 led to a recession the year after. And it was over 40 years ago.
A few times above 10 was false but often leads to a recession. As clearly demonstrated in the chart.
Real-time Sahm Rule Recession Indicator
Seem to be an as good sign of recessions. But not as fast in indicating the end of the recession.
Signs of Recession - Micro Economical Data
There are signs of a recession that can you can use. But most of them are not guaranteed. There is always an exception, as seen in the charts below.
Heavy Weight Trucks
If companies are growing, the need for trucks will increase. And as we can see. It has worked as an indicator before an actual recession.
Federal Funds Effective Rate
The interest rates banks charge each other. When the fed lowers its interest rates, it can mean we're about to see a recession.
Real Gross Domestic Product (GDP)
Value of the goods and services produced by labor and property.
Real GDP is the inflation-adjusted GDP. So I would use it more.
Industrial Production Total Index
Total Vehicle Sales
Since sales should decrease in a recession. Looking at any sales may provide us with a bigger picture. This isn't a standalone indicator.
And if we see sales decrease in many different parts of the economy. It can be an indicator that a recession is more likely to happen.
Harder to find Employers
This should mean it's harder for a recession to occur. Since companies should not fire employees if they are struggling with hiring them.
Unemployment
High unemployment = recession. People need money to spend to boost economical activity
Labor Force Participation Rate
The percentage of civilian people that are working. Or actively looking for work.
Total Unfilled Job Vacancies
How many jobs are available right now?
Shiller P/E Ratio
Based on this book: Irrational Exuberance
An indicator that the market is over or undervalued. People are paying more for investments.
The average is around 10-20.
A 30 Shiller PE above 30 can be risky since it has dropped when reached above that.
