Many economists believe a recession is coming due to Covid-19.
While another recession is likely, the hope and goals are that it will not be like it was in 2008 or any other past “Great Recessions” were. It’s also likely we will see some of the indicators and signs it’s coming before it hits. Let’s look at some of the places a recession may hit first.
The Unemployment Rate
When looking at how the unemployment rate shows signs of a recession, it’s not about the overall number. It’s about rapid changes, specifically when the unemployment rate rises very quickly. This is usually a clear indicator that a recession is on the way or has already begun.
Currently, the unemployment rate is increasing weekly. This is not encouraging for the economy. Once people can get back to work, we will hopefully see a drop in the unemployment rate but the prediction is that it will not be as low as it was before Covid-19 hit.
The Yield Curve
While the yield curve isn’t as intuitive as the unemployment rate when it comes to a recession, it has been used to predict recessions in the past. When interest rates on 10-year Treasury bonds fall below the rates on three-month bonds, it can be an indicator of a recession looming. This has already happened in today’s economy.
Basically, the yield curve shows how confident investors are in the current economy. While it could be easy to look at the yield curve and panic, many economists say it’s not as trustworthy as a sign of a recession as it used to be.
The ISM Manufacturing Index
When the ISM Manufacturing Index falls below 45 for an extended period of time, it can be a sign of a recession. This index shows whether the manufacturing sector is growing or declining. The index compiles data collected from the purchasing managers from major manufacturers. Readings above 50 show the sector is growing.
Many believe the ISM Manufacturing Index is a leading indicator because it’s released on the first of the month and doesn’t get revised, like some of the other indicators. It’s also proven to show signs of trouble before a recession or economic downturn.
However, manufacturing doesn’t drive the American economy like it once did, making it less trustworthy today than it was in the past. In fact, in 2015, the index dipped below 50 for several months, which should signal an industrial recession, but that never really happened.
A few other economic indicators of a recession include:
- Consumer Sentiment declining by 15% or more
- Temporary Staffing Levels dropping quickly
- How willing workers are to quit when they are not in a favorable working situation, known as The Quit Rate
- Residential Building Permits – The housing market is certainly an indicator and plenty of homes for sale in Mint Hill, NC and other areas of the county, along with new construction permits, is a sign of a good housing market.
- Auto Sales dropping quickly may also be an indicator of a recession
While we are facing challenging times right now and nobody really knows when things will get back to ‘normal’, I am confident that we will recover, learn valuable lessons, improve and overcome.
I would love to be part of your journey when the time is right for you. If you ever have a real estate question or need, or know someone who does, trust that you can turn to me. I will help you make the right move! Anna Granger 704-650-5707 | firstname.lastname@example.org.