Is a recession coming? These are the red flags

Recessions can occur for various reasons, typically resulting from a failure of multiple industries, businesses, and investments. While the signs of an impending recession may vary, there are certain common indicators that economists watch for. What is universally understood, however, is the negative impact recessions have on the livelihoods of everyday people.

As concerns grow, financial experts have been sounding the alarm, warning that Trump’s escalating trade war, with both allies and adversaries, could have serious consequences for the national economy, potentially pushing the US toward a recession. Indeed, J.P. Morgan raised the probability of a global recession to 60% by the end of 2025.

Despite these warnings, most people remain unaware of the key signs that indicate the economy may be heading for a downturn. To learn about the signs of a recession, click through this gallery.

Confidence

When people lose confidence in the economy and become more tight-fisted, consumer spending will slow down.

When people stop spending

Consumer spending money keeps economies ticking, so when this slows down, it indicates that a recession has arrived.

Consumer confidence is measurable

Morgan Stanley economists have found that a 15% drop in the consumer confidence index from one year to the next indicates a recession.

More interest for shorter investments

You should expect to get back more interest on a 10-year treasury bill than a three-month one because your money is locked away for longer.

Manufacturing

The manufacturing index goes below 50, indicating that factory activity is shrinking. Vice versa, when it is above 50, factory activity is growing.

Rise of unemployment

A rapid rise in unemployment, which is compared to the previous 12 months, means that the economy is going into recession.

Less opportunities for temporary workers

Temporary workers are generally only hired when the economy is good. This is because businesses are thriving and need more hands to fulfill demands.

People don't feel secure about the future

A lot of what the economy does is down to how secure everyday people feel about spending, how easily they will find another job, and how secure the future is.

Just before a recession, new car sales peak

Also, the rate at which consumers purchase brand new vehicles usually peaks right before it slows down–then buyers hit the brakes.

Many stocks experience a significant drop for a significant amount of time

However, when many stocks drop for a prolonged amount of time (weeks or months) by 20% or more, it can send the economy into a spiraling descent.

Functioning businesses and households on borrowed money

People still need to live and eat, so they borrow more money than they can afford to pay back, especially since interest rates can get high.

Construction

When construction slows down or ceases, it’s often a sign that the economy is entering a recession, especially if the specific economy relies on its construction industry for a large proportion of its GDP. 

National and regional banks struggle

Large numbers of businesses declaring bankruptcy puts a massive strain on banks, which rely on this money to survive. Banks are crucial in keeping the economy running.

Loans and mortgage approval rates drop

Then people can’t get loans. If people can’t get loans for big purchases, or even small assets, they can’t spend. If they can’t spend, the economy crashes.

SMEs and inflation

Suppose a coffee shop’s expenses rise very fast. They can’t really raise their prices by 20% overnight because customers wouldn't stand for it. In that case, it becomes tough to make rent, pay wages, and so on.