Are We in a Recession? Could There Be Economic Downturn Soon?

How can you tell when we are in a global financial crisis? Could there be a mild recession in the U.S. in 2023? To help you know how to tell when we’re in a recession, we’ve drawn up a list of economic, market, and job market indicators.

1. Consumer Price Index (CPI)

A representative basket of products and services is used to calculate the CPI, which tracks the general shift in consumer prices over time.

Since reaching a peak of 9.1 percent in June, inflation has slowed. The CPI number for December, which was 6.5 percent compared to November’s 7.1 percent, was lower. Even so, inflation is still far higher than the Fed’s target range of two to three percent, which is having a significant impact on the typical American’s purchasing power.

The declining CPI will likely bring us closer to the equilibrium between inflation and the Fed funds rate, which is normally when Fed policy may stop being restrictive.

2. Gross Domestic Product (GDP) Growth

Gross domestic product (GDP) is a monetary indicator of the total market value of all the final goods and services that a country manufactures and sells over a given period.

According to the second estimate of the GDP in the United States, the economy expanded at an annual rate of 2.9 percent in the last quarter of 2022.

This came after a third-quarter GDP annual growth rate of 3.2 percent, which contributed to yearly GDP growth of 2.1 percent overall. These figures pull the United States further away from the brink of a downturn.

3. Industrial Production

The Federal Reserve reports that industrial production increased by 1.6 percent from the previous year in December last year. However, it had decreased by 0.7 percent from the prior month.

Although orders were up and production was down last month, output forecasts were higher. Since high-productivity businesses such as construction and manufacturing were weaker than low-productivity sectors in the previous quarter, the output per hour was likely unchanged.

The truth is that for the economy as a whole, this sends out conflicting signals. We may not yet be out of the woods, even though the industrial forecast seems more promising than it did a year ago.

4. Conference Board Leading Indicators

An American economic leading indicator designed to predict potential economic activity is referred to as the Conference Board Leading Economic Index. The Conference Board, a non-governmental body, calculates it by taking the values of 10 important factors into consideration and using that information to create the index’s value.

In December, the lead index of the Conference Board decreased by one percent. This indicates that the decline in 2022’s second half was much greater than in the first six months. Regrettably, this may be the most obvious indication that a recession is approaching for the American economy.

Moreover, this economic index has been signaling an impending downturn for a few months. Over the past six months, the index declined at an annual rate of 8.2 percent, which is typically seen at the beginning of a recession.

5. ISM Manufacturing Index

This study of corporate leaders from industrial enterprises had, until recently, produced good results every month for over two years.

However, despite this growth, the ISM manufacturing index actually decreased in December for the second consecutive month due to weaker demand and sluggish output.

The purchasing managers index (PMI) is a poll of buying and supply executives in more than 400 industrial enterprises across the U.S. Not all signs were considered bad by this month’s respondents. Although consumer demand may have decreased, it stayed high, providing hope for the coming year.

6. Retail Sales

Retail sales in December 2022, according to preliminary estimates, had increased six percent from the previous year but were down 1.1 percent from November. Analysts didn’t view the positive year-over-year figures as much of a benefit for the economy at large.

7. The Stock Market

Investors have seen the S&P 500 rise so far in the new year. The index has gained more than 12 percent since the previous market low on October 12, in addition to being up 5.4 percent to date. The bear market, though, is probably still very much alive.

8. Treasury Yield Curve

An inverted yield curve occurs when short-term interest rates pay out more than long-term rates. Given that the market anticipates weaker long-term growth, this is often a warning sign of an upcoming recession.

9. Initial Jobless Claims

The weekly initial jobless claims data gives an indication of the number of people that have started applying for unemployment benefits. More people are quitting their jobs and requesting unemployment insurance.

However, initial unemployment claims are currently at a nine-month low in the last week of January. In comparison, there were over 200,000 by the end of December, which represented a number that had remained largely constant throughout 2022.

10. The Unemployment Rate and Labor Market

The U.S. labor market is still strong despite uncertainty throughout the economy and worries about a potential decline in the months ahead. Moreover, the unemployment rate has decreased a few points from last year and is back to its pre-pandemic levels.

In reality, companies created 517,000 non-farm positions in January, considerably above the 188,000 additional jobs predicted by the majority of economists.

At the end of 2022, the labor market was extremely tight, with the unemployment rate returning to a low that we haven’t seen in half a century.

11. Job Openings and Labor Turnover Survey (JOLTS)

Even while the unemployment rate is relatively low, there are still a lot more jobs available than there were before the pandemic, despite the fact that it is down from this time in the previous year. In January 2020, there were approximately 7 million job opportunities as opposed to 11 million today.

However, only six months earlier, there were roughly one million more job opportunities, indicating a slight decline in the demand for labor. Although the labor market is still generally tight, market participants are closely monitoring the trend.

The Fed could embrace a less aggressive monetary policy as a result of a deteriorating employment situation, which could soften the economy’s landing.