Tuesday, July 15, 2008

8 Signs the U.S. Economy is Headed Towards a Recession

By definition, the United States economy can be considered in a recession when it finishes two consecutive financial quarters with negative economic growth. Although people in the media regularly claim that the economy is in a recession, technically it is not. Between January and March of 2008 the economy actually grew at a rate of 0.9%, which is actually higher than the 0.6% many economists predicted early in the year.

However, many economists still say the 0.9% growth rate is a sign of a “looming” recession. “Normal” growth for our economy is usually between 2.5 and 3%. Many experts are expecting the April to June growth rate to be 0.1%, but I wonder if these are the same economists who underestimated the first quarter’s economic growth?

Although the question of whether our economy is headed for recession is one even leading experts cannot agree on, I thought it was fitting to examine the signs that are we are headed to a recession. As I did with the gas tax holiday, I intend to post about both view points in this blog. But for now, think about these 8 signs that point to a looming recession.

``By almost every measure the U.S. economy is moving sideways or slightly down for the last few months,'' claims Martin Feldstein, President of the National Bureau of Economic Research. ``I think this recession could be substantially more severe [than the past several downturns]”.

1. Unemployment

With large companies, franchises, and businesses of all sorts closing down every day, the unemployment rate is on the rise. The rise in unemployment is expected to go from 5.0 to 5.5%, and this figure is likely to increase even further over the next year. However, it is important to note that these rates are still lower than those in the 2001 recession.

2. Hiring Freezes

As hundreds of businesses make headlines for record lay-offs, countless others are implementing other strategies to cut labor costs without as much bad publicity. One strategy that has gained popularity is known as a hiring freeze, where no new employees are being hired even if there is a new vacancy.

3. Real Estate Crash

It should be no surprise to anyone that the real estate market crash made the list. You can barely go a few days without hearing about foreclosures hitting record rates, and the crumbling mortgage industry. The bottom line is that consumers are not looking to purchase homes. Families with dire employment situations will get further and further behind on their mortgages. Moreover, as homes continue to decline in value, “wealth” will continue to fall.

4. Oil Prices

With more cars on the road everyday, the demand for oil never seems to cease. Some experts say oil could be up to $150.00 a barrel by the end of the summer. Consequently, Americans are being forced to pay record prices at the pump.

5. Retail Sales Dropped

Consumer spending accounts for nearly 70% of economic indicators in the United States. With job cuts, gas prices, and high cost of groceries, American consumers cannot afford to spend as they used to. Retail sales drop drastically when the rest of the economy suffers, and is a huge red flag of a looming recession. Some experts even consider this the biggest indicator of negative economic growth.

6. Declining U.S. Dollar

Reaching a record low against the Euro and brushing shoulders with the Canadian dollar, the U.S dollar is on a constant downward slide. As it reaches an even lower point, foreign investors are beginning to lose confidence in the U.S dollar and are seeking investments in other currency.

7. Harder to open a Small Business

Starting your own business is never an easy task, but starting your own business in a hurting economy can be almost impossible. Foreclosures, bankruptcies, and even bad credit can make it almost impossible for a new business owner to get funds to live their dream.

8. Aviation Industry

Major airlines have been having trouble staying afloat for decades now. Unfortunately, the gas prices are making it nearly impossible for them to continue business. Some experts claim that the entire United States aviation industry could crumble within two years. One can only imagine the effect this would have on the already poor economy.

Blog Archive