Tuesday, April 8, 2008

Are we in a recession?

Recently, I've heard talk about a recession. Some people say we're already in a recession while others say the U.S. is not in a recession. With so many opinions and false facts, who are you to believe? I believe that in order to be successful, you must deal in facts not opinions.

The U.S. is not technically in a recession. A recession is technically confirmed when there are two consecutive quarters of negative GDP growth. While we are not technically experiencing a recession, there are indicators that help determine whether we are approaching or have approached a turn in the economy.

According to the Economist, an economic cycle can be understood with three types of indicators: leading indicators, coincidental indicators, and lagging indicators. Leading indicators turn before the cycle, Coincidental indicators turn with the cycle, and lagging indicators turn after the cycle. Examples of leading, coincidental, and lagging indicators include:

Leading indicators:

  • interest rates
  • manufacturing orders
  • business confidence
  • Unemployment

Coincident indicators:

  • Measure of GDP

Lagging indicators:

  • Job vacancies
  • Manufacturing capacity

By understanding what the facts are saying, you'll seperate yourself from the pack and be better equiped to make investment decisions.

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