Prediction of doom and gloom in economy is an integral part of trend analyses. The problem is that few economists will predict recession during the years of prosperity. In fact, signs of economic recession to come can be detected from the early stages. Even though there may not be perfect forecasts, there are some warning signs to anticipate by the business practitioners.

The businesses can use the detected signs of economic recession to formulate the businesses’ policy in the coming years. As discussed by Bill Conerly – a contributor for Forbes – in a post on the signs of next recession, some indicators on FRED Database may be useful in assessing the risks of a recession. This service is available for free from the Federal Reserve Bank fo St. Louis.

Warning Signs of Economic Recession to Anticipate

The following are some warning signs of economic recession, for which the businesses may need to take immediate actions:

Negative Values on Yield Curve

When the Yield Curve indicates negative values, this is a red flag for recession. Even though the result may not be 100% accurate, negative values on the Yield Curve show that short-term interest rates are higher than long-term rates are. The curve displays the comparison between long-term and short-term interest rates based on the Federal Funds and 10-year Treasury bond rates.

Increasing Unemployment Claims

Shortage of jobs is another red flag to anticipate. This can be predicted from the increasing claims of unemployment insurance. Increase in the claims indicates that higher number of people needs financial supports for their current spending. The data on unemployment claim is available from the US Department of Labor.

Unusual Trends in Supplier Delivery

There is an inverse relation between the ability of vendors to deliver supplies on time and the situation of economy. When the suppliers are unable to deliver the supplies on time, this is the sign of stronger economy, as the demand increases.  On the other hand, when the supplies arrive faster than the time expected by the buyers, the economy may be weaker situation. This can be a sign of decreasing demand.

Unfortunately, the data is not available in FRED. It comes from the Institute for Supply Management, which conducts monthly survey of the members. They may charge the clients with a hefty fee for the data.

Building Permits

Signs of economic recession can be easily predicted from the interest rates of housing construction. This is a sensitive industry. Every policy made by the Federal Reserve significantly affects the housing construction industry. In fact, the building permits cannot predict any recession. For instance, they hardly had any relation with the 2001 recession.

Besides those signs of economic recession, the US Department of Commerce actually publishes traditional Indices of Leading Indicators. They include average weekly hours in manufacturing industry, the S&P 500 stock market index, and some other indices, which may predict stronger or weaker economy.

Again, there is no single predictor of recession. However, the signs discussed above may indicate warning signs, which the businesses need to anticipate. The businesses can refer to them when taking strategic actions.