One of the largest recessions in recent history has been plaguing our economy and impacting the worldwide market for over four years. With unemployment rates still high, market shares making vague, inconsistent progress, and a record number of homes in foreclosure, the question on everyone’s mind is: when will this recession end?
Unfortunately, as people with online finance degrees will tell you, the only way to determine the exact point at which the economy starts its recovery is by living through the tough times and studying the records once it’s over. However, in the meantime there are a few indicators you can use to figure out when the economy is starting to recover and the recession has an end in sight.
1. Building Permits Rise
One major effect of the recession that has been felt since the beginning is the crash of the housing market. Foreclosure rates are at a record high, and are happening at unprecedented speeds in communities across the nation. One key indicator that the recession is on its way out will be an increase in new construction.
Individual and community investment in new construction projects is a tried and true metric of consumer confidence. Thus contractors and land developers are more willing to take the risk when consumer confidence is high because they perceive a reduced chance of taking a loss on their investment.
One way to measure the success in construction is by evaluating the number of building permits issued in an area: more permits equals a higher rate of success and a greater willingness to invest. Conversely, a lower rate of building permit issuance can indicate the opposite. Pat Maio at the North County Times reports that while other economic data suggests the recession may be over, a slump in building permits in the San Diego area would suggest otherwise.
2. Small Businesses Are Able To Stay Afloat
One contributor to the recession was a lack of investment capital available to small businesses, making it difficult, if not impossible for them to stay afloat. Banks were unwilling to make risky, short-term loans to uncertain enterprises, causing many companies to close or file bankruptcy.
When the capital that small business owners need is readily given, their confidence increases overall and they can focus their efforts on expansion: increasing demand for workers and creating opportunities for further investment.
3. College Graduates Can Find Employment In Their Field
Unemployment has reached unprecedented highs in the past few years. As a result, more college graduates are being forced to return home to work in low paying jobs unrelated to their degrees. Similarly, entry level jobs in the work force are being eliminated or given to more seasoned professionals willing to take a pay cut in order to stay gainfully employed during these rough economic times.
When recovery begins, there will be more entry level positions opening to new college grads as the demand for new talent increases. When graduates are more consistently able to find gainful employment and self-sustain, a major symptom of the recession will have been eliminated. Sadly, Time magazine, points out that the rate of unemployment as of Jan. 25 indicates the end of the recession’s effect on employment is still out of sight.
4. The Stock Market Starts To Rise Consistently
The main factor that most people use to gauge the health of the economy is the stock market. Many know, first hand, how detrimental the downturn in the market was on retirement and investment portfolios.
Confidence is restored when the market’s decline turns around and prices start to make a steady climb. Climbing stock prices indicate healthy companies are making good financial decisions and gaining the trust of investors to the point that they are willing to put their money on the line.
5. Consumer Confidence Returns
Possibly the most important sign of economic recovery is consumer perspective. If the consumer has little to no faith in recovery, it’s unlikely to happen. The economy is driven by domestic and international perceptions: when consumers are confident, they use their money and the economy flourishes. Ironically recovery is more imminent when the people believe it to be, than when they think we are heading toward depression.
Consumer confidence is driven by the perspective of consumers and their actions based on it. If consumers still believe there is a recession, they will be less likely to exercise their buying power in the market, decreasing the demand for goods and services, and in turn reducing demand for them. The high rate of unemployment is the result of the redundancy created by this lack of demand, and the unemployed are more prone to suffer from diminished consumer confidence: a vicious circle.
Additionally, the reluctance of consumers to purchase goods and services or invest keeps stock prices down and stunts the growth that companies need to do their part in pulling the economy together, resulting in lowered consumer confidence. This feedback loop contributes principally to prolonging the recession.
When consumers gain confidence in the economy and are willing to enter it again with more gusto than recent years have warranted, the recession will end. Ultimately there is no one, definite indicator guaranteed to predict or denote the end of any recession.
However, among the myriad causes and symptoms of the recession are partial indicators that, when taken together, can be used as a metric for determining its end. Local growth and confidence will be some of the strongest signs that the economy’s stormy waters have calmed and consumers are ready to dive in.
About The Guest Author: Kate Manning a business major who worked under others and as a self-employed entrepreneur. She currently owns and manages her own business in Washington State.