With economic changes and fluctuating employment rates, the fear of an upcoming recession is present in the minds of Americans. Knowing what signs may indicate a recession is near and how to prepare is important.
Recession signs
The history of America has documented a number of significant economic crises. These economic crises are the product of low economic activity due to outside influences on the American people.
The Great Depression saw a market crash in 1929, which was the catalyst for the decade long downturn. Since then, the American people have endured several recessions, all of which have affected the livelihoods of everyday people.
"Note first that officially a recession is defined as occurring when gross domestic product (GDP) has fallen for two consecutive quarters. Note too that is a call that can only be made in hindsight, sometimes after the recession is already over," Evan Osborne, Economic Professor at Wright State said.
Looking back through history, it is noticeable that each recession came after a number of signals, which indicated what was to come. Being able to pay close attention to several factors which may influence the likelihood of a recession will help citizens to be prepared for potential economic downfalls.
The CEI’s four component indicators—payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production—are included among the data used to determine recessions in the US,” a press release from The Conference Board stated.
Keeping an eye on statistics which document the quality of current life in the U.S. is the most useful tool to gauge if a recession is around the corner.
The current payroll employment statistics are up as of Jan 2025, rising by 143,000. This brought the unemployment rate down to four percent, according to a survey conducted by the U.S. Bureau of Labor Statistics.
Significant changes in the employment rate, reflecting that employment is exceptionally low, can indicate a potential economic crisis ahead.
Personal income minus transfer payments is the total amount of money received before taxes, otherwise known as disposable income. If taxes go up, people will have less disposable income to spend and put into the economy.
Tax rates are currently set at fixed rates depending on personal income level for the year 2025 due to the Tax Cuts and Jobs Act in 2017. This fixed amount may be subject to change after 2025.
The manufacturing and trade sales data since President Trump has taken office may change the current sales data since the implementation of several tariffs against countries. This data is not to be released until March 17.
Industrial Production increased half a percent in January 2025.
“In January, gains in the output of aircraft and parts contributed 0.2 percentage point to total IP growth following the earlier resolution of a work stoppage at a major aircraft manufacturer,” a report from the Federal Reserve said.
Each of the indicators described contribute to other major signs of recession including inflation and the stock market; but predicting the occurrence of a recession is not easy.
"Things have been crazy since the world fell into Covid, and so economic trends became harder to predict. The economy has slowed down from the period of white-hot recovery from Covid, and is not roaring right now though it is growing," Osborne said.
The factors listed, all of which contribute to recessions, are not current threats to the U.S. population. What has potential to affect these factors would be tariffs imposed on countries by Trump, executive orders which have the potential to lay off workers and policies which may affect taxes.
How to prepare for a recession
If signs of an upcoming recession do arise, it is important to be prepared on how to handle the situation.
Surviving a recession has much to do with being financially educated and responsible.
If possible, it is recommended to prepare your emergency savings ahead of time. Adding to your savings continually before a recession will help in case you run into any unexpected financial issues.
Many investment websites recommend revising your current budget as well.
“Begin by reviewing your budget and differentiate essential expenses, such as housing, food, transportation, and debt payments, from discretionary spending,” a Morgan Stanley article stated.
Although the possibility of a recession may make some fearful to spend any money, continuing to invest and pay of debts is highly recommended.
The future of the economy is one that is uncertain, but becoming knowledgeable of what warning signs to look out for and staying prepared will be extremely helpful for finances.
