Published April 28, 2008

Why is our economy in a recession? 10 Causes of Economic Recession

Generally speaking, a recession is when there is a tightening of the economy, usually for a certain period of time.

Given below are 10 signs that usually indicate that a recession is knocking.

  1. The Rate Of Joblessness Assumes Disturbing Proportions.

    Usually, the rate of jobless people remains steady every month. But if there is a constant, steep rise in that number, then this could be a sign of recession.

  2. Large Companies Start Giving Depressing Profit Figures.

    When many companies across all sectors start giving out depressing sales and profit figures, then alarm bells should start ringing.

  3. Borrowers Start Defaulting.

    When borrowers are unable to pay back their loans on homes, vehicles, businesses and credit cards, then this could be another indication of a falling economy.

    Here in the United States, even lenders such as banks and credit unions have started defaulting on their financial obligations, due to the sheer number of borrowers who are in no position to repay loans they have taken out.

    That's a really bad sign.

  4. Credit Card Purchases Shoot Up.

    In spite of depressing news, if the number and volume of credit card purchases suddenly shoots up, it means that people no longer have cash to pay for their daily needs - and are now resorting to the last method to pay their bills.

    When people start paying their mortgage payments through their credit cards, thereby risking high interest payments, then this is a sign of financial desperation.

  5. Prices Of Essential Commodities Shoots Up.

    When prices of food, fuel and other utilities shoot up - and the government seems helpless to do anything - then it could be said that inflation is fanning the flames of a possible recession.

  6. Companies Stop Filling Vacancies.

    When companies decide to keep their job openings vacant instead of hiring new staff, then this again is another sign that a recession has afflicted the economy.

    Many companies might also offer voluntary retirement programs in order to reduce their workforces and cut expenses.

  7. Prices Of Property And Stocks Come Down Drastically, But Nobody Buys Them.

    When repossessed homes and stock prices come down in value, but nobody has the funds to buy them, then it can be truly said that the economy has been hit by a recession.

  8. The Country's GDP Goes Down.

    When a country's GDP, or Gross Domestic Production, registers a continuous downward fall, then this could be another sign that the economy is in recession.

  9. Savings Are Used For Day-To-Day Expenses.

    When people start terminating their fixed-term deposits, such as CDs and IRA's, and sell off other assets to meet their day-to-day expenses, then this could indicate that a recession has started doing some serious financial damage.

  10. You Start Worrying About All Of The Above.

    When you start feeling the pinch and start worrying about your own future on the above points, then this will indicate that the recession has now reached your door.

Once you not only notice the above signs but also start feeling their effects, then you should realize that tougher days - and a recession- are close at hand.