If the signs of a global slowdown do turn into a full-blown recession—and some sectors in some countries are already contracting—that would clearly be bad news just a decade after the worst economic crisis since the Great Depression. In many parts of the United States and Europe, despite a slow and steady recovery from the depths of the to recession, many families never regained economic security. Even in parts of Europe that have shown decent growth lately—such as Spain—the recovery is fragile, and consumer confidence is now falling sharply.
For Trump, already grappling with a rapidly expanding impeachment probe, an economic slowdown or an outright recession hitting in would be an additional hammer blow. Keith Johnson is a senior staff writer at Foreign Policy.
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View Comments. This is similar to what happened in the previous two recessions and does not resemble the fairly rapid decline that followed the severe recession. The unemployment rate at the end of was much lower than it was early in the recovery, but indications remained that there were still people who were not working but wanted to be and people who would have liked to be working full time but could only find part-time jobs who could be pulled back into the labor market or get the hours they wanted if job creation remained strong.
The sharp rise in the unemployment rate and discouragement over the prospects of finding a job caused a decline in the percentage of the population in the labor force those either working or looking for work, known as the labor force participation rate.
As a result of rising unemployment and declining labor force participation, the percentage of the population with a job fell sharply in the recession and stayed low through much of the recovery. It began to move up in and as rising employment offset still-falling labor force participation.
The labor force participation rate averaged The employment-to-population ratio shown in the chart is for those aged 16 and older and includes an increasing number of retired baby boomers. Thus, a significant percentage of the shortfall from its level at the start of the recession reflects demographic trends rather than labor market weakness.
While this rate remained 2. Long-term unemployment reached much higher levels and persisted much longer in the Great Recession and subsequent jobs slump than in any previous period in data that go back to the late s.
The worst previous episode was in the early s, when the long-term unemployment share — the share of the unemployed population that had been unemployed for 27 weeks or more — peaked at Moreover, in the earlier episode, a year after peaking at 2. It took six years from the end of the Great Recession to reach that rate, which it did in June The long-term unemployment rate continued to edge down, reaching 0.
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Still, over a fifth After falling to 8. That was still lower than it was in the year before the Great Recession, but more than a percentage point higher than it was in Average hourly earnings of employees on private payrolls grew modestly through much of the recovery; growth averaged 2.
Watch for these 6 indicators to know when a recession could be coming
But what it lacks in timeliness, it makes up for in reliability: The unemployment rate pretty much always spikes in a recession, and it rarely rises much without one. When that has been the case historically, there has been less than a one in 10 chance of a recession within a year, according to a Brookings Institution analysis that worked off Ms. Related indicators: Initial claims for unemployment insurance; payroll job growth.
What to watch for: Interest rates on year Treasury bonds falling below those on three-month bonds.
It has already happened. Discussion: The yield curve is less intuitive than the unemployment rate, but it has historically been among the best predictors of recessions.
What is a recession?
The fundamentals are straightforward: The curve essentially shows the difference between the interest rate on short-term and long-term government bonds. Think of the yield curve as a measure of how confident investors are in the economy. In normal times, they demand higher interest rates in return for tying up their money for longer periods. My colleague Matt Phillips gave a more detailed explanation last year. The Federal Reserve Bank of New York has developed a handy metric that translates fluctuations in the yield curve into recession probabilities.
Right now, it puts the chance of a recession starting in the next year at about one in three — up sharply from a year ago, and not far from where it was on the eve of the Great Recession. Many economists argue that the yield curve means less than it used to, partly because the Fed was until recently raising short-term interest rates, even as the huge holdings of bonds that it accumulated during the recession are putting downward pressure on long-term rates. Taken together, those actions could be skewing the shape of the yield curve. And, in any case, it has taken as long as two years for a recession to follow a yield-curve inversion in the past.
What to watch for: The index falling below about 45 for an extended period. What it's saying: Mostly cloudy. It then aggregates those responses into an index : Readings above 50 indicate that the manufacturing sector is growing; below 50, it is contracting. The manufacturing index has some significant advantages.
Most importantly, the index is a true leading indicator: It has historically shown signs of trouble before the broader economy hit the skids.
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But steep downturns in manufacturing tend to be signs of trouble — it is rare for the index to fall much below 45 or so without a recession hitting. Right now, American manufacturers are being battered by a global slowdown and by trade tensions. As of June, the index is still in expansion territory, but barely. What to watch for: Declines of 15 percent or more over a year.