Four Signals We're on the Cusp of Recession

Recently, every economist under the sun has been asked the same question: Are we in a recession? The traditional answer is based on the decrease in the nation's Gross Domestic Product. Yet all you really need to do is look at the poorly performing job market to spot the telltale signs of the "R" word.

Every day, a new economic indicator seems to capture a financial headline, and the news is generally grim: It appears that the country has lapsed into a recession. A recession is measured by two consecutive quarters of a decrease in the country's Gross Domestic Product. While we have not yet seen those official numbers, there are other figures that anticipate such an economic diagnosis.

1. An increase in job losses across the board

When times get tough, companies reduce their workforces. The significant decreases of late have been felt in every job sector. Manufacturing, construction, and business services have all dropped precipitously. Most of the decline is felt as a result of the housing slump, but the news that job losses have spread across the spectrum is unsettling. The holistic nature of the job reductions has a dampening effect on spending. If consumer confidence shrinks, people are less likely to spring for a trip to Disneyland, fearful of an impending layoff.

2. Number of job losses looms large

The number of jobs being cut is significant. During past recessions, job losses nationwide have been more than 100,000 per month. Currently, that number has been just under 90,000. Historically, this statistic indicates a shallow recession, but the trend needs careful watching. If job decreases creep beyond the 100,000 mark, the economy could be in for extended trouble.

3. Weak hiring or layoffs

The argument can be made that the dwindling job market is a result of companies slashing the number of employees that they hire. It appears that layoffs are now on the rise, as well, especially in the financial sector, which has been steamrolled by the subprime mortgage crisis.

4. Inflation on the rise

Take a look at fuel or grocery prices, and you've got a good indication that inflation has reared its ugly head. Consumers could be hit with a double whammy, as prices begin to rise while payrolls shrink. The loss of consumer confidence, and real-world spending power, shouldn't be underestimated. The government is fearful of the trend, too. To see just how nervous the government is about the economy, check your mailbox; your stimulus check will provide you with the answer. This type of short-term cash boost can't cure the bigger picture, however. If jobs keep sliding, and prices keep rising, a recession is sure to follow.

Even if we don't have conclusive figures on the Gross Domestic Product, continuing unemployment losses and rising prices are all historical indications that we're in a recession. Perhaps the real issue isn't statistical proof of an economic slowdown; the ultimate concern is how long this condition will last.