During times of uncertainty, everyone is looking for the light at the end of the tunnel, trying to see a sign that we've turned the corner. Based on history, economists have identified some indicators that may mark the point at which the worst is over. Read on to learn how to tell when the economy is getting better.
Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.
Introduction
- While the point at which the economy has started its upswing can only be confirmed in hindsight, there are some things you can look for that may indicate the worst is over. Corporate behavior, the housing market, and stock prices are all reflections of the health of the economy.
Step 1: Watch What Companies are Doing
A decrease in the unemployment rate is one indication that the economy may be getting better. This will be preceded, however, by an end to the daily announcements of corporate layoffs seen on the news during troubled times. A period of "corporate silence" might be cause for celebration as well; it is a sign that corporate confidence is rebounding, and that businesses are not as worried about controlling expenses via layoffs.
Another indicator that businesses are getting back to work is electricity usage. Some economists maintain that there is a direct correlation between the amount of energy used by a country and its economic health.
Step 2: Look at the Housing Market
- Declining housing prices indicate an economy that's experiencing difficulty. When housing prices stabilize, it indicates that people are buying again, and that the economy may be getting better.
Step 3: Track Stock Prices
- Economic uncertainty creates stock market volatility. When the market stops alternating between sharp drops and large jumps upward, it means that investors believe things are becoming more stable.
Conclusion
- Although no one can predict the future, looking at corporate behavior, the housing market, and stock prices can provide an early read on the health of the economy—and the likelihood that it will rebound during times of economic trouble.
