How do you know a recession is coming?

- Economists say that the country has gone into a recession if there have been two consecutive, quarterly declines in growth as reflected by Gross Domestic Product, or GDP. That's just a fancy way of saying that the country has been producing less and less stuff for at least six months. The definition I like to use is even simpler. A recession is when business activity and income fall across the nation. A recession is when companies are getting smaller, workers are losing their jobs, families are tightening their belts, and everyone's a bit stressed out. The rhythmic up and down in the economy has a name, the business cycle. The up parts are called growth or expansion. They're heady times when everyone seems to be getting jobs and raises and fat bonuses. People are growing their businesses, making money in the stock market, buying cars and feeling lucky. The down parts are the recession, when everyone's freaking out and cutting back. Of course, it's a bit different for companies and industries. A business in recession is losing customers. Maybe the economy's bad or maybe it just has bad products and services. I loved my flip phone in the early 2000s, but they don't sell many of those anymore. An industry in recession may cease to exist, like horse and buggies, those bicycles with the monstrously big wheels on the front, and cassette video rental stores like Blockbuster. But if we look at the economy as a whole, how do you know when a recession is coming? Economists have written millions of pages on this question, but it all boils down to three critical warning signs. First, unemployment drops significantly. The labor market's tight and maybe a bit too tight. It's when you meet people who have jobs and you think to yourself, this is just not gonna last long. Second, the U.S. Federal Reserve raises interest rates, which makes the price of borrowing money to start or expand a business more expensive. Essentially the good times are getting a little too good and the Fed decides to put the brakes on. The third and final critical warning sign is a report called the ISM Manufacturing Index. This report shows sentiment in manufacturing and if it falls below 50, its breakeven point, that means the U.S. manufacturing sector is contracting and when manufacturing contracts, stuff isn't being made. That's bad news for manufacturing and it's bad news for the economy as a whole. No one wants to think about the next recession, especially if they feel like they haven't even recovered from the last one, but this is the reality of the business cycle. It goes up and down whether or not you want it to, whether or not you're prepared. It might happen tomorrow or two years from now, but another recession is coming. People don't like hearing this and I can't blame them, but it's better to be aware and prepared which is why the best thing you can do is watch for the warning signs. What's been going on with the unemployment rate? What is the Fed doing right now? And is the ISM Manufacturing Index above 50?