Understanding the Causes of Economic Recession

It can be difficult to predict the causes of economic recession. However, many economists believe the Index of Leading Indicators may be a useful tool for determining when a recession is coming. Factors in this measurement of the country’s financial health include:

#Weekly hours worked by manufacturing workers on average
#Average number of initial applications for unemployment insurance claims
#S&P 500-stock index
#Inflation-adjusted monetary supply
#Spread between long and short interest rates
#Pessimistic consumer sentiment
#Amount of manufacturer orders for consumer goods and materials
#Speed of delivery of new merchandise to vendors from suppliers
#New orders for capital goods unrelated to defense
#Number of new building permits for residential buildings

The Index of Leading Indicators is not foolproof, however. Although it predicted each of the seven recessions between 1959 and 2001, it also forecasted five recessions that failed to materialize.
Many people believe that recessions are a natural part of the capitalist economic system. In fact, there are those who think recessions help “clean the fat” from businesses that are failing to operate within their means. By this logic, recessions help pave the way for periods of economic expansion