Since then, pundits have been hammering home to experts the one question that’s on everybody’s mind: is this a double dip recession or just a temporary downturn after 2 years of recovery and expansion?

At this point, signals are pointing to a temporary downturn. It’s like the break that a weightlifter takes after several days of training, or the breath that Mariah Carey takes after holding a high note. Yes, even she has to breathe sometimes.

Nevertheless, below are the top 4 signals that I’m watching that may help predict a definitive double-dip recession prior to it occurring:

1. Consumer Confidence: Lack of confidence in the world’s financial systems clearly dragged world economies into a global recession in 2008. Since then, we’ve yet to see an extended decline in confidence (e.g., at least 2-3 months). However with investors looking for specifics and possibility of enactment in the President’s jobs plan and the German court ruling on Greek bailouts this week, will the already shell-shocked consumer reverse and lead global economies into a second period of significant slowdown?

2. Interest Rates: A flat yield curve and decreasing spread between 10-yr Treasuries and the Federal Funds Rate are technical signals for a recession. Rates are so low however that we’re not seeing this signal. In other words, we have a boxer who has fasted and will keep fasting in order to make weight.

3. Housing Starts: If businesses aren’t gearing up to build new homes for 2-3 months in a row, it may signal lack of demand for not only real estate but also a slowdown in economic activity for related items such as furniture, insurance, and appliances. Housing Starts declined slightly in August, which is not enough to say at this point that we’re facing a recession in upcoming months instead of a downturn.

4. Unemployment: Combine a 2-3 month decrease in Housing Starts with an increase in unemployment over a similar period, and we’ve got a situation.

This is by no means a comprehensive list. For example, Fibonacci Retracements on broad market indices, and even whether or not you’re buying Starbucks or making your own coffee are other signals. Nor is every recession signaled in the same way. However, these have consistently characterized to some extent temporary economic downturns and even full blown recessions.

Studying these signals may help you determine whether to continue to relax and watch the in-flight entertainment, or to seek protection.

The Wall Street Geek is written by Michelle Price, Managing Principal of Price Capital which is a Manhattan-based independent registered investment advisory firm offering financial planning and investment management.
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