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By Jason Stipp and Robert Johnson, CFA | 08-08-2012 01:00 PM

Checking the Recession Signs

How do current inflation, auto sales, initial claims, and other data compare with levels just before the December 2007 recession?

Jason Stipp: I'm Jason Stipp for Morningstar.

With a still-sluggish economy and global woes still on the radar, we're checking in today with Morningstar's Bob Johnson, our director of economic analysis, on some high-level recession indicators and what they're saying today.

Bob, thanks for joining me.

Bob Johnson: Great to be here.

Stipp: There are a few indicators that folks would historically or traditionally look at that would seem to signal a recession; I want to run through some of those today, discuss why they tend to be related to a recession, and also what they're saying today.

Recently we've seen in the news that some folks think we might already be in a recession or we might be close to recession, so I think it's a timely moment to look at some of these indicators.

The first one is initial unemployment claims. Obviously the employment market is something that folks watch a lot. We track the employment data month-to-month, but you look at initial unemployment claims as well, and that could be a good indicator of whether we're going into a recession or not.

Johnson: Yes, [initial unemployment claims] have historically been probably the single best number to indicate that a recession is coming, when those numbers start to tick up.

For example, in the 2007 recession, the one that began in December, the initial claims ... were at their lowest levels of about 300,000 in the middle of the year, and by the end of the year, they had crept all the way up to 353,000-360,000 before really beginning their rapid ascent in the months following that.

And ... right now in 2012, our initial unemployment claims are actually [at] the best level of the recovery. I was kind of surprised; in getting prepared for this video, I looked at the numbers, and we are, on a four-week moving average basis, at the best of this recovery. So that's not terribly indicative of recession.

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