What is typically a key indicator of an economy nearing a recession?

Declining manufacturing output is considered a key indicator of an economy nearing a recession because it reflects reduced demand for goods and services, which can signal that consumers and businesses are becoming less confident in their financial prospects. When manufacturing output declines, it indicates that factories are producing less, which can lead to job cuts, reduced consumer spending, and further decreases in economic activity. This decrease often occurs as businesses anticipate lower sales, prompting them to scale back production in response to weak demand. Such trends are historically associated with economic downturns, making this indicator a critical signal for economists and analysts evaluating the overall health of the economy.

In contrast, rising consumer confidence typically suggests that individuals feel secure in their financial situations and are likely to spend more, which usually supports economic growth. Increasing interest rates often aim to control inflation and may not directly indicate a recession on their own, as they can be a response to a growing economy. Decreasing unemployment rates generally reflect a strengthening economy, where more individuals find jobs and contribute to overall growth. Together, these factors help to illustrate why declining manufacturing output stands out as a significant early warning sign of a potential recession.