How to time a recession

We’re almost certainly in a recession, and it is shaping up to be one of the worst in years (certainly the worst in my lifetime). So every economist, money manager, investor, and consumer is now trying to prognosticate what will happen next. When will we have reached the bottom of this recession and begin the process of climbing out?

Yesterday’s WSJ had an excellent article that outlined five areas to keep an eye on. I’ve summarized them below, along with their key indicators.

Banks: Credit is still frozen despite repeated capital injections. There are a variety of reasons for this (eg, the lack of credit available in commercial paper and the bond market makes companies and individuals turn to previously unused credit lines at banks, thereby drawing down their available capital), but the important thing to watch for is when banks start lending to everyday consumers again.
Homes: Home values are intricately involved in the current crisis, and although they aren’t necessarily to blame (it was, after all, a bubble), the continued decline in prices does put further pressure on the credit markets. That’s why both presidential candidates have proposed measures to stabilize home values. What to watch? The S&P/Case-Schiller home price index.
Consumers: Consumers are terrified, and our spending has dropped for the first time in 17 years. What to watch? Consumer confidence in the economy. This has to be stabilized first.
Jobs: More and more Americans are losing their jobs in these downwards spirals. This has to be stabilized. What to watch? The U.S. Department of Labor Weekly Insurance Claims.
Stocks: Here, we want to stem the losses. We’ve lost trillions of dollars in value this year, and despite record gains a few days ago, the record volatility in the markets makes every day unpredictable. What to watch for? Fewer wild swings.