After the introduction to economic indicators in section 6, this section will look at the possibilities of predicting the recession starting in December 2007 using these indicators. Again it is important to remember that as this paper is written ex.post with revised data and a broad understanding of what went wrong1, it could easily be pointed at numerous of relatively detailed and complicated indications that something was fundamentally wrong with the US economy ahead of the recession. But instead this section will show how investors and corporation could have kept track of the business cycle and forecasted the 2007 recession using a broad, but still simple, analyzing approach towards the US economy. This means that many vital factors and details on why the US economy entered a recession will not be discussed.
Since the end of World War II, the United States has experienced almost continuous inflation— the general rise in the price of goods and services. It would be difficult to find a similar period in American history before that war. Indeed, prior to World War II, the United States often experienced long periods of deflation. It is worth noting that the Consumer Price Index (CPI) in 1941 was virtually at the same level as in 1807.