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Predicting/Preparing for Economic Transitions 31

recessions, it is best for businesses to plan for three basic
scenarios with the following symmetrical probabilities as a
starting point:

1. Low/Moderate Recovery 60%
2. Fast Recovery 20%
3. Deeper Recession 20%

Factors that influence the direction and speed of recoveries
range from influences of whatever factors led to the initial
downturn, e.g. financial crisis, housing market, export inter-
action. These major factors plus additional external economy
dynamics will impact the symmetry of the probabilities either
up or down. This allows a business to plan for the appropri-
ate level of either sales activity or cost containment relative
to the direction and speed of the recovery. From these prob-
abilities, other characteristics of the recovery can be esti-
mated, e.g. regional differences, degree of reemployment,
jobless expansion.

ID and monitor industry-independent “Canary in
the Coal Mine” indicators

Some of the most helpful indicators for any business are
those economic indicators that best predict a softening or
strengthening of the economy prior to the actual business
cycle directly impacting a business’s market. These are
referred to as economic close “canary in the coal mine”
indicators. From early history, canaries were used as senti-
nels in coal mines to signal hazardous environments because
they were more susceptible to a particular hazard compared
to humans.

In business, certain industries or markets which are further
up in the supply chain will be impacted at an earlier stage