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In Business, what do "Green Shoots" Mean?

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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 29 November 2016
  • Copyright Protected:
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In economic terms, "green shoots" is a colloquial term that indicates a nation’s economy is beginning to enter a growth stage. Free market economies naturally work in cycles. Stages typically include growth, plateau, and contraction. During the contraction stage, economic transactions are typically fewer in number and dollar amount. Green shoots typically represent economic factors that indicate transactions are increasing and turning more positive, indicating a recovery is underway. This recovery will likely lead to the economic growth stage of the free market cycle.

A number of economic factors can be seen as green shoots. Some of the more important factors include consumer confidence, employment, the housing market, and gross national product. When these indicators start to be less negative than previous periods or turn positive, it can signal an economic recovery. These factors are often seen as important because they are overarching economic indicators that tend to signal other factors will soon be recovery. Governments or watchdog agencies will often release this information on a monthly or quarterly basis. It is important to remember that the reports of these economic indicators consist of past information, meaning the economy may already be in recovery before agencies release the figures.

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Consumer confidence is important because individuals typically play a large role in free market economies. Consumers who are wary about the economy will save money rather than spend it, causing the economy to spiral further into a recession. During a recession, lawmakers and business executives must find ways to improve consumer confidence in order to stimulate a weak economy.

Employment is another common green shoots indicator. Businesses that see signs that the economy is in recovery will begin to hire more workers. This increase signals a belief that consumer demand will rise, creating a correlation between consumer confidence and employment. Because many countries have a wide variety of business industries or sectors, hiring in one or a few may not be a significant green shoot.

Housing figures are also important green shoots. These figures include the number of building permit applications, current new and existing home inventory on the market, and number of mortgage application filed by individuals. These numbers help countries determine the home sales, and whether consumers are confident enough to purchase homes. Because this is a durable good purchase, a consistent increase in home sales is an important figure in economic recovery.

Another potential green shoot is a rise in gross domestic product (GDP), which is the total of goods or services produced annually in a country. The GDP consists of three parts: consumption, investment, and government spending. The investment portion is based on the money spent by businesses to restock inventory and acquire equipment for new or existing facilities. When consumption increases, businesses then begin to increase these investments, signaling potential growth as consumers are looking to purchase more goods and services.

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