We keep hearing that a recession is coming, but it hasn’t happened yet, even though the U.S. had two quarters of negative GDP growth in a row at the beginning of the summer. By itself, this information would be enough to show that the economy is in a recession, but there is a lot more to it than that.
The National Bureau of Economic Research is where economists keep track of how bad the recession is (NBER). There is no official cutoff point for a recession, but the NBER will track how the economy is doing overall by looking at GDP growth, real personal income (RPI), labor statistics, and consumer spending.
But worries about an upcoming global recession are enough to make most people worried about their money. We’ll talk about what a recession means for most of us and what you can do to get ready for what’s coming.
When will there be news of a recession?
When a recession is officially declared, the economy as a whole is shrinking, and there is a period of a lot of economic decline. Before calling a recession, economists look at a number of things and don’t use hard times as a standard.
But we can’t deny that most of us are losing faith in the economy because GDP growth is going down and inflation is going up. The economy has been held up for a long time by the strong job market. As of September 2022, the unemployment rate was 3.5%. This, along with the fact that people are still spending money, has kept the economy going.
Even though we haven’t officially entered a recession yet, many experts think that it will happen, but they can’t agree on when. All of this uncertainty has made people worry about what will happen in the coming months, especially since the prices of everyday items are still going up.
For the average person, what does a recession mean?
We’ll explain what happens to the average person during a recession so you know what to expect.
The job market is hurt by a recession.
The worst thing that could happen during a recession is that you lose your job, since high unemployment rates are a sign of a shrinking economy. When consumer spending goes down, businesses have to change how they run, which means they may have to lay off people to match the drop in spending.
During the Great Recession, the number of people without jobs more than doubled, which put millions of people out of work. Those who don’t lose their jobs worry about wage cuts, fewer hours, and the possibility that companies won’t be as willing to give bonuses and other financial incentives. During a recession, companies are also hesitant to hire new people. This makes it hard to find a new job if you just graduated from college or want to switch to a new field.
If you lost your job, your employer would also take away your health insurance. This would be hard on your family because you would have to look around for new coverage. Losing health insurance could also cause you to spend more because you would have to pay more out of pocket for medical emergencies and medicines.
When there is a recession, the stock market goes down.
People will spend less, putting less money into the economy. This means that companies’ earnings will be lower. Even worse, some investors will sell their stocks because they are worried about a recession, rising prices, and rising interest rates. If you want to retire soon or use money from the stock market to pay for a big expense like a wedding or a new home, you may have to wait a lot longer than you thought.
During a recession, the price of everything goes up.
When interest rates are raised to slow down the economy because inflation is going up, it often leads to a recession. The prices of everything around us have gone up in 2022, and people are spending more than ever on things like rent, electricity, and food. When prices go up because of inflation, your money doesn’t go as far, so you can’t keep living the same way.
During a recession, it’s hard to save money because you can’t buy as much. When you can’t save as much money, you can’t spend as much on travel and other luxuries, which hurts anyone who works in those industries. You may also have to give up some things, since the price of gas and food will make you think twice about spending money.
When there is a recession, interest rates go up.
The Fed raises interest rates to slow down the economy. This makes it cost more to borrow money. Higher interest rates mean you have to pay more money on your existing debt and will think twice before taking on new debt.
Your credit card payments have gone up, but if you have a fixed-rate mortgage, your mortgage payments will stay the same. Many Americans’ budgets are already tight because of living costs, so putting more money toward credit card debt would take money away from other things. Higher interest rates could also stop people from making plans to fix up their homes or go on trips that will be memorable.
When there’s a recession, it’s harder to get a loan.
Even if you still want to borrow money even though interest rates are higher, lenders will think twice about giving you money during a recession because they will look at how secure your job is when deciding whether or not to lend you money. If it’s hard to get a loan, you might have to put off a big purchase like buying a house or a car. This could also slow you down in life if you can’t make a big purchase right away that would help you move on to the next stage of adulthood.
How can you get ready for an economic downturn?
Even though there are no good things about being in a recession, we don’t need to worry because this is a normal part of the way the economy works. We have to do everything we can to be ready for a possible recession, since we won’t know how it will affect us until it happens. Here are some things you can do now to get ready for a possible recession:
Start paying off what you owe. When interest rates go up, that credit card balance will cost you more, so you need to pay it off as soon as possible.
Save money for a rainy day. You should save enough money to live for at least three months in case you lose your job. This way, your bills will still be paid and you’ll have enough money to get by.
Spread out the ways you make money. During a recession, it’s risky to depend on just one source of income, so you might want to look into a side job or find another part-time job to protect yourself.
Look for a job that you can do even when the economy is bad. If your job depends on a strong economy, now is the best time to think about changing careers. You might also want to update your resume and talk to people in your network to make sure you’re ready to move.
What should you do?
When the market is volatile, it responds to any news, so you can expect big changes that are hard to handle as you watch your portfolio fall. During a recession, fewer people have money to spend and the stock market goes down.
Rising inflation will make investors who haven’t done it before nervous, so they will sell their stocks. People want more money and security, so they start getting out of the stock market. This makes share prices fall even more. It’s a cycle that makes things worse and worse, and it’s hard to see it happen in real time.
You can make your portfolio more defensive to help you deal with uncertain times and be ready for volatility to go up. Check out Q.ai’s Inflation Kit and think about turning on Portfolio Protection to protect your gains and reduce your losses, no matter what industries you invest in.
We will all be affected by a recession in some way, but that doesn’t mean we should worry more than we have to or overreact to the falling market. Getting ready for the worst-case scenario ahead of time can help you get through it if it happens. We still don’t know if there will be a recession. The Fed has two more meetings in 2022, during which they will closely watch the economy to decide if they should keep raising rates.