It’s time to stop debating the definition of recession and start preparing. We have had economic slowdown warnings from the Federal Reserve and from economists and television financial pundits. And, if that wasn’t enough, last week’s announcement by FedEx that its shipments were slowing and that it expected a global recession certainly burst the optimists’ bubble.
The official definition of recession is two consecutive quarters of negative gross domestic product. Actually, we have already met that technical definition, with declining GDP in the first two quarters of this year.
But it hasn’t “felt” like a recession up until now. Employment has stayed strong, and workers are still in demand. Interest rates have been rising impacting mortgages, but we haven’t seen a rash of home price cuts or desperation on the part of home sellers.
In short, there hasn’t been a lot of headline pain. Now all that may be about to change. The Fed has a larger challenge in front of it than many expected. Inflation persists — requiring them to increase interest rates, slowing the economy even more dramatically.
And there’s one other element at play that could make this recession more difficult to navigate. The entire world seems to be sliding into recession slightly ahead of us — especially China, whose economy has been impacted by their fight against COVID-19. Europe is hiking interest rates to fight inflation, and facing the hardship of a cold winter if Russia turns off the natural gas pipeline.
What does recession look like?
Our current environment and our most recent experiences have dulled the fear of recession and lulled many into complacency.
The financial and mortgage-driven crisis that started in 2008 has faded from memory, unless you were one of the many who lost their homes. Similarly, the bursting of the dot-com bubble around the turn of the century is memorable only for the impact on investors who valued “eyeballs” over profits.
Those slowdowns were dwarfed by the pain of the double 1980-82 recession that was caused by the Fed trying to wring inflation out of the economy by raising interest rates. The entire economy went into a tailspin that cost millions of jobs across a broad swath of the country. Since that occurred 40 years ago, the memory of recession pain has diminished with time.
Our most recent experience with potential recession occurred at the start of the pandemic in 2020 when the economy shut down abruptly. But that pain was alleviated by the immediate doubling of unemployment benefits and distribution of stimulus checks and PPP loans.
The government bought its way out of that recession. Now it doesn’t have that leeway — as the Fed won’t be willing to create new money to keep interest rates low and the economy growing.
In other words, the only way around this oncoming recession is through it. And you should be prepared.
It’s possible that I’m overly pessimistic about the oncoming recession. But taking these steps will make you a winner, even if the economy sails easily through the next 12 months.
So here are my suggestions:
—Appreciate your job. Instead of complaining about “return to office” rules, make yourself indispensable at work. Ignore the recent concept of “slow quitting” — doing the bare minimum of work at your job. When cuts are made, those poor performers will be the first out the door.
—Deal with your debt. Pay down your credit card debt. Take advantage of this moment to switch to a zero-rate card, and then use the breathing room to pay down the balance. Rates on these cards will rise again for those trapped in debt. Search at CreditCards.com.
—Build up savings. It’s always difficult to cut back. But now, while employees are still in demand, pick up a weekend job at a restaurant or bar. Use these extra earnings to pay down your debt; try to build a savings reserve.
—Examine your investments. Sell down to the sleeping point, so you don’t react out of emotion if the market stages a steep sell-off as earnings disappear in a sharp recession.
There has never been a recession that wasn’t followed by a period of great economic growth. The trick with a recession is to survive the inevitable tough times by planning ahead.