We have received warnings of an economic slowdown from the Federal Reserve and from economists and financial pundits on television. And, if that wasn’t bad enough, last week’s announcement by FedEx that its shipments were slowing and that it was expecting a global recession certainly bubbled the optimists.
The official definition of a recession is two consecutive quarters of negative gross domestic product. Actually, we already met that technical definition, with GDP declining in the first two quarters of this year.
But it hasn’t “felt” like a recession so far. Employment has remained strong, and workers are still in demand. Interest rates have been rising and hurting mortgages, but we haven’t seen a wave of home price cuts or desperation from home sellers.
In short, there hasn’t been much pain in the headlines. Now all that may be about to change. The Fed has a bigger challenge ahead than many expected. Inflation persists, requiring interest rates to rise, slowing the economy even more dramatically.
And there is another element at play that could make this recession more difficult to navigate. The entire world seems to be slipping into recession a bit sooner than we are, especially China, whose economy has been hit by its fight against COVID-19. Europe is raising interest rates to fight inflation and faces the difficulties of a cold winter if Russia shuts down the natural gas pipeline.
What does the recession look like?
Our current environment and our most recent experiences have assuaged recession fears and led many to complacency.
The financial and mortgage crisis that began 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 shock to investors who valued “eyes” over profits.
Those slowdowns were overshadowed by the pain of the 1980-82 double-dip recession that was caused by the Fed’s attempt to rid the economy of inflation by raising interest rates. The entire economy went into a tailspin that cost millions of jobs across a wide swath of the country. Since it happened 40 years ago, the memory of the pain of the recession has diminished over time.
Our most recent experience with a potential recession occurred at the start of the pandemic in 2020, when the economy abruptly shut down. But that pain has been eased by the immediate doubling of unemployment benefits and the distribution of stimulus checks and PPP loans.
The government bought its way out of that recession. Now you don’t have that wiggle room, 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 to avoid this looming recession is to go through it. And you must be prepared.
You may be too pessimistic about the looming recession. But following these steps will make you a winner, even if the economy is sailing easy for the next 12 months.
Get the latest business news headlines, delivered to your inbox by noon Monday through Friday.
So here are my suggestions:
“I appreciate your work. Instead of complaining about “back to the office” rules, make yourself indispensable at work. Ignore the recent concept of “resigning slowly” – doing the bare minimum of work at your job. When cuts are made, the poor performers will be the first to go.
“Deal with your debt. Pay off your credit card debt. Take advantage of this moment to switch to a zero-rate card and then use the respite to pay off the balance. Rates on these cards will go back up for those stuck in debt. Search in CreditCards.com.
— Accumulate savings. It is always difficult to cut. But now, while there is still a demand for employees, get a weekend job in a restaurant or bar. Use these extra earnings to pay down your debt; Try to build a savings reserve.
—Examine your investments. Sell to the point of sleep, so you don’t react out of emotion if the market puts on a sell-off as gains disappear in a sharp downturn.
There has never been a recession that has not been followed by a period of great economic growth. The trick with a recession is to survive the inevitable tough times by planning ahead. And that is The Wild Truth.
(Terry Savage is a registered investment advisor and the author of four best-selling books, including “The Savage Truth on Money.” Terry answers questions on his blog at TerrySavage.com.)