Navigating the Possibility of a Recession in the United States: What You Need to Know and How to Prepare
The possibility of a recession in the United States has been a topic of discussion among economists for some time now. While many economists still predict a recession later this year, a survey conducted by the National Association of Business Economics found that 54% of economists at companies and trade groups put the odds of a downturn in the next 12 months at 50% or less.[0] Additionally, Federal Reserve economists are predicting a mild recession later this year, with a recovery over the subsequent two years.[1]
One factor that often signals a recession is a yield curve inversion, which occurs when short-term yields exceed long-term rates. Every recession since 1956 has been preceded by an inverted yield curve.[2] If the yield curves of the two-year and 10-year Treasury invert, it is highly probable with over 67% certainty that the United States will experience a recession within a year, and with over 98% probability, a recession will happen in the subsequent two years.[2] However, it is important to note that an inverted yield curve does not necessarily mean that a recession is inevitable.
The key to preparing for a recession is to make the most of robust economic conditions.[3] Direct your attention towards reducing your expenses, creating a financial plan, establishing a reserve fund, and removing debts with exorbitant interest rates.[3] It is also important to understand what a recession entails and how it can affect different aspects of the economy.[4]
While the National Bureau of Economic Research’s Business Cycle Dating Committee has not yet declared a recession in the United States, economists are divided on whether the country is already in a recession.[3] Economic growth shrank for two straight quarters at the start of 2022, but growth has since picked up, spending has remained relatively strong, and hiring has boomed despite higher interest rates and soaring inflation.[3]
Before a recession starts, the stock market usually experiences a decline followed by a recovery before the economy strengthens. Therefore, purchasing stocks during a recession can be advantageous, as prices are lower.[5] Even though the stock market typically declines during a recession, it doesn’t mean investors should stop actively investing.[6] There are two strategies investors can use to invest during a declining market.[6]
Ultimately, it is impossible to predict with certainty when a recession will occur or how severe it will be.[5] However, taking steps to prepare for a potential downturn and understanding the factors that contribute to a recession can help individuals and businesses weather economic storms.
0. “Is a recession coming by 2024? Here's what economists are saying.” USA TODAY, 24 Apr. 2023, https://www.usatoday.com/story/money/2023/04/24/recession-within-year-unlikely-survey-shows/11715581002/
1. “A recession may be coming — here's how long it could last, according to economists” CNBC, 26 Apr. 2023, https://www.cnbc.com/2023/04/26/how-long-a-recession-could-last-according-to-economists.html
2. “Inverted Yield Curve: Why is it the most talked about indicator of an incoming recession?” The Financial Express, 27 Apr. 2023, https://www.financialexpress.com/business/investing-abroad-inverted-yield-curve-why-is-it-the-most-talked-about-indicator-of-an-incoming-recession-3065727/
3. “Worried about a potential recession? Here’s 9 steps to prepare your finances now” Yahoo Finance, 24 Apr. 2023, https://finance.yahoo.com/news/worried-potential-recession-9-steps-041058857.html
4. “Gaining Valuable Insights From Past Recessions to Help Navigate the Future: Part l, A Historical Perspective of Past …” CSQ Magazine, 27 Apr. 2023, https://csq.com/2023/04/gaining-valuable-insights-from-past-recessions-to-help-navigate-the-future-part-l-a-historical-perspective-of-past-recessions
5. “Five ways to prepare your finances for a recession” Stuff, 26 Apr. 2023, https://www.stuff.co.nz/life-style/wellbeing/300862705/five-ways-to-prepare-your-finances-for-a-recession
6. “How Would a Recession Affect Me and My Finances?” Entrepreneur, 22 Apr. 2023, https://www.entrepreneur.com/finance/how-would-a-recession-affect-me-and-my-finances/450191
