The odds of a recession in the U.S. economy in 2023 are not inevitable, but the likelihood of a widespread, prolonged downturn has grown this year from a whisper to a loud chorus.
Fitch Ratings, for example, said on Oct. 18, 2022, that the U.S. economy will face a recession starting the second quarter of 2023, but robust U.S. consumer finances will help cushion its impact.
“Fitch expects the U.S. economy to enter genuine recession territory — albeit relatively mild by historical standards — in 2Q23," reports Reuters.
On the same day, Goldman Sachs Chief Executive Officer David Solomon concurred.
“There's a reasonable chance of a recession in the U.S., but it's not certain," Solomon said after his company released third-quarter earnings. "I could still see a scenario with a soft landing."
Business owners are already taking action in case of a recession, but employees need to take heed and prepare as well.
Business owners have already been through a lot in the past two years from the pandemic to high inflation to supply chain issues to world political turmoil and the possibility of a recession is another dark cloud on the horizon.
“Business fundamentals remain true regardless of whether larger economic conditions are favorable or in decline. However, there are certain tweaks and adjustments that must be made in order to weather stormy periods like the one we're preparing to face,” wrote Nate Nead in Entrepreneur.
Most business owners, it seems, are taking heed of the adage to “prepare for the worst and hope for the best” as they take actions in advance of a possible recession such as:
While the average employee might think that talk of a recession is something “above their pay grade” and, frankly, out of their control – they would be wrong to ignore the warning signs and not prepare like most business owners.
For starters, we need to wrap our heads around what exactly a recession is.
David Rodeck writing in Forbes explains that a recession is “a significant decline in economic activity that lasts for months or even years.
Experts declare a recession when the U.S. economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period.
In the U.S. recessions are officially declared by the National Bureau of Economic Research (NBER).
“Recessions are considered an unavoidable part of the business cycle—or the regular cadence of expansion and contraction that occurs in a nation’s economy,” writes Rodeck.
Forbes says that the average recession historically lasts about 17 months, according to NBER data.
To make the official recession call, NBER relies on, besides GDP and inflation, factors such as:
“The NBER also says there is “no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.” In other words, every set of economic conditions is different, and there is no specific threshold that must be met before a recession is declared,” says Forbes.
There have been a dozen recessions in the U.S. since the end of World War II, with half of them lasting eight months or shorter – including the 2-month recession aberration that occurred at the onset of the pandemic from February to April 2020.
U.S. recessions since World War II:
Recession talk may sound esoteric and unimportant to many current employees because they have not experienced prolonged economic downturns.
Taking the 2-month plunge out of the equation that occurred at the start of the pandemic, Gen X employees have only worked through three recessions since they joined the workforce 35 years ago and millennials have only suffered one downturn in the last two decades, and Gen Z, the youngest generation, has not been through one.
There are some things in life that you can prepare for, even if you have not experienced them … the possibility of a hurricane hitting your area, or your airplane pilot saying, “folks, hate to bother you, but we might have to prepare for the possibility of a water landing!”
While there is still hope that the economic powers to be can bring the U.S. economy in for a “soft landing” it is better for the average person to prepare for a rough ride.
“Of course, you want to focus on getting through the recession, and some will be able to do that more easily than others,” certified financial planner Paul Deer, vice president at Personal Capital, told CNBC. “But across the board, you want to have a plan in place and stick to it.”
Here are some things you can do:
All the above tips will not hurt you if a recession happens to not materialize.
“During tough times, it’s normal to feel anxious about your lifestyle, career, and budget. Even if things improve and a recession never comes, practicing responsible money habits can only set you up for success,” says Intuit’s Mint Life blog.