On the horizon for Americans and other peoples of the world, questions like: Will there be a recession? And if so, how bad is the situation? After the Federal Reserve raised interest rates again to combat high inflation, the latest GDP report showed that the US economy slowed for the second consecutive quarter.
But at the same time, the labor and housing markets remain strong, although they have moderated slightly.
This created very mixed signals. The White House and other government leaders have said the economy remains strong, but many economists say there is a high chance of a recession in the coming months, if the recession hasn’t already started.
In the event of a recession, here’s how it affects your money and steps you can take to protect yourself, according to CNN:
Get ready for tough decisions at work!
Over the past two years, labor shortages caused by the pandemic — along with a structural deficit in which fewer young workers are replacing retired workers — have given employees a lot of bargaining power.
As a result, unemployment and job cuts were at or near historic lows.
“We’ve had very low layoffs and labor shortages,” says Andrew Challenger, senior vice president of outsourcing firm Challenger Gray and Christmas. “Companies were reluctant to let anyone go.”
That is starting to change, Challenger added, with layoffs in some industries, such as mortgage banking, fintech, construction and autos.
And if a recession occurs, layoffs are likely to be higher and more widespread. Employers can withdraw appointments.
But not everyone will be at the same risk. If your specialty is in high demand – whether you’re a front-line employee, an IT engineer or a senior manager – you’re more likely to get a job, or keep your job and even get raises and rewards along the way to see the road.
Buying and selling houses
It is unlikely that the housing market will be as badly affected by a recession as it was during, say, the 2007-2009 Great Recession, which was caused by the housing and credit crisis.
That doesn’t mean the market won’t be affected at all, especially if layoffs rise, said Mike Fratantoni, the chief economist at the Mortgage Bankers Association.
But after two years of double-digit price growth and wild auction wars, home sales are slowly returning to a more normal pace thanks to higher mortgage rates.
“Looking ahead, we expect the unemployment rate to rise by a small to moderate amount, along with affordability challenges, leading to lower demand for homes,” Fratantoni said.
This means that selling homes will not be as flexible as is currently available, and may also mean accepting lower bids and taking longer to close deals.
For homebuyers, this will be a much better experience than in years past, while getting a mortgage will become increasingly expensive with the current high interest rates, and buyers will face less competition for each property.
Ways to protect yourself now
While you can’t control the economic cycle, you can take some steps to mitigate the potentially negative effects of a recession on you.
For single-income families, California certified financial planner Jimmy Lima of Woodson Wealth Management recommends 12 months of living expenses in case you lose your job.
For dual-income families, he recommends six months because both workers are unlikely to be laid off.
And if you don’t have much right now, cut some non-essential expenses.
“If you own your own home, consider getting a home equity line of credit before prices rise again, as it can help supplement your emergency reserves as long as you can resist using it for anything else,” Lima said. .
He advised that you should stress test your financial plan: “If there’s a recession, you might come out of it unscathed. But you can’t assume that.” Lima also said what you can do is see what resources you have to deal with worst-case scenarios, such as job loss or illness.
“If you don’t have a job for a year, what will it look like? What are your contingency plans?…Now is the time to think ‘what should I do?'”
Improve your chance of staying in business. Making yourself indispensable in your current job – perhaps by taking on additional tasks – may reduce your chances of being laid off if it comes down to it.
Or you could consider a new role that is less likely to lay off workers when the economy shrinks.
“If your job is in an industry or profession where income depends on buyers who have the discretion to delay their purchases, immediately start looking for work in sectors that do not do business like this,” says Lakshman Akuthan, co-founder of the Economic Cycle Research Institute.
small business owners
“Small business owners need to keep expenses as flexible as possible,” Ben Johnston, chief operating officer of small business lender Kapitus, advised keeping a close eye on cash flow if you own a small business.
The idea is to protect yourself in case demand drops in the coming months.
“This could mean negotiating more flexible payment terms with vendors,” Johnston said. Or it could mean avoiding a long-term commitment to new expenses. So instead of buying new equipment or hiring a full-time employee to take advantage of a new business opportunity today, consider renting the equipment or bringing in someone as a contractor.
“If you’re not sure how strong the economy is going to be in a few months…look at temporary forms of expansion rather than permanent forms,” he added.