Recession?
The economic headlines are looking increasingly gloomy. And the stock market has become more volatile. Uncertainty over tariffs, government layoffs, and global alliances have contributed to a sense of unease over the economic situation.
Even those who firmly believe that the road to future prosperity lies in cutting government spending and increasing manufacturing jobs, have come to recognize that the transition will be rocky. And that rocky road is likely to lead directly to your driveway.
It’s been a significantly long time since the United States last went through a recession – longer than the average gap between economic slowdowns, if you don’t count the steep Pandemic recession of 2020 that officially lasted only two months.
The Pandemic recession aside, it has now been an incredible 16 years since our economy has faced a prolonged slowdown: 2007-2009. In fact, the previous longest gap between economic declines occurred in the decade of the 1990s -- a period of 10 years of economic growth brought to an end by the bursting of the dot-com bubble, and marked by the September 11th attacks.
Many have forgotten what a steep and long-lasting recession looks and feels like!
What’s a Recession?
The textbook description of recession says it requires a decline in GDP (our national output) for two consecutive quarters. Most recessions aren’t officially labeled as such by the National Bureau of Economic Research until we are well into the decline. In fact, some recessions haven’t been declared until the economy was back on the upswing!
Before the Covid 19 Pandemic recession, our last major economic decline took place from December 2007, though June 2009 – a downturn that lasted 18 months, amidst financial failures and mortgage foreclosures. It was labeled the Great Recession, perhaps to distinguish it from the Great Depression, which took place nearly 100 years ago.
The Pandemic recession briefly saw unemployment jump to 14.7% in April of 2020. The Great Recession of 2007-2009 saw unemployment peak at 10% in October, 2009. Job loss is one of the key features of a recession, bringing emotional as well as financial devastation to the individuals and families who were impacted.
Today’s younger workers, those who graduated from college nearly 20 years ago and are now nearing their 40s, likely don’t have any sense of the impact of a recession. They are also the “knowledge workers” whose ability to deal with technology made them feel invulnerable to an economic decline—until the threat of Artificial Intelligence came along.
And among those who also had little to fear from recessions and unemployment, we must include the millions of government workers, many doing critical jobs to protect our country, our economy, and our personal safety. They too, were basically insulated from the threat of layoffs since government rarely contracted in size as the private economy does from time to time.
Now many of these unsuspecting people face the threat of layoffs and unemployment. This week's report shows layoff announcements surging nearly 250% in February, even before many Federal workers are counted in the statistics.
Consumer Confidence
Since the consumer accounts for roughly 70% of the economy, consumer sentiment is watched closely by economists. The latest two reports from the Conference Board and the University of Michigan have shown a sharp decline in consumer confidence. In fact, the future expectations component of the Conference Board survey has now dropped below 80—a level at which recessions typically occur.
What are consumers worried about? Even before the latest Federal layoffs, consumers reported fears that jobs were more difficult to find. Consumers remain worried about inflation. Egg prices make headlines because of diminished flocks hit by bird flu. But consumers don’t discriminate when they see rising prices. They panic – and hit the pause button.
Add to that the reality that promised tariffs, and retaliation, will increase prices of everything from cars to durables, as well as imported foods and other products. It may be just a one-time price increase, so the Fed says it's too soon to tell if it portends a return to inflation fears. Yet every day businesses report that consumer-related purchases are slowing.
When consumers worry about their jobs, they stop buying all but the necessities. Vacation plans are put on hold. Retails sales suffer. Home remodeling plans are put off. And an economic slowdown gains momentum triggering more layoffs.
Interest rates have dropped on fears of an economic slowdown. Lower rates should make mortgages more attractive, but that is offset by a spreading fear of job loss that inhibits home purchases. When your neighbor or family member loses a job unexpectedly, you suddenly feel vulnerable.
For those who have never lived through a recession – or have forgotten what the last one was like – this is what happens during a prolonged economic slowdown. Unlike the pandemic, the economy doesn't shut down overnight. It slowly, then more quickly, loses momentum.
Prepare Yourself
Of course, we may not have a recession. But the current news and historic precedents are pointing in that direction. It couldn't hurt to be prepared.
One good thing about being older and retired is that you’re no longer worried about your job. Your income comes from Social Security, and your retirement investment savings. But if a bear market follows the business slowdown called a recession – which often happens – you’ll want to become more conservative in your holdings.
No matter what your age, you don’t want to enter into a recession carrying a lot of consumer debt. Jobs are still fairly plentiful, giving you a chance at weekend and evening work for extra income to pay down that debt -- and build up your savings.
[For tips on paying down credit card debt or finding trusted help in dealing with debt, please read this special report, Dealing with Debt, at TerrySavage.com.]
Recessions are painful, but they end eventually -- on average in about 10 months. It could take longer than that to find a new job, though. So now is the time to plan.
This is not a prediction of an imminent recession, nor an attempt to spread gloomy thoughts. It’s a reality check. Eventually, tariffs could bring manufacturing jobs back to America and create economic growth. But another recession will come along, that’s for sure. And both history and common sense say we’re stretching our luck here under current circumstances. That’s the Savage Truth.
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Thanks, Terry. I studied economics, finance, and accounting in university.That makes tRump's policies even more hard to swallow. It is his policies and attitude toward government that is causing all this economic turmoil. But telling you that is preaching to the choir, I am sure :-)
ReplyDeleteJack W