What is a ‘continuing recession’ and are we in one? The experts explain
By most measures, the US economy is in strong shape.
Although the first half of 2022 started with negative growth, a strong job market and a resilient consumer helped turn things around and gave hope for the coming year.
Gross domestic productwhich follows the general health of the economy, increased more than expected in the fourth quarter, and the Federal Reserve he is expected to announce a more modest rate hike at next week’s policy meeting as inflation begins to relax.
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Still, some parts of the economy, such as housing, manufacturing and corporate profits, have shown signs of slowing, and a wave of recent layoffs has fueled fears that a recession is still looming.
“There is no shortage of economists with strong opinions,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and a former acting chair of the White House Council of Economic Advisers. “There is a great shortage of economists with the correct opinion.”
A ‘mobile recession’ may already be underway
Instead of a sharp contraction that Americans should prepare for, a “continuing recession” is already underway, according to Sung Won Sohn, a professor of finance and economics at Loyola Marymount University and chief economist at SS Economics. “This means that some parts of the economy take turns suffering rather than suffering simultaneously.”
In fact, the worst may even be over, he said.
Much of the reaction to the Fed’s moves has worked its way through the economy and financial markets. Businesses reduced inventories and cut jobs in some areas, and consumers refinanced their homes before the rate hike.
“It’s time to think about an exit strategy,” Sohn said.
This cycle has shown many of our traditional theories to be wrong.
assistant professor of finance at Columbia University School of Business
“Expectations about a recession have been pretty inaccurate,” added Yiming Ma, an assistant professor of finance at the Columbia University School of Business.
“This cycle has shown many of our traditional theories wrong,” Ma said.
In fact, this could be the soft landing that Fed officials have been looking for after aggressively raising interest rates to rein in inflation, he added.
What this means for consumers
But regardless of the economic situation of the country, many americans are struggling Faced with skyrocketing prices for everyday items like eggsand most have depleted their savings and are now relying on credit cards to make ends meet.
Several reports show financial well-being is deteriorating overall.
“For consumers, there is a lot of uncertainty,” Philipson said. For now, the focus should be on maintaining income and avoiding high-interest debt, he added.
“Don’t plan on any major future spending,” he said. “No one knows where this economy is headed.”
How to prepare your finances for a creeping recession
While the impact of inflation is being felt across the board, each household will experience an ongoing recession to a different degree, depending on their industry, income, savings, and job security.
Still, there are some ways to prepare that they are universal, according to Larry Harris, Fred V. Keenan Professor of Finance at the University of Southern California Marshall School of Business and former chief economist at the Securities and Exchange Commission.
Here is his advice:
- Optimize your expenses. “If they expect to be forced to cut back, the sooner they cut back, the better off,” Harris said. That may mean cutting back on some expenses now that you just want and don’t really need, like the subscription services you signed up for during the Covid pandemic. If you don’t use it, you lose it.
- Avoid variable rate debts. Most Credit cards They have a variable APR, which means there’s a direct connection to the Fed’s benchmark, so anyone with a balance has seen their interest charges rise with every Fed move. Owners of homes with adjustable rate mortgages or home equity lines of creditthat are linked to the prime rate, have also been affected.
- Put away extra cash in Series I bonds. These federally backed, inflation-protected assets are nearly risk-free and are currently paying 6.89% annual interest on new purchases through April, below the 9.62% annual rate offered from May to October of last year.
Although there are purchase limits and you can’t use the money for at least a year, you’ll get a much better return than a one-year savings account or certificate of deposit. Rates on online savings accounts, money market accounts, and CDs have gone up, but those yields still don’t compete with inflation.