What a recession can mean for you

Those questions are looming for Americans after the Federal Reserve raised rates again to combat high inflation, and the latest gross domestic product report showed the economy slowed for the second quarter in a row. But at the same time, the job and housing markets are still doing well, although they have cooled down a bit.

That has produced many mixed signals. The White House and other government leaders say the economy remains healthy. But several economists say there is a good chance that a recession will occur in the near future months — if one hasn’t started yet.

Should a recession happen, learn how it could affect your finances and steps you can take to protect yourself.

Over the past two years, the pandemic-induced labor shortage — coupled with a structural shortage with fewer younger workers replacing retired workers — has given workers a lot of bargaining power.

As a result, unemployment and job losses have been at or near historic lows.

“We’ve been through a period of extremely low layoffs and labor shortages. Companies have been reluctant to let anyone go,” said Andrew Challenger, senior vice president of global outplacement firm Challenger Gray & Christmas.

That’s starting to change, Challenger said. In some sectors, such as mortgages, fintech, construction and cars, layoffs are increasing.

If a recession hits, there will likely be more and more layoffs. And employers can withdraw from hiring staff.

But not everyone runs the same risk. If your role is in high demand — whether you’re a front-line worker, an IT engineer, or a top executive — chances are you’ll get a job, keep a job, and even see raises and bonuses. .

Buying and selling a house will be different

The housing market probably won’t be hit as hard by a recession as it was in, say, the Great Recession of 2007-2009, which was triggered by a housing and credit crunch.

That doesn’t mean the market won’t be affected at all, though, especially if more layoffs are made, said Mike Fratantoni, chief economist for the Mortgage Bankers Association.

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But after two years of double-digit price hikes and wild bidding wars, home sales are slowly returning to a normal pace thanks to rising mortgage rates making homes less affordable for buyers.

Looking ahead, Fratantoni said, “we expect the unemployment rate to rise a small to medium amount, which combined with affordability challenges will increase demand for [for homes].”

That means home sellers will no longer be able to price their properties 15% higher than their neighbor’s home was just sold for. They should prepare to accept contingencies from buyers in housing listings. And they can expect their home to take longer to sell.

Oh, and looks will matter again.

“Clean up a bit to get it ready for the list. … We’ll come back to a place where it matters whether your house is in good condition,’ said Fratantoni.

For homebuyers, compared to the crushing frustrations of recent years, “it will be a much better experience,” he noted. While it is becoming more expensive to take out a mortgage as rates rise, home buyers will face less competition. And when it comes to deciding whether to make an offer, “they may have a few days to think about it instead of hours,” Fratantoni said.

Ways to Buffer Yourself Now

While you can’t control the economic cycle, you can take some steps to mitigate the potential negative effects of a recession on you.

Secure your emergency money: For single-earner households, California-based certified financial planner Jamie Lima of Woodson Wealth Management recommends having 12 months of livelihood on hand in case you lose your job.

He recommends six months for two earners, because there is less chance that both earners will be fired.

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If you don’t have that much now, cut out some non-essential expenses and add in the money you would have spent on the cat.

And if you own your home, consider getting a line of equity credit before rates rise again, as it can help replenish your emergency reserves as long as you can’t resist putting it on for something. to use differently, Lima said.

Stress test your financial plan: If there is a recession, you may come out unscathed. But you cannot assume that in advance. What you can do is figure out what resources you have to deal with a worst-case scenario, such as job loss or illness, Lima said.

“If you’ve been out of work for a year, what does that look like? What are your contingency plans? … Now it’s time to think about ‘What should I do?'” he said.

Improve your chances of staying employed: You may not be that highly sought after cybersecurity specialist every Fortune 500 company wants. But if you make yourself indispensable in your current job – perhaps by taking on extra assignments – you reduce the chance of being fired when it comes down to it.

Or you could consider a new role that is less prone to layoffs when the economy shrinks. “If your job is in an industry or profession where revenues depend on buyers who can defer their purchases at their discretion, immediately start looking for jobs where they don’t,” said Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, which thinks there is a real risk that a recession could be longer and deeper than most expect.

Keep a close eye on cash flow if you have a small business: Small business owners need to keep spending as flexible as possible, says Ben Johnston, chief operating officer of Kapitus, a small business lender.

The idea is to protect yourself in case demand declines in the coming months.

“This could mean [negotiating] more flexible payment terms with suppliers,” Johnston said. Or it could mean no long-term commitment to new spend. staff to take advantage of a new business opportunity today, consider renting the equipment or hiring someone as a contractor.

“If you’re not sure how strong the economy will be in a few months … look at temporary expansions rather than permanent ones,” Johnston said.

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