How to prepare for a recession
With the new year just around the corner, there is a lot you’re likely doing to prepare for the year ahead. Naturally, we set goals and reflect on the past year to see what we can improve next year. However, this year has been filled with a lot of changes: rate hikes, inflation, and a lot of recession rumors. While preparing for next year, you may be wondering: Is a recession coming? Keep reading to learn more about recessions, what the experts are saying, and how to prepare for a recession by investing in gold.
What is a Recession?
According to Investopedia, a recession is a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession, although more complex formulas are also used. Economists at the National Bureau of Economic Research (NBER) measure recessions by looking at nonfarm payrolls, industrial production, and retail sales, among other indicators, going far beyond the simpler (although not as accurate) two-quarters of negative GDP measure. However, 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.”
Key takeaways regarding recessions include:
- A recession is a significant, pervasive, and persistent decline in economic activity.
- Economists measure a recession’s length from the prior expansion’s peak to the downturn’s trough.
- Recessions may last as little as a few months, but the economy may not recover to its former peak for years.
- An inverted yield curve has predicted the last 10 recessions, although some predicted recessions never materialized.
- Unemployment often remains high well into an economic recovery, so the early stages of a rebound can feel like a continuing recession for many.
- Nations use fiscal and monetary policies to limit the risks of a recession.
What are the Experts Saying?
Forbes says that a recession might be avoided, but that’s highly unlikely. The only policy actions that could deter a recession would worsen inflation, thus setting the stage for an even worse downturn sometime in the future. Fortunately, Federal Reserve chairman Jerome Powell and most of his colleagues have decided that returning to low inflation should be their top priority. Powell said at his Jackson Hole speech, “History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting.“ Multiple Fed officials have stated that the harm from mistakenly ending the anti-inflation efforts too soon would be much greater than the harm from mistakes in the other direction. So in uncertain circumstances, the Fed will keep monetary conditions tight.
Assuming that the Fed keeps tightening, when will the recession hit the United States economy? Third quarter 2022 data indicate recession has not hit, as real GDP grew by 2.6% (annualized rate of change.) That advance estimate is subject to revision as more data become available.
How to Prepare for a Recession
Here are some ways you can prepare for a recession should one strike in the next year or two:
- Focus on budgeting. The easiest way you can start saving money is by taking a look at how you spend it. See where you can reign in your expenses, cancel unnecessary subscriptions, and set a budget for everything from eating out to groceries to Amazon buys.
- Pay off high-interest debt first. Start by paying off your most expensive money first so that it doesn’t keep piling up over the next couple of years.
- Get a higher-paying job or ask for that promotion. With a recession looming, now is the time to get out and seek a higher salary or ask your boss for that promotion you’ve been eyeing.
- Start investing. Another way you can prepare for a recession is by investing. One of the best, safest investments you can make is investing in gold. By investing in gold, you can secure your retirement, hedge against inflation, diversify your portfolio, and ensure your money is safe from a recession. The value of gold goes up as the value of the US dollar goes down, making gold an ideal investment for a looming recession. In addition, it is highly liquid, so you can pull cash out anytime in case the recession hits you extra hard. You can pull all of your investment or just some, so you can always have cash on hand when you need it.
Preparing for a Recession with Priority Gold
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