You might soon start hearing experts talk about the dreaded term “recession.” It’s one of those words used by people in finance that sounds ominous and ominous. When people discuss times of recession, it conjures up the fear of long lines at the gas station, a declining economy, high inflation, job losses, and general malaise.
A recession is a decline in GDP for two or more consecutive quarters. While it’s not perfect science, there’s an old joke about economists often getting it wrong – “He predicted nine of the last five recessions” – implying that the tipster is just guessing and missing the mark too often to to be taken seriously.
Signs of a coming recession
The United States is beginning to see some of the harbingers of a recession. When the stock market drops 20%, it is called a “bear market” and the massive losses contribute to a recession as people lose confidence in the economy and cut spending. When people invest in the market and make substantial profits, a wealth effect is created. The windfall of investing encourages people to spend more money because they believe the good times will last forever.
When dramatic declines in stocks, bonds, and cryptocurrencies occur, it has the opposite effect. Fear and panic set in. Risk taking is over and people are going into survival mode, ruthlessly cutting back on expenses.
Another contributor to the recession is that inflation is hitting 40-year highs, causing Americans to lose more confidence. To pour more cold water on the economy and the stock market, the Federal Reserve plans to continue raising interest rates. There are fears that all the progress the United States has made since reopening the economy will evaporate. Much, if not all, of the crowd-stock gains of the same Wallstreetbets subreddit over the past year have already been lost. The same goes for other investors. If you have a 401(k) plan or a company-sponsored IRA account, don’t look at the statements because that will ruin your day.
Deutsche Bank economists wrote in a report to clients last month: “We will have a major recession,” becoming the first major bank to downplay a recession in the United States. Bank of America has publicly stated that the mood in financial markets is “recessive”. Goldman Sachs said the tight labor market has “caused a significant increase in the risk of recession.”
What happens in a recession
Recessions are usually characterized by job losses. You may not think this is indicative of today’s job market. Over the past year, the labor market has rebounded strongly. Last Friday, the US Department of Labor announced that 428,000 jobs had been created in April, with the unemployment rate remaining stable at 3.6%. Job postings hit a record 11.5 million in March. That same month, a historic number of 4.5 million people quit their jobs, showing that
Americans feel confident enough to quit their job because they believe there are plenty of other opportunities.
Still, depending on how things unfold, there could be further downsizing in other industries, as the US has seen in the tech sector. With so much hiring due to the strong economy, it could turn out that executives were overly optimistic and now need to cut staff.
Worries about a slowing economy could slow the venture capital engines that have produced many unicorn startups. Unprofitable businesses may not obtain additional financing and resort to layoffs.
What is happening is that the United States could get into a situation where things fall apart. The rapid rise in unemployment is also another factor in the recession. As more people lose their jobs and business conditions deteriorate, those who find themselves in between roles will find it harder and take longer to secure a new role.
Fear takes over
It’s almost a self-fulfilling prophecy. The fear of a recession encourages companies to cut costs to preserve their financial assets. They want to have the money to get through the tough times. Aggressive cost-cutting measures typically include pay cuts and job losses. Unfortunately, this is a common occurrence. The economy goes through these boom and bust cycles quite regularly. For many people, there’s not much choice but to hunker down and get by until better times come.
There is also a behavioral component. As the level of confidence in the economic and financial system erodes, the demand for goods and services decreases. There comes a time when the economic cycle reverses, due to the toxic confluence of rising inflation, loss of confidence, unemployment, falling stock markets and house prices, followed by fear of further losses causing the economy to contract.
How to get through a recession
Now is the time to focus on your work and your career. Make sure your location is secure. Lock in all verbal agreements for a raise, promotion and bonus. It will be awkward and uncomfortable, but ask your boss how stable the company is and where you stand. Ask him if he considers you irreplaceable and a future rising star.
If the answers don’t suit you, don’t sulk. Take action. Immediately switch to job search mode. Get in touch with the best recruiters in your space. Speak with career coaches and resume writers. Start networking on LinkedIn. Now is not the time to be shy. Push yourself to ask everyone in your network for job leads and introductions.
If you lose your job, be sure to put some money aside to pass the time until you find another position. Reduce your expenses and pay down your credit card and other balances that charge ridiculously high interest rates. Switch investments from risky assets to something safer or paying dividends.
Consider going back to school to learn a new marketable, well-paying job. This is what happened after the bursting of the dot-com bubble, the financial crisis and the start of the pandemic. People have taken refuge, not only in their homes, but also in colleges, MBA programs and law schools. They took advantage of the economic downturn to learn and earn more once they finished their studies. You can also undertake gig work, start a side business, or pivot into starting a business. Use the time wisely to reassess what you really want to do with your professional life.