Is this a recession or not? While it's 'not fully clear,' right here's what it may imply for American shoppers

Americans wish to know: Is this a recession or not?

Officially, the National Bureau of Economic Research defines recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

In truth, the most recent quarterly gross home product report, which tracks the general well being of the financial system, confirmed a second consecutive contraction this yr.

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However, each President Joe Biden and Federal Reserve Chairman Jerome Powell mentioned we’re not in a recession simply but, pointing to the robust labor market and rising wages.

“One question is answered, but a larger one is not,” mentioned Mark Hamrick, senior financial analyst at Bankrate.com. “We now know that the economy has contracted for two consecutive quarters.

“It is just not fully clear whether or not a recession has begun given the continued energy of the job market,” he said.

Even if the NBER doesn’t declare a recession, the economy is far from out of the woods.

Higher interest rates and unrelenting inflation pose major dangers ahead.

And regardless of the country’s economic standing, consumers are struggling in the face of sky-high prices, and nearly half of Americans say they are falling deeper in debt.

While this may look different from previous downturns, there are certain things that rarely change.

1. It could get harder to find a job: Recent signs show the labor market, which was on fire in 2021, may be beginning to cool.

Hiring has slowed somewhat already, while uncertainty is running high about where the economy is headed.

Although the unemployment rate has remained just above the pre-pandemic low, “Powell appears to be warning us that the job market will doubtless weaken on this increased rate of interest surroundings amid the combat towards traditionally excessive inflation,” Hamrick said.

The Fed on Wednesday announced another major rate hike of 0.75 percentage points to cool things down — particularly inflation, which remains at a 40-year high.

2. Your investments may falter: Meanwhile, fears that the Fed’s aggressive moves could tip the economy into a recession has caused markets to slide for weeks in a row.

“You’ve had all asset courses get pleasure from that final shot of liquidity over the past couple of years,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York. Now, “there are extra headwinds that the markets face than tailwinds.”

In times of turmoil, some advisors recommend a shift to stocks paying a high dividend while sticking with short- to immediate-term fixed-income assets.

However, Boneparth also advises clients to look for opportunities.

“Good buyers should be proficient at not simply shopping for on the way in which up however shopping for on the way in which down,” he said.

During the last recession, “anybody with hindsight would have loved a number of the steepest reductions within the capital markets,” he said.

3. Home price inflation will fall: House prices haven’t exactly fallen, but they aren’t rising as fast as they once were and a recession would very likely cause the housing market, as a whole, to slow down, according to Jacob Channel, senior economist at LendingTree.

Lending standards could also tighten, which means that many would-be homebuyers could find that getting a loan is difficult, or they’ll have to pay a higher interest rate to close the deal. “All in all, which means a recession would make it tougher for individuals to get mortgages and to purchase properties,” Channel said.

However, this won’t be a “2007-2008-style crash,” he added.

The housing market is in a much better place than it was in the early 2000s, Channel said. And, even if prices fluctuate, “so long as you keep the course and preserve making your funds, you may in all probability find yourself being OK.”

While the impact of a recession would be felt broadly, every household would experience a pullback to a different degree, depending on income, savings and financial standing.  

Still, there are a few ways to prepare that are universal, according to Larry Harris, the Fred V. Keenan Chair in Finance at the University of Southern California Marshall School of Business and former chief economist of the Securities and Exchange Commission.

Here’s his advice for consumers:

• Streamline your spending. “If they count on they are going to be pressured to chop again, the earlier they do it, the higher off they’re going to be,” Harris said. That may mean cutting a few expenses now that you just want and really don’t need, such as the subscription services that you signed up for during the pandemic. If you don’t use it, lose it.
• Avoid variable rates. Most credit cards have a variable annual percentage rate, which means there’s a direct connection to the Fed’s benchmark, so anyone who carries a balance will see their interest charges jump with each move by the Fed. Homeowners with adjustable rate mortgages or home equity lines of credit, which are pegged to the prime rate, will also be affected.

  That makes this a particularly good time identify the loans you have outstanding and see if refinancing makes sense. “If there’s a possibility to refinance into a hard and fast charge, do it now earlier than charges rise additional,” Harris mentioned.

• Stash additional money in Series I bonds. These inflation-protected property, backed by the federal authorities, are practically risk-free and pay a 9.62% annual charge by October, the best yield on document.

  Although there are buy limits and you may’t faucet the cash for at the least one yr, you may rating a significantly better return than a financial savings account or a one-year certificates of deposit, which pays lower than 1.5%.

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