Are We in a Recession?

The Money Minute is your one-stop-shop for financial advice. Subscribe to get three articles/week on the best money tips, delivered straight to your inbox. 💸💸💸

Are we in a recession? Opinions are pretty split.

Earlier this month, Morgan Stanley CEO James Gorman said: “It’s possible we go into recession, obviously, probably 50-50 odds now. But we’re unlikely at this stage to go into a deep or long recession.”

Last month, Goldman Sachs chairman Lloyd Blankfein said we’re at “certainly a very, very high risk factor” for recession. However, he added that recession is not “baked in the cake.” Whatever that means. I certainly wouldn’t call this economy a piece of cake, but that’s just me.

Last week, Bank of America analysts put the risk of recession at 40%. So, projections are all over the place, but increasingly creeping up.

My opinion? I think we are in a recession. Even though, technically, we aren’t.

I’ll explain.

Recession is a macroeconomic term that has traditionally been defined as two consecutive quarters of economic declines using markers of GDP.

In recent years, however, that definition has expanded a bit to include more markers of economic health. Now, NBER (the folks who actually determine if there’s a recession) says a recession is, “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

We’ve already had one quarter of negative GDP. So we can’t technically call it a recession until we have the data to assess these economic markers at the end of next quarter.

I’ve always had a hard time with this definition, because it relies on what economists call “lagging indicators.” And lagging indicators are basically indicators that you can’t recognize until after they’ve already happened. In other words, the way all the data works (and all the revisions to said data!), we don’t know we are in a recession until we’ve been in economic decline for half of a year. And who does that help? Should we open an umbrella and wait for rain? Or worse— should we leave our umbrella at home and wait for it to rain? Nah. I’d rather be prepared, and I’m preparing for a recession.

Ride the rollercoaster.

As scary as it sounds, recessions are a natural part of an economic cycle. Yes, there are a lot of crappy parts of them. Recent media fear-mongering has laid out the vicious cycle of recessions at length: when consumers start to spend less, or hoard out of fear, then businesses start facing more financial stress and start to hire less. Then waves of unemployment. Then incomes fall. Then consumers spend even less. Lather, rinse, repeat.

But, we haven’t not recovered from a single recession yet. And, recessions could be big money making opportunities as soon you reframe that fear.

So stick to all the healthy habits we talk about all the time here on The Money Minute. Recessions are times when great fortunes can be made if you really lean in to financial literacy. Lots of investments are on sale. But remember, like the clearance rack, just because it’s a deal doesn’t necessarily mean it’s a deal for you. However, there are real gems that your future self will thank you for buying. I mean, I would have loved to have extra money and all this knowledge back in the 2008 recession. Dang would this future self have loved that Recessionista if she bought more instead of panicking.

Just like any other difficult situation, there are ways to mitigate challenges by being prepared. I'll be talking about how to prepare for recession a lot in the coming weeks. But for now, here’s a tip you can take straight to the bank: do some credit score hygiene. During recessions, lenders tend to make borrowing more restrictive. As the economy continues to slow down, potential borrowers will need higher credit scores or larger down payments to quality for loans. Check out my Bulletin article 5 Essential Credit Do's and Don'ts for the best tips on how to recession-proof your credit score.

xo,

Do you want to get rid of debt, lock in that raise, plan for your best retired life, find unclaimed money and generally cruise along the road to financial freedom? Here are more ways to get it together and get it all:

🎙Click here to subscribe here to my daily financial advice podcast, Money Rehab.

📖 Click here to order my latest book, Miss Independent.