Is the Economy Improving or is a Recession Coming?

Many economists have forecasted a recession this year, but views vary on the timing and severity. Now, Wall Street is assessing whether 2023 will further punish investors or if it could offer some relief to battered portfolios. 

You turn on the news, what do you see? “A RECESSION IS NEARLY HERE!”. Panic sets in. The next day you turn on the radio, what do you hear? “THE ECONOMY IS BOUNCING BACK!”. Relief replaces panic. There’s no wonder so many investors are confused on where they stand and how to protect and grow their wealth.

So what is happening to our economy? And how do we plan for the future appropriately? Let’s get the facts…

U.S. Economy 2023

The state of the economy is a matter of great interest and concern for many individuals and businesses alike. 

As retirees, how the economy pans out has a direct impact on financial security and stability. With various economic indicators signaling both growth and potential decline, it can be challenging to determine whether the economy is improving or if a recession is looming.

We'll explore both sides of the coin and provide valuable insights on how you can protect your finances and make the most out of the current economic conditions.

Understanding the Economy and Inflation

First, it's important to understand that the economy is a complex system with many interdependent factors. There are several key economic indicators that are often used to gauge the health of the economy, including gross domestic product (GDP), inflation, employment, and consumer spending.

GDP is a measure of the total value of goods and services produced in a country, and it is often used as a proxy for overall economic growth. In the United States, GDP growth has been generally positive over the past several years, with an annual growth rate of 2.9% in 2022. This indicates that the economy has been expanding in recent years.

However, inflation has also been on the rise. Inflation is a measure of the rate at which prices for goods and services are increasing. In the United States, the inflation rate at the end of 2022 was 6.5%. However, the Fed is determined to bring inflation back down to 2%, which may not be reachable before 2024. This could be a sign of underlying economic weakness, as rising inflation can erode the purchasing power of consumers and ultimately lead to lower economic growth.

2023 Outlook

As a current or aspiring retiree, it's crucial to stay up-to-date with the direction of the economy to make informed decisions about your finances. However, recent reports indicate that consumer spending is strong, and inflation is dropping, which is a positive sign. Although sales of durable goods are slowing, there may be other challenges ahead.

Despite the potential for a recession, experts predict that it won't be severe, and a stagnant economy may be a more significant concern. On the contrary, the low unemployment rate and job growth in the country may indicate that an imminent recession is not likely.  So, is the economy improving or is a recession coming? 

The answer is not clear-cut. While GDP growth and consumer spending suggest that the economy is improving, rising inflation and ongoing labor market challenges could indicate underlying weakness. Additionally, there are several other factors that could impact the economy in the coming months, including supply chain disruptions, changes in government policy, and global economic conditions.

How To Prepare for Inflation and a Potential Recession

Whatever direction the economy goes in the coming months and years, preparing for inflation and a recession is critical to safeguard your financial stability. These economic conditions can significantly impact your retirement savings, investments, and overall lifestyle. Therefore, it's essential to have a plan in place to ensure that you're adequately prepared for such events.

To prepare for inflation, it's vital to invest in assets that can hedge against inflation. You can consider the following investing tactics: 

  • Real estate is an excellent inflation hedge since it tends to increase in value with inflation. 
  • Commodities such as precious metals, agricultural products, and energy can also protect against inflation, as they tend to rise in value with inflation. 
  • Inflation-protected bonds are also an excellent option, as they provide a fixed income that adjusts for inflation.

When it comes to preparing for a recession, diversification is key. Diversifying your investment portfolio across different asset classes, such as stocks, bonds, and real estate, can help to mitigate risk during a downturn. It's also crucial to keep your expenses in check and maintain an emergency fund to cover unexpected expenses. Consider reducing your discretionary spending, and focus on essentials to conserve your savings during a recession.

In addition to investing and reducing expenses, it's also essential to do your ongoing research into the state of the economy; including the latest economic indicators, such as inflation rates, employment numbers, and GDP growth. Lastly, consulting with a Fiduciary financial advisor who can help you navigate these economic conditions and make informed decisions about your finances.

Final Thoughts

In uncertain times, having an experienced and professional Fiduciary on your side can be invaluable. As a second-generation Wealth Preservation Specialist, Nic J. McLeod of NJM Wealth Preservation Strategies can provide you with educated industry insights to help you prepare for whatever turn the economy takes.

Whether you're concerned about your investment portfolio, your retirement savings, or simply want to stay informed about your financial outlook, the talented Fiduciary team at NJM are here to help.  

Contact us today to schedule your complimentary consultation.