Inflation has eased somewhat but remains elevated. So while consumers are starting 2023 feeling better about the current economic and labor market conditions, their confidence has waned about what’s to come in the next six months. Is a recession looming? Here’s what you need to know.
The U.S.Chamber of Commerce, a leading voice in American business, recently gathered to discuss the economic outlook for 2023. This committee, consisting of chief economists from member businesses, plays a crucial role in shaping economic policies and analysis.
The insights and predictions from these experts provide a valuable glimpse into the state of the economy and what people can expect in 2023.
Encouraging Economic Signs
The “good” news about the U.S. economy right now? Employment. The Bureau of Labor Statistics recently reported that the number of people filing for unemployment benefits fell to a nine-month low of 186,000. The unemployment rate remains at 3.5%, the lowest in a half-century. And there are about 10.5 million job openings.
However, employers added only 106,000 jobs last month – way below expectations – as bad winter weather affected hiring, private payroll firm ADP reported last Wednesday.
While encouraging signs have emerged with the fact inflation has moderated over the past six months, it still remains too high.
Is a Mild Recession Imminent?
This year, the possibility of an upcoming recession still looms large and may feel like a big gray cloud hanging over your finances.
Talks of a possible recession have been circulating for a while, and the U.S. Chamber of Commerce's Chief Economists Committee has now weighed in on the matter. The committee members reached a group consensus that 2023 will see a short and mild recession.
The economic downturn is expected to be triggered by a combination of factors, including rising interest rates that are putting a strain on both consumers and businesses. Another significant contributor is the depletion of savings built up during the COVID-19 pandemic as consumers spend more freely.
How it Could Affect Businesses and Families
Dubbed the ‘richsession’, the expected recession in the US will hit the richest Americans harder than those at the bottom, the Wall Street Journal said last week. But analysts say there are reasons to believe any coming recession would unfold like the ones before, hurting the poorest the most.
Businesses will also be affected. To keep their customers in harder times, companies are less likely to transfer price hikes to them, resulting in a probable reduction in their profit margins. Despite the anticipation of a slight economic downturn, there will always be negative impacts of a dip in the economy. Could this be the first recession that does not receive any additional support from fiscal or monetary policy, apart from the automatic stabilizing measures?
It’s thought that relieving the effects of the recession through aid from Congress and a relaxed monetary policy by the Federal Reserve would only escalate inflation, defeating their own purpose. This leaves families and businesses to endure the economic crisis with the resources they have on hand.
How to Prepare
You may be wondering what you can do to protect yourself from a possible recession. Here are some tips you can implement over the next couple of months.
Having an emergency fund, particularly in an FDIC insured account, is essential for retirees during market downturns and economic recessions. This ensures that YOUR hard-earned savings retain value and provide you with a reliable source of funds for unexpected expenses.
Retirees who have built up an emergency fund have greater financial security and independence, reducing the need to rely on credit or other sources of income during tough economic times.
Having access to your own savings in a secure and easily accessible account can provide peace of mind and help retirees weather any financial storms that may come their way. However, there are more strategies you need to adopt in order to help see your money grow, mainly through the right investment strategy.
Typically, a recession leads to quieter returns across the board for most stocks and investment asset classes.
Some businesses and securities will still thrive, but there are never guarantees. Also, the high inflation and rising interest rates you’re seeing right now will play a role that’s yet to be fully determined and accounted for.
During a recession, investors tend to look for more “secure” options, which sometimes means bonds, Treasury bills, or dividend-paying stocks that pay out a level of regular income.
This way, if there is little or no growth, investments can still generate a return that you can reinvest or spend. But remember, don’t put all your eggs in one basket. You can diversify and invest in other ways that suit your outlook and wealth-building goals.
For retirees, diversifying investments is crucial in maintaining financial stability and reducing the impact of market fluctuations during a recession. Holding a mix of assets, such as real estate, stocks, bonds, and cash, can help mitigate the risk of loss and provide a more balanced portfolio. Owning a house and having a savings account is a good start in diversifying investments, as it provides a combination of real estate and cash in the portfolio.
Diversifying investments can help retirees minimize the emotional impact of market swings and ensure that their savings last throughout their retirement years. By spreading out their assets, retirees can better weather economic storms and have a greater chance of achieving their long-term financial goals.
For retirees, having multiple sources of income can provide financial stability during times of economic recession. This can include part-time work, rental income, or selling goods and services online. In today's uncertain job market, diversifying income streams is just as important as diversifying investments.
Even if retirees have a stable pension or Social Security income, a second source of income can help to mitigate the impact of any financial shocks, such as inflation or market downturns. In the event of a recession, having additional sources of income can help retirees maintain their standard of living and provide a safety net in case of unexpected expenses.
By exploring new ways to earn income, retirees can increase their financial security and even have the potential to start a successful new venture as the economy improves.
Final Thoughts
It's important to be mindful of your finances in the coming months in order to brace yourself for a mild recession. Having a diverse portfolio, multiple sources of income, and an emergency fund in place are just a few strategies to help you weather the economic downturn. Utilizing the services of a trusted Fiduciary Financial Advisor can also be incredibly valuable in these uncertain times.
At NJM Wealth Preservation Strategies, we can provide expert guidance on investment strategies, retirement planning, tax planning, and debt management to help you make informed decisions and secure your financial future.
With our expertise and personalized approach, you can feel confident in your financial stability, even during a mild recession.
If you would like to explore our financial strategies during these uncertain times, reach out to us here today.