Recession is a word on everyones lips these days.
Are we heading for one, or are we in a recession?
If we are, what can we do to mitigate the damage?
Talk of a recession is nothing new.
In fact, people tend to toss the word around every couple of years.
Lets talk about it.
Are We in a Recession?
Unfortunately, the NBER waits until all data is in before making a determination.
That means a recession is typically declared retroactively.
In other words, we wont know if were officially in a recession until after the fact.
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Even having to wonder Are we in a recession?
adds stress to our daily lives.
We can help with that.
What Causes a Recession?
No single event can answer the question Are we in a recession?
Its often a combination of factors.
Below are some of the most common causes.
Economic Shocks
Sudden unexpected events can contribute to a market shift.
One of the best examples of this was the COVID-19 pandemic, which caused global shutdowns and industry disruptions.
Deflated Consumer Confidence
While recessions typically follow market disruptions, often theyre driven by consumer behavior.
All these things can help the economy grow.
When people are pessimistic about the future, they tend to spend less and stick to the status quo.
Declining Business Investments
Businesses play a large role in keeping the economy strong.
When employers reduce hiring or cut back on purchases, it can lead to a recession.
Weiss said while unemployment usually increases during a recession, often data doesnt account for underemployment.
Trade Disruptions
The U.S. economy relies heavily on trade activity, so disruptions can lead to a recession.
International conflicts, supply chain issues and a decline in exports for any reason can lead to a recession.
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How Does a Recession Impact Everyday Life?
Here are some of the top ways a recession might impact your everyday life.
Income Reduction
One of the most devastating events that can happen during a recession is a job loss.
Thats the biggest disruption.
However, that will pass.
Lowered Credit Limits
Banks and credit unions worry about economic uncertainty, too.
They may be stingier about lending or even lower credit limits.
This can impact revolving lines of credit like credit cards.
This can result in a drop in your credit score.
Declining Investments
As the economy tightens, people may be moreconservative with investments.
This can keep retirement accounts and college funds from growing.
Usually, though, this corrects itself once the economy improves.
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Reduced Customer Spending
Even without job loss, many consumers may pull back on spending.
They may feel nervous about making purchases, especially when it comes to big-ticket items.
Consumer spending is 70% of GDP, Gabrail said.
So when consumers pull back, naturally that has implications on the economy and is going to cause issues.
It remains a possibility, though.
Weiss said one of the major issues the economy faces right now is uncertainty.
Both individuals and businesses are very uncertain right now about policies and the future direction, Weiss said.
Whether were heading toward one or not, it cant hurt to prepare.
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Stephanie Faris is a professional finance writer with more than a decade of experience.
