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Common Signs of a Recession

You’ve probably been hearing a lot about inflation rates skyrocketing, which might have you thinking about that scary ‘R’ word—recession. You may be wondering, “Is this something we should be bracing ourselves for?”

It’s tough to say with certainty whether a recession is looming. However, there are a few common signs that could tip you off. 

Let’s break down a few signs that might hint a recession is heading our way:

  • Treasury bonds – If people start buying up treasury bonds, it could point to a recession. These are essentially the “comfort food” of investments—low risk and fairly reliable. So, if demand for these bonds goes through the roof and their interest rates and yields drop, that’s something to watch.
  • Wage increases – Businesses might start throwing money at their employees and hiking up wages like there’s no tomorrow. If they do this because they’re desperate to fill positions, it can actually end up slowing business growth. And, later on, they might need to cut jobs.
  • Inflation – If your dollar isn’t going as far as it used to (thanks to climbing inflation) that’s another red flag.
  • Unemployment – Notice a big jump in how many folks are out of work? That’s another key sign that a recession might be on its way.
  • Real estate slows – Lastly, if fewer people are buying homes or property values take a nose-dive, that’s another signal to watch out for.

This doesn’t mean a recession is guaranteed. But if you’re seeing a few of these signs, it might be a good time to revisit our free recession guide and figure out the best steps to protect your finances. Keep your eyes open, and stay smart!

What to Expect During a Recession

If we do in fact face a recession, here’s what you can expect during the five stages:

  1. The Dip (Recession): First, the economy won’t be thriving. Jobs might be hard to come by, folks aren’t spending as much, and businesses just aren’t producing like they used to.
  2. The Bottom (Trough): Next, we hit the lowest point. Jobs are hard to find, and it feels like things couldn’t get worse.
  3. The Climb (Recovery): Then, the economy begins to grow again, but it’s a slow climb. Businesses and people alike start spending a bit more, but cautiously.
  4. The Thrill (Expansion): This is when the economy is growing. New jobs are popping up, people feel hopeful about the future, and businesses are doing well.
  5. The Top (Peak): Finally, we hit the economy at its best, but what goes up must come down. This peak stage lasts until the economy starts to slow down or we take another dip into a recession, repeating our economic roller coaster ride.

These stages are a part of the normal economic cycle. The important thing is to stay informed and prepared.

How a Recession Can Impact You

Almost everyone can feel the sting of a recession, no matter how much you make or how many people you live with.

  • Living Costs Surge: The cost of living often rises during a recession. Rent, utilities, food, and basic household goods could all get pricier. Likewise, lenders tend to get stricter during a downturn, making getting a new loan or credit line tougher. Plus, interest rates usually go up, which means fewer homebuyers out there. But house prices and sales often drop during a recession. 
  • Price Surprises: Even though essential items can be pricier, entertainment and travel might get cheaper. If your finances haven’t been hit as hard as others, you could snag a bargain on luxury items or trips you couldn’t afford before.
  • Savings and Spending Squeeze: Inflation, lower wages, and higher housing costs could mean tightening your belt and cutting back on non-essential spending. You might not be able to save as much, or you might have to dip into your savings just to get by. However, some savings accounts might offer higher interest rates to fight inflation.

How a Recession Can Impact Your Job

Job security often takes a hit during a recession. Businesses are always trying to balance their books, and when things get difficult, they may decide to cut jobs and hours. This could mean layoffs, smaller paychecks, and higher unemployment rates. 

When businesses aren’t doing well, they’re not as likely to hire new employees. And there will likely be more people in the same boat as you, so competition for available jobs can increase.

A recession can slow down your career progression. Companies tend to put promotions and career development opportunities on hold during tough economic times. Employers are less likely to give out bonuses or raises. This means it can take longer for you to reach your career goals.

How a Recession Can Impact the Economy

The economy slows down when a recession hits since people hold back on spending, causing demand to go down. With less consumer spending and higher operating costs, a recession can lead to: 

  • Closures or bankruptcies, especially smaller ones.
  • A big dip in profits and stock value. If you’ve invested, your portfolio might take a hit. 
  • More layoffs and further slow the economy.

Governments often spend more during a recession to help stimulate the economy. They might invest in public works projects, offer financial aid to struggling businesses, or provide more support to unemployed workers. This can lead to increased government debt.

A recession can be challenging, but economies are resilient. They tend to go through cycles of growth and recession over time.

Preparing for a Recession

You can cushion yourself against the financial bumps that come with a recession. Getting ready for a recession is about planning and preparing, not panicking. Take it one step at a time, and you’ll be in a better place to ride it out.

  • Build a safety net for rough times. Try to save up about three to six months’ worth of living expenses if you can. Set up automatic savings transfers to help grow your safety net.
  • Trim your spending. Give your budget a once-over to see what expenses you can cut. 
  • Since layoffs are common during a recession, keeping your resume up-to-date is a good idea. That way, if you lose your job, you’re ready to start job hunting right away.
  • If you’re in an industry that often faces layoffs during a recession, you might want to consider a career change.