Recessions are a normal part of the U.S. economy, but they can be scary. The typical recession comes with increased layoffs and reduced output, slower consumer spending, lower home values, and negative impacts on the stock market.
Many workers are already on edge right now because elevated inflation has already hurt their personal finances, eroding their buying power as high interest rates have driven up the cost of everything from buying a car to owning a home.
Lots of experts predicted an impending recession when the Federal Reserve began hiking interest rates to fight inflation. But that has yet to happen, and some economic experts are now divided on whether it will happen in 2024, or not all.
The Federal Reserve Bank of New York says that there’s a 56% probability that the U.S. economy will slip into a recession by September 2024. Interest rates are at their highest level in two decades as the Federal Reserve has tried to tamp down inflation, and rising interest rates often lead to a recession.
Additionally, a recent Bloomberg Economics model shows a slightly greater than 50% chance the U.S. will fall into a recession in 2024. The model factors in consumer spending, employment, factory output, and certain measures of income to determine if a recession is likely.
As with any topic, there are experts on the opposing side predicting that a recession probably won’t happen. Part of the reasons for their optimism come from recent economic data. For example, an economist at U.S. Bank says we may avoid a recession next year thanks to the economy’s growth of 4.9% in the third quarter of 2023, which was much better than growth in the first half of this year.
UCLA economists agree and recently said there won’t be a recession next year, though they expect the economy to be weak.
Adding to those who don’t expect a recession for this year is Federal Reserve Bank of Atlanta President Raphael Bostic, who said recently that while the economy is slowing down, he doesn’t predict that there will be a recession.
Whether an official recession materializes or not, most economic experts expect economic growth to be modest in 2024. That could lead to some companies pulling back on hiring, keep businesses from making new investments, and result in consumers spending less money. That could impact your finances even if an official recession never shows up. So here are a few tips for getting your finances in order, regardless of what happens.
Pay off debt: With interest rates currently high, your credit card debt or auto loan is costing you much more than in the past. There are lots of different ways to tackle debt, including the debt snowball method, but the most important thing is to get started. If an economic slowdown comes, having high-interest debt paid off will put you in a better financial position.Save money: 62% of Americans are living paycheck to paycheck, so this is easier said than done. But putting even a little money aside in a high-yield savings account now will help protect you if you lose your job, face a pay cut, or encounter a financial emergency.Cut back on spending: This one goes hand in hand with saving money, but I’m mentioning it here because if your finances are currently in good shape, you may not be thinking about it. But if an economic slowdown is around the corner, now is the time to cut back on spending. Find a few monthly expenses you don’t really need and instead begin funneling that money into savings.Consider a side hustle: More than 50% of Americans already make money from a side hustle or gig work. If you’re already feeling the pinch of higher interest rates and elevated inflation, you don’t need to wait for a recession to start earning some extra income. The average gig worker brings in about $473 per month.
Instead of spending too much time trying to decipher whether a recession is around the corner, taking a few steps now to get your finances in the best shape possible will benefit you whether a near-term downturn ever comes or not.
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