FARGO — The easy-to-win trade war with China is looking more like it will be a slobber-knocker and the long-term bond yield curve has inverted. (Ouch!)
Federal deficits are growing, hiring is slowing down and thanks to these signs, more and more economists are coming to the conclusion that the U.S. economy will slip into recession.
A National Association for Business Economics poll found that 38% of the economists it surveyed believed the U.S. economy would slip into recession in 2020. Meanwhile, 34% said they thought a recession would arrive in 2021.
Still, consumer confidence remains strong and consumer spending is a big part of the U.S. economy.
It’s the type of thing that makes you ask: Could we be talking ourselves into a recession?
Debating aside, the U.S. has enjoyed more than 10 years of stock market growth since the Great Recession bottomed out. For the stock market, it’s been the longest bull market on record, albeit, one that’s been a roller coaster lately.
Is the business cycle turning from expansion to contraction?
Is it time to become a recession prepper?
It couldn’t hurt.
Because whether you believe a recession is nigh or not, many steps you can take to prepare for a recession are things it doesn’t hurt to make habits.
Prudence pays off
“We look at recessions, they are definitely part of the normal cycle or the nature of the economy,” says Kim Settel, Gate City Bank’s executive vice president of retail banking and lending. “Certainly, when times are good and times are bad, they’re not necessarily guaranteed to stay in perpetude. It’s always prudent to be prepared for it.”
Settel recommends staying in contact with your financial planner and doing reviews or health checks on your 401k accounts and other investments. That could mean redistributing holdings in stocks or bonds and cashing in on gains made.
Think about what stage of life you’re at and rebalance your investment portfolio to fit your needs and to cushion yourself from market volatility.
Building up a rainy day or emergency savings fund is important, as is having a monthly budget, Settel said.
“It’s always a good time to reassess and look at your budget. What are your spending patterns right now? Are there things you could cut back on?” Settel said.
For example, do you pay fees to a health club you don’t use? Subscribe to streaming services or magazines you don’t use or read? Settel said now is the time to plug those leaks in your budget.
Mortgage rates are at or near historic lows, she said, so refinancing a higher-interest mortgage can also be a monthly money-saver.
Also, many people don’t check their credit reports unless they are worried about fraud or identity theft, but there can be other surprises in a credit report that can affect credit worthiness. So, why wait until you need to buy a house, a car, or take on other debt?
“These are good times to do that as well. Make sure everything is clear and understand what you’ve got out there as far as your credit report. We are always recommending that people look at those things just to make sure there’s no unfortunate surprises,” she said.
Consistency in watching your finances is key and can bring you peace of mind, she said.
“Really, it’s a matter of always being prepared, regardless of what the cycle is in the economy. Just utilizing using those prudent financial resources, being on top of it, and utilizing your relationship with your bank and your financial advisors” is important, she said.
Give yourself flexibility
Greg Sweeney, the chief investment officer for Bell Bank Investment Management, says the strategies to get through an economic slowdown are applicable whether you’re guiding a big or small business or shepherding your personal finances.
“Financial flexibility is the way to get through it. And financial flexibility is simply living within your means, first of all. To the extent you can, pay down debt, because you don’t want to go into a slowdown with heavy debt if you don’t have to,” Sweeney said.
“I prefer to pay down the highest interest rate debt there is, which is typically credit cards,” he said. “Some people would tell you pay down the smallest loan first, right? Because then you can see progress happening better that way.
“Everyone’s got their way of dealing with this, but it’s always better …. If you can always live within your means. It makes life a lot more comfortable,” he said.
Focus on the future
Focusing on the long term is also important, particularly with stocks.
“These things are more often than not, just temporary. You can see a certain amount of (volatility) in your investments,” he said. “Again, it’s scary, but when you invest, you’re investing for the long term, not the short term. And the stock market, for example, has a 5% decline three times a year on average; has a 10% decline every 18 months, on average; has a 20% decline, every three years, on average.”
Slowdowns can work on people’s minds, and curtail their willingness to invest, he said. The trick to weathering a recession is to “maintain a positive mental attitude,” he said, and keep investing.
He points to the painful stock market crash of 1987, with the 22.6% decline in the Dow Jones Industrial Average on “Black Monday,” Oct. 19, 1987.
“That was just a giant wipe-out,” Sweeney said. “At the time, it was just a major disaster. ... Today, you can hardly find that on a screen. Just a horrible, horrible day, and you can hardly find that on a chart, now.”
Of course, it doesn’t hurt to have emergency savings.
“Do you have some savings, just in case your employer does lay you off?” he asks.
He suggests setting aside enough cash to pay six months of living expenses, if you can.
“Pay the rent, pay the electric, pay the phone bill, just in case you are laid off,” Sweeney said.