Recession is coming
The U.S. economy is back in the headlines, with more economists and financial experts warning of an impending recession at some point in the next year.
It’s certain that the recession will come eventually. The questions are: when, how will it impact the market, small businesses and are there any reasons to be afraid?
Is a recession coming? Yes, it is! Recession is a normal part of a business cycle, so, yes, the current phase of economic boom will eventually turn into recession. That’s for sure.
What’s happening?
A growing number of economists and financial experts are predicting that the US is headed into a recession defined as two sequential quarters with a significant, pervasive decline in economic activity.
Why does it matter?
Past recessions have been marked by widespread layoffs, bankruptcies, higher borrowing costs and turbulence in the stock market.
What’s next?
No one can predict the future, but it’s vital to remain calm. Gather facts and move deliberately to protect your financial position.
KEY PREDICTIONS
1. The Federal Reserve raised interest rates last week by 75 basis points, the biggest single increase since 1994—and signaled more big hikes to come—in its continued effort to tame the highest inflation the U.S. has seen in 42 years.
2. Stocks now face further downside risk. It’s notable that even as consumers’ inflation expectations have risen significantly, the market’s gauge of inflation expectations, known as “breakeven” rates, appears rather stable.
3. Bank of America says U.S. economy has a 40% chance of being in a recession next year.
4. Elon Musk, Roubini and Goldman also Warn of Rising US Recession Risk.
5. World Bank warns of recession risk due to Ukraine war.
6. JPMorgan Chase CEO Jamie Dimon first warned about the significantly increased odds of a recession in April, arguing the ongoing war in Ukraine, high inflation, and the Federal Reserve’s hawkish monetary policy could combine to create serious economic pain for average Americans.
7. Jeremy Grantham has been warning of an impending blow-up in stocks for years.
8. Deutsche Bank, in April, became the first major investment bank to argue that the U.S. would fall into a recession by 2023.
9. Wells Fargo’s CEO Charlie Scharf said this week there is “no question” the U.S. is heading for an economic downturn.
10. Even the Federal National Mortgage Association, a.k.a Fannie Mae, has argued the U.S. is heading for a recession by the second half of next year.
WHAT CAN SMALL BUSINESSES IN KITSAP DO TO SHIELD THEMSELVES FROM RECESSION?
Recession is a scary word for every business. But, it’s particularly worrisome for small businesses who may not have the same financial cushioning as large companies.
In the months leading up to a recession, consumer spending and available capital can both decline, which can cause a business to feel a pinch in their budgets.
Reviewing your marketing strategies can help you come up with new ideas to increase sales and find better ways of using your marketing dollars. You should focus on communicating your competitive advantage.
WHAT HAPPENED DURING PAST RECESSIONS?
There have been more than 40 recorded recessions in the United States, and each is unique. Some last for months; others last years. The Great Depression was the worst in U.S. history. The financial crisis of 2007-2009 was the worst of many of our lifetimes.
Each happened for different reasons, and the next recession will have a catalyst of its own.
• U.S. recessions have become shorter and less frequent in recent decades.
• Recessions are typically preceded by monetary and fiscal tightening, and often prompt a reversal of those policies.
• The COVID-19 recession was the shortest on record, while the Great Recession of 2007-2009 was the deepest since the downturn in 1937-1938.