While the word “recession” evokes negativity in the minds of most investors, the truth be told there is some good about this general period of decline. Most people would agree with Fidelity that, “A recession is an extended period of economic decline.” Fidelity also suggests that, “Certain indicators, like corporate earnings, consumer spending, and jobs data can give you a hint at the economy’s overall health.” These indicators tend to outweigh the recent controversial commentary by many US leaders that do not believe the country is in a recession (as of September 2022).
In any case, a recession may be the best time to re-evaluate your financial portfolio and consider how it may impact you, your family, the economy, and the world. Let’s begin with the bad and the ugly and finish with the good.
How Do We Really Know If We’re in a Recession
There are a variety of indicators that are used to determine if our country is truly in a recessionary period including earnings, consumer spending, employment, and yield curves:
- If companies are reporting a loss in corporate earnings, it may signify an economic decline. While some of the large companies are keeping up, middle America is suffering the most.
- When consumer spending is lessening, a weakened economy is the result. Naturally, rising prices have shown slower spending, especially for lower-income families. Even though prices are going up (especially for consumer goods and fuel), demand is currently strong.
- While new employment positions are up, it does not mean they are being filled (post-pandemic). Unemployment is somewhat stable, but any rise in unemployment means the economy becomes less productive.
- Yield curve—the interest rates that are paid by bonds with varying maturity dates—usually invert if long-term bond interest rates become lower than short-term bond interest rates. An inverted yield curve is another key indicator of a recession.
The Bad and Ugly of a Recession
In most historical recessions that last months, the results have shown to be quite devastating. As the decline in economic output worsens and employment rises, there are a number of trickle-down impacts. Due to a decline in sales followed by lowered revenue, companies begin to cut jobs, thus the reason for higher unemployment. This leads to lowered consumer spending and the cycle is ugly. Other areas of impact include:
- The housing and automobile industries are greatly impacted, as buyers can’t afford the interest rates to make their purchases.
- The labor market is challenged in that unemployment rates increase (less people working). While jobs are plenty, the post-pandemic landscape shows former employees not going back to work even though consumer prices are going up.
- Investors in the stock and bond market are losing massive capital based on the actions of the Federal Reserve. Many are seeking alternative forms of investments.
- Corporate revenues for many small to medium business are greatly reduced which may lead to closure or bankruptcy.
For many, a recession is not generally the best time from a personal or economic standpoint, but there is always some good news in every negative situation.
The Good News About a Recession
Good news, you say? There is not a great deal of good news, but consider that this time period is one of the best in your life to re-evaluate your financial portfolio. Let’s review the good news:
- Did you know that periods of recession happen much less frequently than periods of growth. Not only that, historically, recessionary periods are always recoverable and sometimes for the better in terms of income, purchasing power, employment, productivity, gross domestic product (GDP), and more.
- A recession is not always directly related to a bear stock market. You can have one without the other. Now may be the best time to take advantage of lowering stock prices—buy low and sell high.
- Recessions since the 1960s have only lasted between 11 and 16 months. While that may seem like an eternity while you’re going through it, there is much to look forward to. The four phases of expansion in which it begins, matures and ages often ends naturally in a recession.
- This could be an excellent time to buy stocks (while they are worth less) or to consider purchasing gold.
Taking these points into consideration, what is the best response? Reagan Gold Group (RGG) has some suggestions for you.
How Should I React During a Recession?
Even though we cannot predict the timing or full impacts of a recession, what we can do is prepare for the facts we know. First, increase your emergency funds in the case of a financial or job loss. Second, review your financial portfolio and consider a new strategy to hedge against inflation. Third, look at alternative investments such as gold and silver. Reagan Gold Group (RGG) has the experience and knowledge to guide investors through such a time as this. Contact RGG at your earliest convenience and learn more about how to protect your assets during a recession. It is time to take advantage of the bit of good news a recession brings.