Fewer jobs and higher unemployment abound
One unfortunate truth of recessions is that millions of people often lose their jobs. As spending slows and the economy shrinks, business profits go down, too. To keep their profit margins afloat, they often slow hiring and start firing to trim the budget.
Yes, recessions tend to reduce prices on cars, gasoline, real estate, etc. During recessions, people have less money or fear having less money, so demand decreases. When demand decreases, prices tend to fall.
Whatever you call it, a recession can impact your finances. Economic expansions create opportunities: new businesses, more jobs, and higher wages. Recessions reduce opportunities: failed businesses, fewer jobs, and lower wages.
17951), co-authors Hilary Hoynes, Douglas Miller, and Jessamyn Schaller find that the impacts of the Great Recession (December 2007 to June 2009) have been greater for men, for black and Hispanic workers, for young workers, and for less educated workers than for others in the labor market.
Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
For nonretirees, that means setting aside three to six months' worth of living expenses in a relatively safe, liquid account—such as an interest-bearing checking account, money market savings account, money market fund, or short-term CD—plus enough cash to cover any upcoming sizable expenses, such as tuition payments.
The good news is that recessions generally haven't lasted very long. Our analysis of 11 cycles since 1950 shows that recessions have persisted between two and 18 months, with the average spanning about 10 months.
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
According to economic experts, home values will decline by 2-4%, which is the range by which property values often decline during recessions.
Avoiding highly indebted companies, high-yield bonds and speculative investments will be important during a recession to ensure your portfolio is not exposed to unnecessary risk.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.
Typically, prices do not fall across the board unless the economy slows or even tips into recession, which would reduce consumer demand but also impose economic hardship, some economists told ABC News.
When purchasing a home, you have the choice of an adjustable-rate mortgage (ARM) or a fixed-rate mortgage. Interest rates usually fall early in a recession and then rise later as the economy recovers. This means that the adjustable rate for a loan taken out during a recession is likely to rise once the downturn ends.
The unemployment rate almost always jumps and inflation falls slightly because overall demand for goods and services is curtailed. Along with the erosion of house and equity values, recessions tend to be associated with turmoil in financial markets.
The 2007-09 economic crisis was deep and protracted enough to become known as "the Great Recession" and was followed by what was, by some measures, a long but unusually slow recovery.
Inflation Is Eating Away at Your Funds
According to the Bureau of Labor Statistics, the average rate of inflation from April 2023 to April 2024 was 3.4%. If you've been keeping your money in a savings account with a lower yield than the rate of inflation, you should switch over to a higher-yield account.
Liquidity is crucial in uncertain times. “I've seen people struggle during a recession because their assets were too tied up in investments. This is why I suggest keeping some of your money in cash or in easily liquidated instruments like Treasury bills,” Kovar said.
U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government guarantees timely payment of interest and principal, backed by its full faith and credit.
Lasting from December 2007 to June 2009, this economic downturn was the longest since World War II. The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II. Beyond its duration, the Great Recession was notably severe in several respects.
Typically, interest rates decline in the early stages of a recession to encourage spending and borrowing. While lower rates can be advantageous if you're considering loans, they may also slow the growth of funds in savings or CD accounts, affecting the interest earned on your savings.
Industries affected most include retail, restaurants, travel/tourism, leisure/hospitality, service purveyors, real estate, & manufacturing/warehouse. Despite the severity of any past downturn, markets have always recovered, and in many cases, they have seen a monster rebound.
As long as your deposit accounts are at banks or credit unions that are federally insured and your balances are within the insurance limits, your money is safe. Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank.
Credit unions and banks are both insured, with most banks being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer.