Page 30 - BusinessWest May 15, 2023

Is a Recession Inevitable?
And If There Is One, How Will It Affect You?
BY BARBARA TROMBLEY, CPA
“The Fed is walking a tightrope of slowing inflation and trying to prevent further damage to our economy.”
It seems as if we have been waiting for a recession for quite a while now. Economists initially thought 2022 would bring a recession. Certainly, it seemed as if a recession
was inevitable as the stock market (S&P 500) dropped more than 19% in 2022.
But, by definition, a recession never occurred. Many people think that two consecutive quarters of negative GDP define a recession. Technically, this is not true. The National Bureau of Economic Research considers a wide range of economic indicators when declaring a recession rather than only negative GDP. It defines a recession as “a significant decline in economic activity that is spread across the econo- my and that lasts for more than a few months.”
Warning signals often precede a recession. The U.S. economy has slowed from January through March of this year to just a 1.1% annual pace. Business inventories have reduced; companies usually slash inventories when they anticipate a downturn. Employment also declines before
a recession. I would argue that we have started to see this decline with the large layoffs in the tech industry by compa- nies such as Meta, Google, Microsoft, and Amazon. Higher interest rates have slowed housing sales, and rents are stabi- lizing. Compounding these economic signs is the debt-ceiling debate; House Republicans say they will raise the debt limit in exchange for sharp reductions in spending.
These signs, which we all can see, may just be the tip of the iceberg.
The actions of the Fed in the coming months may dictate
the strength of the potential recession that we are facing. As we all now know, the U.S. has been experiencing critical inflation mainly because of the easy money that was distrib- uted during the pandemic and the pent-up demand for con- sumer goods and travel after COVID.
The only way for the Fed to combat inflation has been
to raise interest rates, making it more expensive for busi- nesses and consumers to borrow money, thereby slowing the economy and lowering inflation. Unfortunately, inflation has been stubborn and has not decreased as quickly as the Fed would like. The quick rise in interest rates contributed to the bank failures that we have seen recently. The Fed is walking a tightrope of slowing inflation and trying to prevent further damage to our economy.
The main questions that people need to ask is how a recession may impact them and how to prepare. Unfortu- nately, many people lose jobs during recessions.
‘Recession-proof industries’ typically are unharmed. The medical field, education, and government jobs may be unaf- fected by a recession. If you do worry about the future of your job, have you saved emergency money to live on for a while? Can you network in your industry to see what other positions may be available if the worst-case scenario occurs and you lose your job?
How about your bank? Is it possible that it collapses as others have? Most people are aware that the FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The stan-
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30 MAY 15, 2023
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