•A downturn in the economy is being worried about by analysts due to rising prices and interest rates.
•Although we cannot predict when a recession will occur, it is nevertheless advisable to be ready for one.
Right now, it's looking more and more likely that the American economy will be able to avoid going into a recession in 2022. After all, it's the latter half of September, and the unemployment rate is still low, and the labor market is still robust.
However, economists continue to worry that conditions may noticeably deteriorate in 2023, and this is understandable. Consumers urgently need relief as inflation continues to climb. Therefore, the Federal Reserve intends to keep raising interest rates in an effort to curb inflation and lower living expenses to more manageable levels.
The Fed wants to steer the economy into a situation where consumer spending declines just enough to allow supply to catch up with demand, but not too much that the economy starts to suffer. To that end, it has raised interest rates and made borrowing more expensive. But finding that balance is incredibly difficult. And there's a good chance that interest rate increases will in fact cause consumer spending to fall precipitously enough by 2023 to enter a recession.
But even though it's probable that we'll see a recession in 2023, there's no need to become alarmed.
Not every recession is the same.
We frequently picture protracted periods of high unemployment and overall depressed economic conditions when we think about recessions. Yet not all recessions last for very long. You can go into a recession and come out of it a few months later. And given how strong the job market is currently, a recession in 2023 may very well take place in that scenario.
Of course, that is if we ever get to that stage. It's feasible that consumer spending may gradually decline month over month to keep inflation from spiraling out of control and harming the economy.
Preparing for a recession
In the end, only time will tell if the economy deteriorates sufficiently to enter a recession in 2023. In any case, though, becoming ready for a downturn is a wise move since even if one doesn't occur, your finances will have been strengthened.
Increasing your emergency reserve is arguably the best preparation for a recession. In fact, you might want to strive to save up to a full year's worth of costs in case you lose your job during a recession and it takes some time to locate another. However, if you currently have two steady jobs and a dual-income household, you might feel completely at ease with a six- or eight-month emergency fund.
To possibly avoid being laid off, improving your job skills is a smart alternative. If downsizing becomes inevitable, it will likely be harder to let you go the more value you add to your organization.
Overall, without a crystal ball, we are unable to predict whether or not there will be a recession in 2023. However, if you take the necessary precautions, you shouldn't have to actively worry about one.