Due to current economic conditions, many Americans are worried we may be on the cusp of entering another recession. Whether you were an adult during the 2008 recession or you watched from the sidelines as your parents navigated it, the thought of going into another one may fill you with unease. Below are some tell-tale signs of a recession, as well as tips that may come in handy should the experts’ predictions come true.1
The top warning signs of a recession
Rising interest rates
Currently, the Fed is raising interest rates to combat inflation. A high-rate environment makes borrowing more expensive. This encourages saving and reduces the amount of money in circulation. Sometimes, when rates increase too quickly, a recession can result.
The yield curve
The yield on long-term U.S. government bonds helps economists forecast the possibility of an on-coming recession. They compare it to the yield of short-term bonds to gauge economic outlook. When they fall below yields on short-term bonds, investors take this as a warning sign. In April, a troubling inversion occurred as 2-year U.S. Treasury yields rose above 10-year yields.2
Tips during a recession
Review your budget
During economic downturn, you may not be able to maintain the same standard of living. As a result, you’ll need to make some changes to your budget. This may mean temporarily doing without certain luxuries, such as an extra streaming service. A tool like Money Management can help you pinpoint where your money is going so you know where to trim. The funds you redirect away from certain categories can go toward basic needs like food, housing, and health care.
Pay down high-interest debt
Economic conditions influence interest rates and may make borrowing more expensive as a result – particularly on variable-rate products like credit cards. That’s why it’s important to pay down any variable-rate debt during inflation, as putting it off may leave you subject to higher interest payments in the future. The last thing you want to worry about during a recession is snowballing debt, so commit to living within your means and paying off your balance in full each month.
Build an emergency fund
Recessions can bring uncertainty. The best way to prepare for uncertainty both during a recession and in times of positive economic growth is with an emergency fund. Aim to save at least three months-worth of living expenses. This should hopefully help you rebound should life throw you a curveball.
General Electric Credit Union (GECU) is closely monitoring current economic conditions and doing what we can to help lessen the burden on Tri-State families. In addition to complimentary access to resources like on-demand financial literacy webinars, financial counseling, and our Money Management budgeting tool, eligible members in good standing can also use Skip-a-Pay to keep more money in their pocket.