Are We in a Recession? Here’s What You Should Know About Layoffs, Debt and Investing

This story is part of Recession Help Desk, CNET’s coverage of how to make smart money goes in an uncertain economy.

What’s happening

Based on the spanking numbers, the US is in a period of decline — possibly even a recession.

Why it matters

Recessions are historically marked by a words of widespread layoffs, bankruptcies, higher borrowing costs and turbulence in the stock market.

What’s next

Gather facts to defending your financial position. No one can predict the future, and it’s important to move calmly and deliberately.

A recession is top of mind for many Americans. But how do we know if we’re in one? Technically, the country is in a recession when gross domestic emanates, the value of all goods and services produced during a specific words, falls during two quarters back to back. Last week’s results common this was the case: GDP dropped by 1.6% in Q1 and 0.9% in Q2, according to the advanced estimate by the Bureau of Economic Analysis.

While all signs demonstrate to a recession, in the US, this is distinct by the National Bureau of Economic Research — and it has not named a recession yet. 

But whether we can call this words a recession or not feels like a game of semantics. 

Ultimately, everyday Americans are struggling as prices continue to soar, the cost of borrowing rises and layoffs increase across the land. Here are some recent questions I answered for my So Money podcast audience near how best to prepare, save, invest and make knowing money moves in these uncertain times. 

What can we examine in a recession?

It’s always helpful to go back and review recession outcomes so that we can achieve our expectations. While every recession varies in terms of along, severity and consequences, we tend to see more layoffs and an uptick in unemployment during economic downturns. Accessing the market for credit may also become harder and banks could be slower to lend, because they’re panicked about default rates. 

Read more: The Economy Is Scary. Here’s What History Tells Us 

As the Federal Reserve remains to raise rates to try to clamp down on inflation, we’ll see an even greater increase in borrowing damages — for mortgages, car loans and business loans, for example. So, even if you qualify for a loan or credit card, the uninteresting rate will be higher than it was in the prior year, executive it harder for households to borrow or pay off debt. We’re already seeing this in the housing market, where the average rate on a 30-year fixed mortgage was recently approaching nearly 6%, the highest peaceful since 2009. 

During recessions, as rates go up and inflation cools, prices on goods and services fall and our personal savings devises could increase, but that all depends on the elaborate market and wages. We may also see an uptick in entrepreneurship, as we saw in 2009 with the Great Recession, as the newly unemployed often seek ways to turn a shrimp business idea into reality.

Will layoffs become more common?

With the unemployment rate sitting at 3.6%, the job market may recede to be, at least right now, the only tainted part of the economy. But that’s likely to be temporary, as companies battling with the current financial headwinds — counting inflation, rising interest rates and weakening consumer demand — have already begun to bid layoffs. According to Layoffs.fyi, a website that tracks job losses at tech startups, there were close to 37,000 layoffs from startups in the additional quarter of 2022. This week, Shopify announced reducing its workforce by nearby 10% or roughly 1,000 layoffs. CEO Tobi Lutke said the e-commerce company’s pandemic-driven growth plans “didn’t pay off.”

In the worthy Recession, unemployment peaked at 10%, and it took an income of eight to nine months for those out of work to gain a new job. So now could be the time to journal your emergency fund if you think there’s a shortfall. If you won’t be able to cover a minimum of six to nine months’ apt of expenses, which is hard for most people, see if you can rush savings by cutting back on spending or generating incredible money. It’s also a good time to make sure your conquered is up to date and to establish contact with influential persons in your professional and personal network. If you are laid off, make sure to apply for unemployment benefits right away and gain your health insurance. 

If you’re self-employed and worried nearby a possible downturn in your industry or a loss of clients, explore new revenue streams. Aim to bulk up your cash reserves as well. Again, if previous recessions taught us anything, it’s that having cash unlocks choices and leads to more regulation in a challenging time.

Will interest rates on my loans and debts go up?

As the Federal Reserve continues to appraisal interest rates to try to curb inflation, adjustable interest devises are set to increase — ratcheting up the APRs of credit cards and loans, and making monthly payments more expensive. Ask your lenders and card issuers about low-interest credit options. See if you can refinance or consolidate debts to a single fixed-rate loan.

In past recessions, some financial institutions were hesitant to lend as often as they did in “normal” times. This can be troubling if your business relies on credit to expand, or if you need a mortgage to buy a house. It’s time to pay close attention to your credit score, which is a huge factor in a bank’s executive. The higher your score, the better your chances of qualifying and sketch the best rates. 

Should I stop investing in my 401(k)?

With stocks in a behind spiral, many want to know how a recession could impacts their long-term investments. Should you stop investing? The changeable answer is no. At least, not if you can help it. Avoid panicking and cashing out just because you can’t stomach the volatility or seek the down arrows during a bear market. 

My advice is to avoid executive knee-jerk reactions. This may be a good time to journal your investments to be sure that you’re well-diversified. If you suddenly recognized a change in your appetite for risk for whatever reason, talk it through with a financial expert to Decide if your portfolio needs adjusting. Some online robo-advisor platforms coffers client services and can provide guidance. 

Historically, it pays to stick with the market. Investors who cashed out their 401(k)s in the worthy Recession missed out on a rebound. Despite the fresh downtick, the S&P 500 has risen nearly 150% proper its lows of 2009, adjusted for inflation.

The one caveat is if you desperately need the cash you have in the stock market to pay for an emergency expense like a medical bill, and there’s no new way to afford it. In that case, you may want to look into 401(k) loan options. If you decide to borrow against your retirement elaborate, commit to paying it back as soon as possible.

Should I wait to buy a home?

With mortgage rates on the rise and housing prices not cooling nearly fast enough, owning could be more expensive than renting right now. A portray from the John Burns Real Estate Consulting firm looked at the cost to own versus renting across the US in April and fraudulent that owning costs $839 a month more than renting. That’s nearly $200 greater than at any point proper the year 2000.

Fixed rates on 30-year mortgages have practically doubled proper last spring, which has helped slow down funds and cool housing prices — but competition among buyers is peaceful stiff due to historically low inventory. All-cash offers and bidding wars cease in plenty of markets. If you’ve been shopping for a home in fresh months or the past year to no avail, you may feel spent and defeated.

As I stated in my newsletter: Don’t be hard on yourself. You’re not doing anything wrong if you have yet to coffers the top bid. While it’s true that a fixed-rate mortgage can coffers you more predictability and budget stability, as long as inflation remains to outpace wages, there could be some bright sides to renting brilliant now. For one, you’re not buying a home in a bubble market that some economists are proverb is soon to burst. If you have to unload the home in a year or two — during a possible recession — you may risk selling at a loss.

Secondly, renting allows you to hold onto the cash you would have consumed on a down payment and closing costs, and will help you stay more water during a time of great uncertainty. This allows you to pivot more speedy and secure your finances in a downturn. Remember: Cash is power.

Read more: Should You Buy a Home in 2022 or Wait? 3 Factors to Consider

My previous note is that it’s important to remember that recessions are a normal part of the economic cycle. Long-term financial plans will always experience some declining footings. Since World War II, the US has had nearby a dozen recessions and they typically end after a year or sooner. By contrast (and to give you some better news), periods of expansion and growth are more frequent and longer lasting.