There’s now a 70% chance that the United States will enter a recession next year, according to the results of a new survey of 38 economists conducted by Bloomberg. That’s up from 65% in November and 30% in June.
The most commonly held belief is that a recession happens after two consecutive quarters of negative economic growth (which happened earlier this year), but that’s not the official definition. Officially, a committee at the National Bureau of Economic Research makes the call on whether there's a recession based on lots of information about the economy’s performance.
The committee hasn’t made that formal judgment yet, but it’s easy to see why economists are expecting it sometime next year. Interest rates and inflation are high, and consumer demand is slowing. After two years of rapid hiring, the jobs market is cooling. Stocks are down about 20% for 2022, and experts say they’re likely to keep falling in 2023.
How to prepare for a recession
While recessions can be anxiety-inducing, they’re also part of a normal economic cycle. They don’t last forever, and there are things you can do to prepare.
It’s always a good idea to have three to six months worth of expenses in cash in an emergency fund, and it’s an especially good idea to bulk up that fund if you’re worried about an economic slowdown. Liz Ewing, chief financial officer at Marcus by Goldman Sachs, put it this way back in August: “When there's uncertainty, it is a good time to be saving more money.”
Experts also recommend setting up a budget, prioritizing paying off debt, and avoiding any large, unnecessary purchases as strategies to prepare for a recession.
You should generally avoid making any major sudden changes to your investment strategy, because a long-term approach is usually best and investors are rarely, if ever, successful in timing the stock market. But an impending recession should prompt you to review your investing strategy and make sure it’s aligned with your goals.