What a recession can mean for you.

Those questions loom large for Americans after the Federal Reserve raised rates again to combat high inflation, and the latest gross domestic product report showed the economy contracted for the second quarter in a row. But at the same time, even though they have cooled down a bit, the job and housing markets are still strengthening.

That has created a lot of mixed signals. The White House and other government leaders are maintaining that the economy is healthy. But many economists say that a recession is likely in the near future. Months – if one It hasn’t started yet.

If there is a recession, here’s how it affects your finances and what steps you can take to protect yourself.

Labor shortages caused by the pandemic over the past two years — coupled with a structural shortage of young workers to replace retiring workers — have given workers more bargaining power.

As a result, unemployment and job losses were at or near historic lows.

If it looks like a recession and if it looks like a recession...

“We’ve had extremely low layoffs and labor shortages. Companies have been reluctant to let anyone go,” said Challenger Gray & Christman, senior vice president of global migration.

Change has begun, Challenger said. Some industries such as mortgage banking, fintech, construction and automobiles are seeing job cuts.

If a recession hits, layoffs are likely to be high and widespread. And employers may hold back on hiring.

But not everyone is equally at risk. If your role is demanding — like a front-line worker, IT engineer, or senior executive — chances are you’ll be more likely to get hired, stay employed, and see raises and bonuses down the road. .

Buying and selling a house will be different

Housing market A recession is not nearly as damaging as the Great Recession of 2007-2009, caused by the housing and credit crunch.

That doesn’t mean the market won’t be affected at all, but especially if layoffs begin, said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

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But after two years of double-digit price growth and wild bidding wars, in Home sales are slowly starting to return to a normal pace. Prices, which make homes less affordable for buyers.

Looking ahead, Fratantoni said: “We expect the unemployment rate to rise slightly to moderate, which, combined with affordability problems, will reduce demand.” [for homes].”

This means that home sellers cannot buy their property for 15% more than what their neighbor’s house is selling for. Buyers should be prepared to receive emergency situations in home supplies. And they should expect their home to take longer to sell.

Oh, and looks will matter again.

“Just fix it up a bit to get it ready to list. … If your home is in good shape, we’ll go back to where it matters,” Fratantoni said.

For homebuyers, he said, “it’s going to be a much better experience,” given the terrible frustrations of the past few years. While it’s more expensive to take out a mortgage when rates rise, buyers face less competition for each property. And as for deciding whether to make the offer, “they may have a couple of days to think about it instead of hours,” Fratantoni said.

Ways to treat yourself now

While you can’t control the economic cycle, you can take some steps to minimize the negative impact a recession can have on you.

Protect your emergency funds: For single-income families, California-based certified financial planner Jamie Lima of Woodson Wealth Management recommends keeping 12 months of living expenses on hand in case you lose your job.

He recommends six months for two-income families, as both incomes are less likely to decrease.

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If you don’t have that much right now, cut some non-essential expenses and add your spending money to the kitty.

And if you own your home, consider getting a home equity line of credit before rates rise again, because it can help supplement your emergency fund until you can tap into something else, Lima said.

Stress test your financial plan: If there is a recession, you can come out unscathed. But you can’t predict that. All you can do is know what resources you have to deal with the worst-case scenario, such as job loss or illness, Lima said.

“What would it be like if you didn’t have a job for a year? What’s your contingency plan?… ‘What should I do?’ It’s time to think,” he said.

Improve your chances of being employed. Not every Fortune 500 company has as many cybersecurity experts as it needs. But if you make yourself important in your current job — perhaps by taking on additional tasks — you can reduce your chances of being downsized if it comes to that.

Or, you might consider a new role that isn’t subject to layoffs when the economy contracts. Lakshman Achutan, co-founder of the Economic Cycle Research Institute, said, “If your business depends on the industry or profession, if the income depends on buyers deciding to postpone their purchases, start hunting immediately in places where this is not the case.” , a real threat that the recession could be longer and deeper than many expect.

If you own a small business, take a closer look at cash flow: Small business owners should keep their costs as flexible as possible, said Ben Johnston, chief executive officer of Capitus, a small business lender.

The idea is to protect yourself in case demand slows down in the coming months.

“This can mean [negotiating] More flexible payment terms with suppliers,” Johnston said. Or, it could mean avoiding long-term commitments to new costs. So instead of buying new equipment or hiring full-time. staffer To take advantage of a new business opportunity today, consider renting equipment or bringing someone in as a contractor.

“If you’re not sure how strong the economy will be in a few months … look at temporary types of expansion rather than permanent ones,” Johnston said.

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