Financial experts spent much of 2022 warning consumers to prepare for a recession. And those warnings persisted during the first half of 2023.
But over the past few months, economists have scaled back those warnings. And now, most financial experts are backing away from the idea of a near-term recession and are saying we’ve managed to avoid one.
This change of tune makes sense. Unemployment is still low and new jobs continue to be added to the economy. Between that and a recent uptick in retail sales, it’s easy to assume that a recession is not going to hit any time in the next few months. And we may be able to avoid one in 2024 as well.
Retail sales lend confidence to a strong economy
In July, retail sales rose 0.7% faster than in June, according to the Commerce Department. And restaurant sales rose 1.4% in July compared to June.
This tells us that consumers are still willing to go out and spend money rather than curb their spending to conserve funds. And while that may not be 100% what the Federal Reserve wants, since the central bank is still hoping to see inflation dip further, it sends the message that consumers are still confident in the economy and either have money to spend, or are finding it.
Granted, it may be that some consumers are racking up debt to continue spending robustly, and that’s not good on an individual level. But on a broad scale, an increase in spending makes a near-term recession less likely.
It’s good to prepare nonetheless
Although 2023 isn’t over yet, we’ve managed to avoid a recession thus far, so there’s a good chance we’ll manage to close out the year without an economic downturn. And ideally, we’ll avoid one in 2024, too — or at least during the first half of the year.
But the reality is that it’s important to be recession-ready at all times. And the best way to do that is to have a fully loadedemergency fund.
Financial experts tend to agree that a good goal is to have enough money in your savings account to cover three full months of essential expenses at a minimum. That way, if you were to lose your job, you’d have money to tap to cover your bills in the absence of a paycheck.
Of course, if you’re able to save beyond three months’ worth of expenses, even better. It’s hard to know how a recession might impact your earnings ability and finances. So if you can push yourself to sock away six months’ worth of expenses in the bank, you’ll have that much more protection in the event of a layoff.
Remember, a recession is something you might experience more than once in your lifetime. So it’s good to try to always have savings on hand in case the economy takes a turn for the worse.
And remember, too, that even when the economy is strong, it’s still important to protect yourself, because you never know when your personal financial situation might change. Even if unemployment is low and the economy is thriving, you might find yourself out of a job if your company needs to make cuts. So your best bet is really to have money in the bank so you’re not immediately forced into debt in a situation like that.
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