THE LOOMING AMERICAN RECESSION AND YOU

The buzz in the world economies is that the leading economy and superpower of the world is heading for a recession. Alarm bells are sounding in the financial hub of the USA –Wall Street. For those living and working in the United States, it seems that the recession is already with them. It doesn’t seem to them that it is months away as economists are predicting will strike at the end of the year. Ms. Damini Sinha who runs a bakery in Madison, Wisconsin is living a nightmare as I write this blog. The footfall in high–end bakery known for their artisanal bakes & cakes has reduced. Most of the day she has 10 – 15 customers whereas earlier she would be catering to about 30 – 40 walk-in clients. She says worriedly “ Walk-Ins are less which means I am not making enough to thrive, pay my rentals & utilities as well as the staff. We have had to cut back on our production as our food wastage was quite a bit thanks to falling demand. Even those who do walk inside are asking for basic goodies and not premium products like bear claws or sea salt caramel donuts.   

When a recession hits an economy, the first thing people do is prioritize their needs & wants. The stuff that they perceive to be luxury such as Caramel Lattes, pedicures, make-up, and eating out is hit. Goldman Sachs Group economists say that there is a 30% chance of the country being in recession in 2023. A Bloomberg Economics model has the same timeline for it. But many Americans feel that the economic downturn is here.  

Here are some reasons for the recession around the world: 

• Prices of goods and items are seeing a steady increase. 

• The worth of the currency purchasing power is lower 

• Interest rates by Central banks worldwide are seeing a hike 

• The cost of living is higher, and wages are not keeping up the pace for many 

• Little or no economic growth 

Recessions and economic downturns are cyclical, it is important therefore to protect yourself (and your family) during such periods. Here are some tips on how to do the same:  

Emergency fund – Have funds (for a minimum of 6 months) stored away to be used in emergencies and as last resort.  

Live frugally – Cut back on luxury & frivolous expenses and live within your basic means.  

Invest for the long term – When the market is down, it’s the ideal time to invest in shares, etc that are blue chip/high profile and will soar when the recession is over.  

Diversify your investments – Create an investment portfolio that is diverse, spans varied industries, etc.   

Maintain good credit scores – Loans are approved for those with great credit scores. Pay all bills on time and keep your ratio of debt to available credit low always. 

As all economies are connected in this global economic village, a recession in the US is going to impact everyone in one way or the other. In India, though the finance minister is exuding confidence that India won’t be heading the American way, the impact will be there. It’s important for us to be alert and cautious. Time to tighten our belts before we become gloomy.