The term “recession” has been in the spotlight recently, triggered by the economic uncertainty resulting from President Donald Trump’s tariffs on Canada, Mexico, and China. This has led to a significant stock market decline, with some economists estimating a 20% to 40% chance of entering a recession by next year. The concern is evident as Google Trends data show a 1,200% surge in searches for “recession” in the United States.
Here are responses to the top three most frequently asked questions about recessions:
**What constitutes a recession?**
While there isn’t a single universally agreed-upon definition, a recession is commonly understood as two consecutive quarters of negative economic growth. The National Bureau of Economic Research is a nonprofit, nonpartisan organization responsible for determining when the U.S. economy is in a recession, considering factors such as economic growth, employment, industrial production, consumer spending, and retail sales. Recessions are characterized by a notable decrease in economic activity and a rise in unemployment, typically occurring every 6-7 years.
**How does a recession impact the average individual?**
During a recession, a significant number of individuals often lose their jobs as consumer and business spending declines, leading to an economic contraction and job cuts. Companies may also reduce hiring, making it harder for individuals to secure new employment. Job security diminishes during recessions, with employers freezing pay raises, cutting bonuses, and becoming stricter with work schedules. Access to credit may also be restricted, as lenders are hesitant to provide loans in uncertain economic times. Stock markets are also negatively affected during recessions, impacting investors’ portfolios and financial security.
Even individuals with job stability and financial reserves can experience stress and anxiety during a recession, limiting their ability to make significant purchases or take vacations.
**How can I safeguard myself during a recession?**
Unlike unforeseen events such as illness or natural disasters, recessions typically come with warning signs. It is advisable for individuals to be proactive when these signs emerge. Experts recommend building emergency funds equivalent to at least three months’ living expenses, and ideally more. Reviewing budgets, reducing unnecessary expenses, and prioritizing financial stability are crucial steps to weathering a recession.
Distinguish between “needs” and “wants” to effectively manage your finances. Cut down on unnecessary expenses by canceling unused subscriptions, reducing dining out, and comparing prices for items like insurance and cell phone plans. In preparation for a recession, prioritize debt repayment, focusing on high-interest debts, and explore new career skills or turn hobbies into additional sources of income. Planning for the worst-case scenario is essential to weathering a recession. Learn more about recessions and how to prepare for them at abcnews.go.com.
