Russia-Ukraine war, inflation, rising interest rates and companies firing workers indicate that a recession is imminent for the US economy. Is That All?
Well before jumping to a conclusion, we have to understand what is recession. The expert defines it as a few quarters of negative gross domestic product (GDP).
During a recession, the economy struggles, people lose jobs, companies make fewer sales, and the country’s overall economic output declines.
The economic cycle explains how an economy shifts back and forth between expansionary and negative phases. The cycle has four following periods.
As an economic expansion begins, the economy sees growth. Borro-wing money has been cheaper throughout time, which has influenced to take on more debt.
Asset values grow more rapidly and debt loads increase as the economic expansion matures. Then one bad event stalls the economic expansion at some point in the cycle.
The shock causes stock market collapses, asset bubble busts, and an increase in the cost of servicing such high debt burdens. GDP is down and recession on the peak.
In this phase economy start recovering slowly, the gross domestic product grows, earnings increase, and unemployment fall as the economy rebounds.
Depression has the same cause as a recession but the impact was deeper and longer. Simply said, depression is a recession multiplied by 3 to 5 times.
According to NBER data, the average recession takes almost 1 year but it may be longer or shorter like Dotcom Bubble (2001), Finacial Crises (2008), and Covid-19 (2020).
Indicators that help you to predict the recession: GDP Data, Yield Curve, S&P 500 PE, Consumer Confidence, Economic Index, Stock Market Fall, and Increase Unemployment Rate.:
You may lose your job, business sales fall, and increase overall cost of living as well cost of your credit cards, loans & mortgage EMIs.
I think cash is the king during the recession. Calculate your family's monthly expenses and multiply by 12 months (That's the emergency liquid fund you needed)