With the specter of a recession looming, it's only natural to be worried about what the future holds. After all, a recession can mean job loss, wage stagnation, and an overall decline in the standard of living. However, it's important to remember that not all recessions are created equal. In fact, many economists believe that we may be due for a "soft landing" rather than a full-blown economic downturn. Here's why you shouldn't be too worried about a recession—and why it might even be good for you in the long run.
What Is a Recession?
Before we can discuss why a recession may not be as bad as you think, it's important to understand what a recession actually is. A recession is defined as two consecutive quarters of negative economic growth. In other words, it's when the economy starts shrinking instead of growing. This can happen for a variety of reasons, including tighter monetary policy from the Federal Reserve, an increase in oil prices, or simply too much debt relative to GDP.
While a recession is technically defined as two quarters of negative growth, the effects are often felt long before the numbers turn red. That's because businesses and consumers alike tend to tighten their belts in anticipation of tough times ahead. As confidence falls and spending decreases, economic growth slows down—which could eventually lead to a recession if left unchecked.
Why You Shouldn't Be So Worried About It
Now that we've established what a recession is and how it can start, let's take a look at why you shouldn't be too worried about it. First off, it's important to remember that not all recessions are created equal. Some are much milder than others and cause relatively little damage to the economy.
In fact, many economists believe that we may be due for what's known as a "soft landing." This is when the economy slows down enough to prevent inflation from getting out of control but doesn't contract so much that it throws the economy into a tailspin. A soft landing would likely entail slower growth rather than negative growth, which would make it more like a slowdown than an outright recession.
Some think we may be in this situation due to abnormal behavior. During most recessions, unemployment for example is usually high and consumer spending goes down more than what we've seen lately. However, we barely have unemployment, and consumer spending is still pretty strong.
Even if we do enter into a full-blown recession, history has shown us that recessions don't last forever. They typically bottom out after about 18 months and then start growing again soon after that. So even if things do get tough for a while, there's light at the end of the tunnel.
Also, there are plenty of opportunities to grow during a recession. Money doesn't disappear, it simply switches hands. So, when certain industries go down, others go up and with the right help and advice not only you can preserve your capital, but sometimes you can find great opportunities to make it grow. We suggest you speak with your registered wealth manager or financial advisor.
While no one wants to see the economy slow down or enter into a recession, it's important to keep things in perspective. Not all recessions are created equal—some are much milder than others—and even if we do enter into one, history tells us that they don't last forever. So try not to panic too much if the news starts talking about an impending economic downturn; chances are things won't be as bad as you think they'll be and even if they are, with the right advice, you may be able to take advantage of it.