How Will the Recession Affect You?

by Sharon Cullars

The economy is slowing and the new administration is talking recession. Whether we experience a recession or not, now is the time to batten down the hatches and get ready for whatever storm comes this way.

What exactly is a recession? A recession is defined as consecutive quarters of negative real gross domestic product (GDP). Although we have not reached this point, the GDP has slowed at a fast deceleration, making everyone a little antsy. The only saving grace is that inflation is still low and Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System, has already reduced the short-term interest rate by a full point in the last month. Still, the outlook is dim, especially with the downturn of the Nasdaq and the untimely end of many dot-com companies, which collectively served as the bullish force behind the New Economy.

Interesting facts, but what does all this mean to you? Depends on where you are financially. If you are presently unemployed (and hopefully you are not), then you may find it just that much harder to find a job. Companies will be cutting back and spending less which means that hiring will be down. For those of you still doing the 9 to 5 groove, there is now the everpresent threat of a company downsize. Just in the past month, J.C. Penney’s and Sara Lee have let go thousands of workers, and during the holidays, Montgomery Ward announced that it was closing down shop. Even if downsizing isn’t a particular worry for you, economists are forecasting a slowdown in wage growth, which could mean a temporary cap on your salary.

But believe it or not, there is good news amidst all the doom. The decreased rate will lead to banks lowering their prime lending rates. Many home equity loans and unpaid credit card balances are tied to the prevailing prime rates. Also, mortgage rates have plunged, so this is the time to purchase that home you’ve been looking at or refinancing the one you already have. The housing industry is expected to go through a boom. The Commerce Department reports that sales of new homes have jumped 13.4 percent in December, the biggest monthly increase in seven years. This is also an attractive time to buy a new car and home appliances.

Still, there are measures you should take just in case a full-blown recession hits our shores:

1. Get rid of your credit card debt. Pay down those high interest rate cards first and avoid purchasing more items with your cards. You don’t want to be caught with too much debt if you should become the victim of a downsize.

2. If you haven’t already begun to do so, start saving NOW. Your savings should be 30% of your income. Increase contributions to your 401K if you comfortably can.

3. If you have investments, make sure you are diversified enough to offset any negative variances. Don’t sell off your stocks just yet, especially as many stocks have dropped off and you are due to lose money if you sell now. Some stock resurgence is expected within the next year and you don’t want to miss out.

Hopefully, the talk about a coming recession may be just that – talk. But just in case it isn’t, it always pays to be prepared. So tighten up those belts, stash away that money – and keep on walking the next time you happen to be passing by Nieman Marcus.

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