Many companies are preparing for economic difficulties. Are you?
- A survey shows that more and more CEOs are worried about a recession in 2023 or 2024.
- Many CEOs think we will see a recession, but it will be short and shallow.
- Any steps you can take to pay down debt and build an emergency fund will come in handy in a recession.
Uncertainty has been one of the few recurring themes in recent years. This is not surprising given that we are still navigating the aftermath of what was an unprecedented pandemic. However, uncertainty is not good for the economy, and it’s one of the reasons so many CEOs think a recession could be in the cards.
Why CEOs are pessimistic about the economy
Dana Peterson, chief economist at the Conference Board, told CNBC this week that 98% of CEOs surveyed are preparing for a recession, up from 95% earlier this year. She explained that the Federal Reserve’s interest rate hikes are a major factor.
The Fed is trying to get inflation under control, and one of the tools it has is to raise rates. This makes borrowing more expensive and, in theory, will slow the economy. But the side effect of this economic downturn is the increased potential to trigger a recession. And unfortunately, there’s a lag between the rate hike and any corresponding slowdown, so it’s hard for the Fed to know when it’s done enough.
This year has seen some of the most aggressive rate hikes in recent US history. As a result, CEO confidence is down and many business leaders are preparing for tough times. It’s not just CEOs, consumers are also affected. “Consumers are starting to worry about their personal finances, they’re hearing bad news about companies, and they’re worrying about their own job prospects,” Peterson said.
The good news is that the Conference Board survey shows that only a small percentage of CEOs are predicting a deep recession. Indeed, 85% believe there will be a brief, shallow recession in the United States. A short recession might be the best-case scenario as it would mean fewer job losses, a smaller drop in GDP, and ultimately a faster recovery.
How to prepare for a recession
Right now, the labor market is relatively strong. But recessions often go hand in hand with rising unemployment. Thus, it could become more difficult to find additional work if the economy weakens. Also, there is a chance that people will lose their jobs, so it’s good to think about how you would cope if that happened to you.
Take stock of your financial situation, including what your expenses are and how much money you have in your bank account. Think about how you might manage if you suddenly have less money. Many financial experts recommend building an emergency fund with three to six months of living expenses, as this protects you against job loss or other unforeseen events. Keep it in a separate savings account so the money doesn’t mix with the rest of your finances.
If you have a credit card balance, trying to pay it off overnight is unrealistic. But maybe you can make a plan of how you’re going to deal with it. For example, if you receive money for Christmas, try to use it to pay off your debts. You can also look for ways to reduce your balance in January and February of next year. Not only can debt weigh heavily on your budget if you lose your job, but the Fed’s interest rate hikes are also making debt more and more expensive.
Finally, take advantage of Christmas to reconnect with your professional network. Networking can be a great way to find new work opportunities, but no one wants only be contacted when looking for a favor. The holiday season is always a great time to reach out and wish people well. You never know, it could also open professional doors in 2023.
At the end of the line
The holiday season is upon us, making it one of the toughest times of the year to cut costs and save money. This is especially true as inflation has pushed people’s spending to record highs. Therefore, the idea of paying down debt or building up a large emergency fund over the next 12 to 18 months may seem impossible.
Don’t panic if you can’t do it all. Try to break it down into actionable steps and focus on what you can do. What’s important is getting started, because every dollar you can set aside or use to pay down debt will help in a recession.
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