Recession fears can feel alarming and stressful. But understanding recessions and how they impact the economy can help you plan and prepare for them.
The term “recession” means a significant decline in economic activity that lasts for more than a few months and can cause unemployment and decrease consumer spending. The National Bureau of Economic Research (NBER) sets the official definition of a recession. Recessions are a normal part of the economic cycle and can occur for various reasons, including unexpected events such as pandemics, wars or asset bubble bursts. They also can result from overly restrictive monetary policies or a sudden shock to the financial system (like a banking crisis).
Currently, the threat of an economic slowdown is being driven by rising oil prices and the imposition of tariffs by President Trump on Canada. As a result, the Atlanta Fed’s recession tracker has recently reached its highest level since the COVID-19 pandemic in March 2020. Similarly, Google searches for the term “recession” have risen to levels not seen since the Great Recession of 2008.
These factors may not lead to a recession, but they certainly are adding to the overall uncertainty and stoking recession fears. The good news is that a recession, while painful, typically isn’t long-lasting. The best thing you can do to prepare for a downturn is to build your emergency fund, live within your means, diversify your investments, invest for the long-term and be honest about your own risk tolerance.
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