How you can prepare for a recession

John W. Schoen Senior Producer • Profile • E-mail

With oil prices surging and the Fed cutting interest rates to help the ailing housing market, some readers are starting to get a little nervous about the U.S. economy. While the stock market seems relatively calm and many economists say they don’t see a downturn on the horizon, it doesn’t hurt to consider the possibility that a recession may be coming. Think of it like getting ready for a storm: you may wind up with some extra batteries on hand if it doesn’t hit. But you won’t be left in the dark if it does.

What do you need to do to get through a recession? I am 33 years old. I have never had this oncoming experience as an adult, taxpaying citizen.
— Brandy, Weston, Fla.

First off, Brandy, take a deep breath. Now hold it in. Hold it. OK, now let go. Repeat until calm. It's important to try to stay calm - because fear is our worst enemy in an economic downturn. When consumers stop spending and businesses stop hiring and start laying pepole off, that can make the situation much worse.

Second: It’s not clear yet that we’re headed for a recession — though economists who make a living watching out for one will admit that you sometimes don’t know you’re in a recession until after it’s started.

Third: You’re not crazy to be a little nervous. The housing market, especially once-booming states like yours, is already in a “slump” that by most measures would have to be called a recession. And housing has led the U.S. economy into most of the recessions in the past 50 years. On the other hand, the unemployment and inflation rates — the sum of which came to be known as the “misery index” in the darkest days of the Stagflatin’ 70s — remain historically low.

There is no textbook definition of a recession, though many people say it constitutes two back-to-back quarters of “negative growth” — when the Gross Domestic Product goes down instead of its usual upward path. While that’s often the case, the official arbiter of U.S. recessions for the past 50 years has been a group called the National Bureau of Economic Research in Boston. They say they use “a broader array of indicators than just real GDP” because those data often get heavily revised to revision. They also look at other monthly data, since the GDP is only calculated quarterly.

Even if you could see a recession coming on the horizon like a bad storm, it’s not necessarily going to hit everyone the same way. Most people just get really wet when a thunderstorm hits. A few get hit by the occasional tornado or lightning strike. Some storms are gone hours after they begin; others linger for days.

The same is true in a recession. Right now, housing-related businesses — builders, mortgage brokers and lenders, real estate agents and furniture stores — are suffering. But other parts of the economy are doing just fine. Carmakers are laying people off. But healthcare companies are hiring.

And while the government statistics we all follow so breathlessly measure changes in “the U.S. economy,” that national outlook masks a great deal of variation in local conditions. The government data crunchers have recently acknowledged this regional disparity in economic growth by publishing state by state GDP data.

Last year, for example, the state of Michigan saw its portion of the GDP slide by half a percent. For many people there, a recession is underway. On the other hand, the fastest growing state – Idaho – posted a 7.4 percent jump in GDP. So even if the “national” economy slips into recession, your town may dodge the bullet.

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