Why We May Be in a Silent Recession
It’s hard to ever get a straight answer on whether we’re in a recession or not. A traditional recession is usually defined as two consecutive quarters of negative economic growth, as measured by a country’s gross domestic product (GDP). This is often accompanied by rising unemployment rates, falling consumer spending and a decline in industrial production. By this definition, we are not technically in a recession. So why do so many of us still feel like we’re struggling financially ?
The answer may be a so-called “ silent recession .” This is a more subtle economic downturn that may not meet the technical criteria of a traditional recession, but still affects the daily lives of many people. During a silent recession, the stock market often remains stable and unemployment appears low, but people still struggle to make ends meet or live paycheck to paycheck. Let’s look at what it means to be in a silent recession and what it means for your finances.
Signs of a silent recession
While official economic indicators may paint a positive picture, some signs could point to a silent recession:
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Stagnating wages : Despite low unemployment, wages may lag behind inflation, resulting in decreased purchasing power.
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Underemployment : People can work, but in positions that do not fully utilize their skills or do not provide enough hours.
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Increasing debt : Individuals and families may rely more on credit to maintain their standard of living.
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Housing challenges : Rising home costs can outpace income growth, making it difficult for many to afford to own or rent.
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Reducing savings . People may find it difficult to save money for emergencies or long-term goals.
Are we in a silent recession?
Although the US economy has shown resilience to recession fears over the past few years (including the failure of three US banks in 2023 ), signs point to the possibility of a quiet recession. There is undoubtedly a disparity between the positive economic indicators and the financial struggles of many Americans.
Ultimately, your economic picture may vary greatly depending on factors such as location, industry and individual circumstances. While some industries and individuals may prosper, others may face significant financial pressure. If this sounds like you, let’s take a look at some tips to help get your finances back on track.
Tips for coping with a recession
Whether you’re facing a traditional or silent recession, or are simply struggling on an individual level, there are steps you can take to improve your financial stability:
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Build an emergency fund : Try to save about six months of your living expenses to provide a cushion for tough times. Here are my tips for getting this fund off the ground .
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Diversify your income streams . Consider creating multiple sources of income to reduce your dependence on one job.
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Reduce your debt . Identify your highest rate debts and create a plan to aggressively tackle them before they get out of control.
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Live beyond your means . Or at least avoid lifestyle creep . During a recession, your means of increasing your income—raises, promotions, and side hustles—will be limited. So while it may seem more ideal to start making more money, it may be more important to focus on cutting back.
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Stay informed : Recessions make everything uncertain. Stay sane by staying up to date with financial news and adjust your financial strategy accordingly.
Bottom line
While the United States may not enter a traditional recession as of 2024, the concept of a silent recession highlights the complex nature of economic well-being. All of this serves as a reminder that official economic indicators do not always reflect the financial realities of many individuals and families. Attractive headlines are never an accurate snapshot of your personal financial picture.
By focusing on proactive steps to strengthen your personal finances, you can better cope with both traditional and silent recessions. For more informed personal finance advice, here’s our guide to budgeting, as well as personal finance steps you can take now to prepare for the looming recession.