Despite the many dire warnings that sounded in 2022, the U.S. economy managed to steer clear of a recession in 2023. At no point last year did economic indicators seem to even point to a recession.
But will we be as fortunate this year? Or should consumers start gearing up for a recession over the next 12 months?
Some experts are cautious, but the economy looks good right now
From a job-related perspective, the U.S. economy is in pretty good shape at this moment. Unemployment is low and job opportunities are out there.
Plus, the Federal Reserve not only paused interest rate hikes at its last three meetings, but it also indicated that rate cuts could be in store for 2024. If the Fed lowers interest rates, it could make borrowing less expensive for consumers. That could, in turn, lead to an uptick in spending, which would make a recession less likely.
A December survey from the National Association for Business Economics also found that 76% of economists believe the odds of a 2024 recession are 50% or less. And last fall, the New York Fed's recession probability indicator showed a 56% chance of a downturn over the following 12 months, down from a 66% reading in August.
These numbers, however, may only be somewhat comforting. And while the economy is in a good place now, it's hard to say where things will stand several months from now, or during the second half of the year. So a smart bet is to do what you can to prepare for a 2024 recession -- even if that scenario doesn't come to be.
How to set yourself up to withstand a recession
A recession has the potential to wreak havoc on your personal finances, especially if a broad economic downturn results in the loss of your job. So it's important to prepare accordingly.
First, make sure you have at least a three-month emergency fund -- meaning, enough money in savings to cover three months of essential expenses, like rent and groceries. And if you already have a three-month emergency fund, aim for four months, and so forth.
Next, do your best to chip away at high-interest debt. If you can whittle your credit card balance down to $0 in the coming months, you'll be in a much better spot if a recession hits and you lose your job, since you won't have an extra monthly debt payment to make.
Plus, the sooner you rid yourself of costly debt, the less interest you'll accrue on it. And money you don't have to spend on interest is money that can go into your savings. You may want to consider using one of the best balance transfer credit cards to help you reduce your debt faster.
Finally, do your best to build added skills at work so you're potentially less likely to land on the chopping block if cuts need to be made. Along these lines, consider a side hustle. A second job could make it easier to build savings and pay down debt. It also gives you a backup source of income should your primary job go away.
The idea of a recession can be scary. Right now, we don't seem to be on the cusp of one, but things have the potential to change. The more prepared you are, the easier it might be to sleep at night.
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