The U.S. economy shrank in April-June, the BEA reported Thursday.
The Bureau of Economic Analysis stated on Thursday that the economy of the United States saw a contraction during the quarter that spanned April to June. Two consecutive quarters of negative GDP growth is a widely cited rule of thumb that indicates that the economy has entered a recession. The United States’ gross domestic product fell by 1.6 percent year on year in the first quarter of 2018.Gross domestic product fell 0.9 percent year on year in the second quarter of 2018.
However, according to the relevant authorities, this has not occurred. Not at this time, anyway. The National Bureau of Economic Research (NBER), which is responsible for determining when a recession or boom has begun or ended, won’t most likely reach a decision for several months. When this happens, the Gross Domestic Product (GDP), which is a broad measure of economic activity, will be just one of the many elements that the economists at the bureau will analyse.
“Great,” you may be thinking. “But in the meantime, what am I supposed to do?”
According to Jim Paulsen, chief investment strategist for the Leuthold Group, while it is important to make sure that you are financially prepared for economic turmoil, the most important move may simply be to not panic and make significant changes to your investing strategy. This is the advice that Paulsen gives.
Find out what economic experts have to say about the present state of the economy, as well as what steps you may take if you are concerned that a recession may be around the corner.
Are we entering a recession? “Don’t let the headlines distract you from the underlying data.”
Even while the NBER has not yet formally declared a recession, it won’t stop journalists, political figures, and people debating on Twitter from claiming that the economy is currently experiencing one.
According to Brad McMillan, who serves as the chief investment officer for the Commonwealth Financial Network, “Don’t confuse headlines with underlying data. Some people might call this a ‘technical’ recession, and that’s because it doesn’t really meet a lot of the criteria,” said the economist. “But it could still be a recession.”
According to the official definition provided by the National Bureau of Economic Research (NBER), a recession is characterised by “a large fall in economic activity that is spread out across the economy and lasts for more than a few months.”
According to Paulsen, it is challenging to assert that significant components of the economy are experiencing a downward trend. “Consumption and company spending have both slowed, but neither has decreased,” he argues, drawing attention to the fact that new jobs and corporate profits are still on the rise. It would be misleading to characterise the situation as a serious economic downturn.
However, there are many characteristics of the contemporary economy that, when experienced firsthand, have the distinct feel of a recession. According to a recent survey conducted by Allianz Life, 71 percent of American adults believe that their salary is unable to keep up with the rising cost of living brought on by sky-high inflation. Shoppers are reporting severe product shortages, and merchants such as Walmart are preparing for lower revenues as a result of customers’ tightening of their spending budgets.
When asked how they were preparing for the recession, they said, “You shouldn’t be bracing for anything.”
According to McMillan, if the idea of a recession makes you anxious, it’s important to take a step back and figure out what it is that you’re truly terrified of. “Are you anticipating difficulty for yourself individually, or do you think it will affect the economy as a whole?” If you aren’t concerned about yourself, then perhaps you don’t have as much cause for concern as you might think.
Despite this, it is still a good idea to exercise some degree of prudence. In spite of the fact that there is currently a healthy employment market, Paulsen warns that a continuation of the economic downturn “may imply that jobs become more risky — and you could find yourself on the wrong side of that.”
Your first line of defence should be an emergency fund, which, according to the recommendations of financial professionals, should ideally cover anywhere from three to six months’ worth of living expenses.
Paulsen advises that you “should also be cautious of the debt scenario you find yourself in.” Consider limiting your credit card purchases and focusing your efforts on paying off any high-interest debt you may have accumulated.If your financial situation deteriorates, your credit card debt might quickly snowball out of control.
When it comes to your portfolio, “don’t go outside the bounds of the plan you already have in place,” advises Paulsen. “Don’t go outside the bounds of the plan you already have in place.”
If the negative figures on your brokerage page are keeping you up at night, tossing and turning, it may make sense to take less risk in your portfolio, such as by decreasing the proportion of your holdings that are allocated to stock investments. However, if you are investing for a goal that is further in the future, such as retirement, then the current moment is an excellent opportunity to keep making steady investments in the market. Given the long-term rising trajectory of the broad stock market, short-term pullbacks in stock prices have historically offered opportunities to acquire equities when they were effectively on sale. This is because of the long-term upward trajectory of the broad stock market.
None of these changes ought to result in a significant remodelling of your financial situation. Consider them to be more along the lines of weatherproofing your home as opposed to taking cover from an oncoming storm.
McMillan advises that you should not prepare yourself for anything at all. “Unless you lose your job, you’re not going to notice a recession in the majority of cases.” It won’t have any impact on your individual circumstances. “