Reduced profits
As economic growth stalls, consumers and competitors become wary when it comes to spending. This means your business might find it more difficult to generate its usual sales, and you'll need to cut costs accordingly.
The businesses that sell essential goods and services around common needs such as food, information technology (IT) services, or plumbing and electrical services will likely have steady demand during a recession because these are considered essential in good times and bad.
Industries affected most include retail, restaurants, travel/tourism, leisure/hospitality, service purveyors, real estate, & manufacturing/warehouse.
5 types of businesses to avoid opening during a recession
While there are advantages and disadvantages to starting a business in a recession, luxury retail, hospitality, manufacturing, construction, and home services are known to be hit hard during tough economic times.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months. When a recession is on the horizon, it's impossible to know how long it will last.
Costs are often lower in a recession, and that includes capital projects and capital equipment. In a low-opportunity market, margin concessions are easier to negotiate from contractors and equipment vendors. That makes a recession the perfect time to save money on a purchase and thereby increase your ROI in the future.
Recessions are not the time to abandon your investment strategy. Bonds and cash have historically outperformed most stocks during recessions.
Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.
When things are looking bleak, consider holding on to your investments. Selling during market lows can be one of the worst things you can do for your portfolio — it locks in losses.
Go heavy on beans, grains, dry pasta, dry and canned foods. Buy flour, sugar, and other baking staples. If you find good deals on perishables that can be frozen or canned for later (like fresh veggies or bread), buy as much as you have room to store.
If you're trying to make use of lower prices, you'll likely benefit most if you buy before the recession starts or during its early phase. Also, stocks that pay cash dividends can provide income, which can help offset some market losses in your portfolio. Bonds: Prices for bonds tend to rise during a recession.
Is It OK to Retire During a Recession? Retiring during a recession is certainly possible. If a client has diversified their income, saved enough in their retirement plan, trimmed costs, and maintained their investments, then retiring in a recession may still make sense.
Build up your emergency fund, pay off your high interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.
Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.
Interest rates usually fall during a recession. Historically, the economy typically grows until interest rates are hiked to cool down price inflation and the soaring cost of living. Often, this results in a recession and a return to low interest rates to stimulate growth.
Even during recessions, consumers need to buy food, drugs, hygiene products, and medical supplies. These are consumer staples, which are the last items to be cut from the family budget.
ITR Economics is forecasting that a macroeconomic recession will begin in late 2023 and persist throughout 2024. Business leaders recently had to lead their companies through the recession during the COVID-19 pandemic, and some were even in leadership positions back in 2008, during the Great Recession.
For workers and households, the picture was less rosy. Unemployment was at 5% at the end of 2007, reached a high of 10% in October 2009, and did not recover to 5% until 2015, nearly eight years after the beginning of the recession. Real median household income did not recover to pre-recession levels until 2016.
For example, you'll want to avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Workers considering quitting their jobs should prepare for a longer search if they decide to find a new one later.
During an economic downturn, it's crucial to control your spending. Try to avoid taking on new debt you don't need, like a house or car. Look critically at smaller expenses, too — there's no reason to keep paying for things you don't use.
Increased stress all around. One of the most prevalent ways that recessions affect the average person is simply that stress goes up. It doesn't matter if you're comfortable in your job security and have a hefty financial cushion, or if you're struggling to make ends meet and have $100 in your savings account.
Single earners: Put aside 6 months or more
Recessions typically go hand in hand with higher unemployment, and finding a new job may not happen quickly. Catherine Valega, a CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts, suggests keeping 12 to 24 months of expenses in cash.