Preparing for the pinch: how you can make sure you’re ready for a recession
SALISBURY, Md. – Economists are predicting that in the coming months, we could be hit hard by a recession.
Financial experts say three big factors are at play; Inflation is reducing the bang of a buck, supply chain issues continue to plague global trade, and the workforce is still struggling to find enough employees.
“With the issues we’re having with the workforce and supply chains, all of these things are creating a perfect storm,” said Salisbury University Perdue School of Business Professor Dr. Memo Diriker. “If we didn’t have the supply chain issues, if we didn’t have the workforce issues, and if we could tame the inflation a little bit faster, there’s no real good reason for us to be in a recession.”
While there is no real way of predicting how severe the recession might be, Dr. Diriker says people should still prepare themselves. “That doesn’t mean some people will not lose their jobs, because recessions hit different parts of the economy in different ways. But, in the aggregate on the Eastern Shore, impact is going to be felt on how we, the consumers, spend our money,” he said. “Things are going to be more expensive, things are going to be more difficult to get to. So, people are going to have to choose what they need and what they want, and decide what they’re going to leave off.”
Wednesday, the Federal Reserve raised its key interest rate by half of a percentage point. While that increase may seem insignificant, UHY LLP Partner Mark Welsh says it will have a trickle down effect on other rates. “Debt is going to get harder and harder to obtain. That’s kind of what [the Federal Reserve is] trying to do; they want to cool off the economy,” he said. “People are going to think twice before they borrow on their credit card, or borrow on their home equity loan, borrow on a second home, or borrow on a business loan.”
Preparing For The Pinch
Welsh says there are steps you can take to make sure you are ready to face a recession. “[People] need to try to figure out how they can lock in fixed rates, or pay down debt, or pay off debt. That’s got to be the number one thing,” he said. “Credit card [interest rates] are going to get higher. They’re already high, and are going to get higher. So, you want to try to, if you can, pay off those credit cards, or at least try to get the balances down.”
Plus, consumers should start thinking about spending less on things like cell phone and cable bills, entertainment, and eating out, according to Welsh. “People are going to have to budget, and start thinking about what they’re able to cut back on,” he said. “People could start thinking about maybe staying home more, not spending money.”
Welsh adds that you should also start trying to fluff up your savings cushion. “When things are going good you feel like you can spend money. But, when we’re in a recession, you should have a little cushion. Most experts say you should have at least a six month cushion,” he said. “Unfortunately, most Americans are not in that position, to be able to have six months.”
For first time homeowners, Welsh says you should ditch the variable rate, and lock in for a fixed mortgage rate. “Go into your bank and say ‘I want to lock it in.’ Of course, it’s probably going to be higher to lock in for 15 or 30 years. But, you want to lock in your downside risk,” he said.
And, if times get really desperate, you could consider taking on a second job, or selling valuables like gold, silver, or antiques. “You may be able to get some extra money. That may seem somewhat drastic. But, believe me, pawn shops thrive in recessions,” said Welsh.
Eastern Shore Economy
So, when might the Eastern Shore start feeling the effects of a recession on its wallets? “Most of the time, we would feel it later, we would feel it less, and, unfortunately, we would come out of it later. In this case, we’re going to feel it right away,” said Dr. Diriker. “Our level of economic resiliency is a little bit thinner than it is on the other side of the Bridge.”
Dr. Diriker says the Eastern Shore is in a unique, and vulnerable position. He explains, that’s because nearly 60% of households are considered ALICE, or Asset Limited, Income Constrained, Employed. “These individuals have jobs, but they cannot make ends meet with the income they’re making. Imagine what’s going to happen when housing goes up, when car payments go up, and when energy goes up,” said Dr. Diriker.
While people should prepare for potentially tough times ahead, Dr. Diriker says there is no need to panic. As long as people stay prepared, and look out for one another, he says it may be easier to get through a recession. “One thing about the Shore is that we take care of each other. So, I’m looking forward to people coming to other peoples’ help here. This is a good place to live, and will always be a good place to live.”