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The Journal Gazette

  • Adilov

  • Blakeman

  • Tierney

Sunday, August 25, 2019 1:00 am

Q&A

Recession's looming, so be prepared

Know facts for when downturn hits

SHERRY SLATER | The Journal Gazette

Ups and downs

The National Bureau of Economic Research tracks business cycles - commonly known as recessions and expansions. These are the months when the last five recessions began and ended:

January 1980 - July 1980

July 1981 - November 1982

July 1990 - March 1991

March 2001 - November 2001

December 2007 - June 2009

Source: National Bureau of Economic Research

The U.S. economy is setting a record for the longest growth period since at least the mid-1800s.

Unemployment is low, job creation is strong and stock markets – despite recent large swings – are near all-time highs. But some warning signs are also popping up, including interest rates on short-term bonds climbing higher than rates paid on long-term bonds.

The fact that no previous economic expansion has lasted longer than 10 years means we're living on borrowed time because this one started in June 2009.

Let's explore some of the inevitables.

Q. Who decides we're in recession, and what do they base it on?

A. The National Bureau of Economic Research Inc. makes official pronouncements on the economy.

The Massachusetts-based nonprofit studies economic activity to determine whether things are getting better overall or worse. Unlike some groups, the bureau requires more than just two consecutive quarters of lower gross domestic product – or the total market value of the goods and services produced by a country – to declare a recession.

Instead, the nonpartisan research organization uses a complex matrix that measures significant and widespread declines in real GDP, real income, employment, industrial production and wholesale-retail sales. “Real” data have been adjusted to remove the effects of price changes.

The only way to recognize a recession, the bureau contends, is in the rearview mirror. By then, the country will have been grappling with it for six to 18 months, according to the bureau.

Q. Does the end of a recession mark when the economy becomes strong again?

A. No. A recession officially ends when the economy starts expanding again – long before the economy has found solid footing.

Think of a recession as the ride on a department store's down escalator. The minute you step off onto solid ground, the recession is officially over. But you're also in the economy's basement. Factories are closing, people are out of work and everybody is nervous.

The trip on the up escalator, which begins in the depths of the store, represents economic expansion. We've been on that ride for more than 10 years now, as of July 2019.

When it reaches its peak, a point that won't be obvious when it happens, the expansion is over and the next recessionary period – or downward ride – begins.

Q. Do we have to have a recession? Can't we just, as they say in New Orleans, let the good times roll?

A. In a word ... no. Nodir Adilov, chairman of Purdue University Fort Wayne's economics and finance department, studies U.S. business cycles.

He put it this way: “Recessions are like the flu: You know you're going to get them at some point – you just don't know when.”

Keep in mind the U.S. economy doesn't exist in a vacuum. International trade links economies around the globe, making partners vulnerable to the ills plaguing each other.

Adilov said major influences on the U.S. economy now seem to be international: A slowdown in some countries' economies – specifically China and Japan – and trade wars with countries, including China.

Q. Are we doomed to repeat the Great Recession, when dozens of northeast Indiana businesses closed, putting thousands out of work?

A. Not necessarily.

“Not every recession is a Great Recession. The last one was hard and rough – they're not all going to look like that,” said Rachel Blakeman, director of Purdue University Fort Wayne's Community Research Institute.

During the last recession, which officially lasted from December 2007 to June 2009, virtually every community was hit hard. But that's not always the case, she said. For example, Silicon Valley was hit harder than the rest of the country during the dot-com bust of 2000. A recession's severity can also vary by sector.

“Different industries are going to be hit in different ways,” Blakeman said.

Younger workers, who haven't experienced a recession during their careers, should keep those realities in mind when they consider how a downturn might affect them professionally, she added.

For example, some people believe health care is recession-proof. Adilov thinks that's true – to a point.

“People get sick all the time,” he said. “It doesn't matter whether it's a recession.”

But that doesn't mean doctors and hospitals are rolling in dough during downturns, Adilov said. They might have a harder time collecting from unemployed patients, he added.

Blakeman said the health care industry offers professionals some – but not complete – financial protection. Hospital staff cuts, for example, might mean a nurse who'd like to work in critical cardiac care has to work in an emergency department instead, she said.

And if that hospital cuts staff even more? Someone with a nursing degree could likely find a position elsewhere because nurses are in short supply, Blakeman said. A nurse's advanced education provides a safety net.

On the other hand, anyone working in an industry that relies on discretionary spending could be in trouble.

“If my refrigerator dies, I'm buying a new refrigerator,” Blakeman said. “Whereas, if my couch is shoddy, I can hold off on buying another couch for a while.”

Restaurants, retailers and RV makers are among the businesses that see sales fall sharply when consumer confidence is low.

Q. So, if we can't avoid a recession, how can we prepare for one?

A. Blakeman offered some practical steps people can take to lessen the potential pain.

“If you were to lose your job today, would you have enough cash to get you through for a period of time before finding your next job?” she asked.

Various sources, including AARP, recommend stashing enough cash to cover anywhere from three to nine months' of living expenses.

Blakeman realizes that building such an emergency fund can be a tall order.

“Some of these things are easier said than done. We know there is a large segment of our community that doesn't have a lot of money coming in,” she said, adding that everyone should do their best to put away some cash.

Heather Tierney, assistant professor of economics at Purdue Fort Wayne, agreed.

Her advice for those preparing for recession:

• Make sure to live within your means by spending less than you make.

• Don't take on new revolving debt, such as credit card purchases.

• Consider whether you really need a large item such as a new car.

• Review your budget and get real about your spending, including on groceries, entertainment and gas. People tend to underestimate how much they spend when they don't receive a monthly bill.

• Consider turning a hobby into a side business, such as baking cakes.

Q. We got it – build up the bank balance. What else?

A. Blakeman believes it's a good time to develop a strategy. She said workers should know the 10 phone calls they would make if they lost their job today.

For white-collar jobs, the list might be professional contacts. For blue-collar jobs, it might be 10 local companies that employ workers using the same or similar skills. Either group might benefit from contacting former co-workers.

It's also a good idea to consider getting more professional training or earning a degree, Blakeman said.

A lot of people wait until they're unemployed before exploring training programs, she said. But, if you wait until times are bad, it will be harder to afford the tuition, more people will be seeking the same degree or certification, and more workers will be competing for fewer openings, she added.

Also, it takes time to complete training – possibly years. It's better to start now rather than wait until you're out of work and feeling desperate, Blakeman said.

In-demand certifications include computer numerical control – or CNC – and commercial driver's licenses. Apprenticeship programs are available in the skilled trades, including electrical and plumbing work, which offer paid training.

Those seeking advanced degrees should evaluate which career paths offer the most options, Blakeman said. For example, accountants can choose to work for employers in multiple industries, including health care, education, manufacturing and government.

Workers should ask themselves: “Do you have a credential that can transcend your particular employer or industry?”

Q. So, a recession is imminent and it's time to panic?

A. Slow down. We're not saying that.

“If you drive around Fort Wayne on a Friday night, you're going to see the restaurants are full,” Blakeman said, adding that shows consumers have enough discretionary income to go out to eat.

Also, pickup trucks keep rolling off the Allen County GM assembly line on three shifts. Those vehicles are sold to consumers and to employers using them on construction sites.

The economic expansion is humming along into its 11th year, but it just won't forever.

“The usual saying is: 'Economic expansions don't die of old age,'” Blakeman said. “But this one might be the exception.”

sslater@jg.net