If a recession is imminent, the stock market does not appear to be warning us about it.
Fed Chair Jay Powell didn’t seem to think so when he announced an interest rate hike on Wednesday and fielded questions from reporters.
Powell described what the Federal Open Market Committee is thinking as it begins to gradually raise rates and rein in its previous broad monetary policy, quarter-point by quarter-point. Fed policymakers seek to decrease demand for goods and services just enough to keep inflation from spiraling out of control without stalling the economy. Or, worse, another contraction, as we witnessed with the pandemic recession two years ago (although temporarily and disease-induced).
Is the US economy on the verge of a downturn? Economists, as is customary, are split on this issue.
Those on the hawkish side have been warning for a long time that inflation was out of control. “The Fed has repeatedly been unduly enthusiastic about inflation coming down, and it’s really behind the curve,” said Peter Morici, a University of Maryland professor emeritus.
He believes the Fed will have to do more than hike interest rates a quarter of a percentage point every month or two to slow the economy down since it waited so long and allowed inflation to become so high and widespread.
“We’ve never had this level of inflation without having to go through a recession to get it under control,” Morici added.
Is a recession expected in 2023?
Rising oil prices and other consequences of Russia’s invasion of Ukraine, according to Goldman Sachs, will cut US GDP this year, and the probability of a recession in 2023 has increased to 20% to 30%.
Is the UK facing a recession in 2022?
Households in the United Kingdom are under increasing strain. The cost of living dilemma looms huge, and low interest rates imply our money’s worth is rapidly depreciating.
Many people are still feeling the effects of the 2020 Covid recession, although the British economy has shown a remarkable “V-shaped” rebound so far. Experts believe that in 2022, the country will outperform every other G7 country for the second year in a row.
However, because of the ongoing Covid uncertainty, long-term growth is not guaranteed. In 2021, the UK economy increased by 7.5 percent overall, with a 0.2 percent decrease in December.
A weaker economy usually means lower incomes and more layoffs, thus a recession may be disastrous to people’s everyday finances. Telegraph Money explains what a recession is and how to safeguard your finances from its consequences.
In a recession, do housing prices drop?
Prices Have Dropped During a recession, home values tend to plummet. If you’re looking for a property, you’re likely to come across: Homeowners ready to drop their asking prices. Short sales are used by homeowners to get out from under their mortgages.
What happens if the economy tanks?
Almost everyone suffers in some way during an economic downturn. Businesses and individuals fail, unemployment grows, incomes fall, and many people are forced to cut back on their expenditures.
What triggered the UK recession in 2008?
In September 2008, Lehman Brothers, one of the world’s largest financial organizations, went bankrupt in a matter of weeks; the value of Britain’s largest corporations was wiped out in a single day; and cash ATMs were rumored to be running out.
When did it begin?
Lehman Brothers declared bankruptcy on September 15, 2008. This is widely regarded as the official start of the economic crisis. There would be no bailout, according to then-President George W. Bush. “Lehman Brothers, one of the world’s oldest, wealthiest, and most powerful investment banks, was not too big to fail,” the Telegraph reports.
What caused the 2008 financial crash?
The financial crisis of 2008 has deep roots, but it wasn’t until September 2008 that the full extent of its consequences became clear to the rest of the globe.
According to Scott Newton, emeritus professor of modern British and international history at the University of Cardiff, the immediate trigger was a combination of speculative activity in financial markets, with a particular focus on property transactions particularly in the United States and Western Europe and the availability of cheap credit.
“A massive amount of money was borrowed to fund what appeared to be a one-way bet on rising property values.” However, the boom was short-lived since, starting around 2005, the gap between income and debt began to expand. This was brought about by growing energy prices on worldwide markets, which resulted in a rise in global inflation.
“Borrowers were squeezed as a result of this trend, with many struggling to repay their mortgages. Property prices have now begun to decrease, causing the value of many banking institutions’ holdings to plummet. The banking sectors of the United States and the United Kingdom were on the verge of collapsing and had to be rescued by government action.”
“Excessive financial liberalisation, backed by a drop in regulation, from the late twentieth century was underpinned by trust in the efficiency of markets,” says Martin Daunton, emeritus professor of economic history at the University of Cambridge.
Where did the crisis start?
“The crash first hit the United States’ banking and financial system, with spillovers throughout Europe,” Daunton adds. “Another crisis emerged here, this time involving sovereign debt, as a result of the eurozone’s defective design, which allowed nations like Greece to borrow on similar conditions to Germany in the expectation that the eurozone would bail out the debtors.
“When the crisis struck, the European Central Bank declined to reschedule or mutualize debt, instead offering a bailout package – on the condition that the afflicted countries implement austerity policies.”
Was the 2008 financial crisis predicted?
Ann Pettifor, a UK-based author and economist, projected an Anglo-American debt-deflationary disaster in 2003 as editor of The Real World Economic Outlook. Following that, The Coming First World Debt Crisis (2006), which became a best-seller following the global financial crisis, was published.
“The crash caught economists and observers off guard since most of them were brought up to regard the free market order as the only workable economic model available,” Newton adds. The demise of the Soviet Union and China’s conversion to capitalism, as well as financial advancements, reinforced this conviction.”
Was the 2008 financial crisis unusual in being so sudden and so unexpected?
“There was a smug notion that crises were a thing of the past, and that there was a ‘great moderation’ – the idea that macroeconomic volatility had diminished over the previous 20 or so years,” says Daunton.
“Inflation and output fluctuation had decreased to half of what it had been in the 1980s, reducing economic uncertainty for individuals and businesses and stabilizing employment.
“In 2004, Ben Bernanke, a Federal Reserve governor who served as chairman from 2006 to 2014, believed that a variety of structural improvements had improved economies’ ability to absorb shocks, and that macroeconomic policy particularly monetary policy had improved inflation control significantly.
“Bernanke did not take into account the financial sector’s instability when congratulating himself on the Fed’s successful management of monetary policy (and nor were most of his fellow economists). Those who believe that an economy is intrinsically prone to shocks, on the other hand, could see the dangers.”
Newton also mentions the 2008 financial crisis “The property crash of the late 1980s and the currency crises of the late 1990s were both more abrupt than the two prior catastrophes of the post-1979 era. This is largely due to the central role that major capitalist governments’ banks play. These institutions lend significant sums of money to one another, as well as to governments, enterprises, and individuals.
“Given the advent of 24-hour and computerized trading, as well as continuous financial sector deregulation, a big financial crisis in capitalist centers as large as the United States and the United Kingdom was bound to spread quickly throughout global markets and banking systems. It was also unavoidable that monetary flows would suddenly stop flowing.”
How closely did the events of 2008 mirror previous economic crises, such as the Wall Street Crash of 1929?
According to Newton, there are certain parallels with 1929 “The most prominent of these are irresponsible speculation, credit reliance, and extremely unequal wealth distribution.
“The Wall Street Crash, on the other hand, spread more slowly over the world than its predecessor in 200708. Currency and banking crises erupted in Europe, Australia, and Latin America, but not until the 1930s or even later. Bank failures occurred in the United States in 193031, but the big banking crisis did not come until late 1932 and early 1933.”
Dr. Linda Yueh, an Oxford University and London Business School economist, adds, “Every crisis is unique, but this one resembled the Great Crash of 1929 in several ways. Both stocks in 1929 and housing in 2008 show the perils of having too much debt in asset markets.”
Daunton draws a distinction between the two crises, saying: “Overconfidence followed by collapse is a common pattern in crises, but the ones in 1929 and 2008 were marked by different fault lines and tensions. In the 1930s, the state was much smaller, which limited its ability to act, and international financial flows were negligible.
“There were also monetary policy discrepancies. Britain and America acquired monetary policy sovereignty by quitting the gold standard in 1931 and 1933. The Germans and the French, on the other hand, stuck to gold, which slowed their comeback.
“In 1929, the postwar settlement impeded international cooperation: Britain resented her debt to the US, while Germany despised having to pay war reparations. Meanwhile, primary producers have been impacted hard by the drop in food and raw material prices, as well as Europe’s move toward self-sufficiency.”
How did politicians and policymakers try to ‘solve’ the 2008 financial crisis?
According to Newton, policymakers initially responded well. “Governments did not employ public spending cuts to reduce debt, following the theories of John Maynard Keynes. Instead, there were small national reflations, which were intended to keep economic activity and employment going while also replenishing bank and corporate balance sheets.
“These packages were complemented by a significant increase in the IMF’s resources to help countries with severe deficits and offset pressures on them to cut back, which may lead to a trade downturn. These actions, taken together, averted a significant worldwide output and employment decline.
“Outside of the United States, these tactics had been largely abandoned in favor of ‘austerity,’ which entails drastic cuts in government spending. Austerity slowed national and international growth, particularly in the United Kingdom and the eurozone. It did not, however, cause a downturn, thanks in large part to China’s huge investment, which consumed 45 percent more cement between 2011 and 2013 than the United States had used in the whole twentieth century.”
Daunton goes on to say: “Quantitative easing was successful in preventing the crisis from being as severe as it was during the Great Depression. The World Trade Organization’s international institutions also played a role in averting a trade war. However, historians may point to frustrations that occurred as a result of the decision to bail out the banking sector, as well as the impact of austerity on the quality of life of residents.”
What were the consequences of the 2008 financial crisis?
In the short term, a massive bailout governments injecting billions into failing banks prevented the financial system from collapsing completely. The crash’s long-term consequences were enormous: lower wages, austerity, and severe political instability. We’re still dealing with the fallout ten years later.
In a downturn, where should I place my money?
Federal bond funds, municipal bond funds, taxable corporate funds, money market funds, dividend funds, utilities mutual funds, large-cap funds, and hedge funds are among the options to examine.
Which companies are recession-proof?
The only industries that remain unaffected by a recession are those that are recession-proof. They are perfect industries for meeting people’s basic needs, whether in the form of a service or a product. Despite being financially strained, consumers’ needs are continually oriented to their trade, so they will most likely thrive and withstand the effects of the crisis.
The economic destruction has been mostly caused by the coronavirus for more than a yeara health disaster that continues to bring deaths and recession around the world. Even in the face of adversity, it is never a bad idea to create chances and lean into the challenges.
Take, for example, Disney. The company was created as the Great Depression was sweeping the country. The Disney brothers realized that America needed to be cheered up again in a moment of terrible despair. They were able to expand their firm as a result of this chance, and they were able to overcome the recession’s problems.
As a result, in current downturn, every individual, business, and investment should rethink their options and seek refuge in the so-called recession-proof industry.
The 9 best recession-proof enterprises that can survive this critical era are listed below, in no particular order.
Grocery and Food Stores
In an economic downturn, the food business and grocery stores, unsurprisingly, thrive. During the recession, profits in grocery stores, fast food restaurants, and retail businesses were relatively stable. A good example is the frozen meal and coffee industry. Frozen food manufacturers should anticipate a 4.8 percent increase in total sales. The retail coffee market, on the other hand, increased by 6%, a significant increase over the initial prediction of only 2%. No crisis, not even the apocalypse, is likely to stop people from eating and drinking.
However, this industry may still be vulnerable to the recession’s consequences. During the past recession, each household’s food consumption fell by 7%, possibly because customers were more likely to buy on sale and discounted items or hunt for cheaper alternatives to minimize costs. However, the reality is that consumers can only cut their food spending so much.
Consumers’ eating habits are stimulated and increased in times of crisis, which is interesting. When people are worried, they crave and eat more, especially sweets and alcohol. During the Great Depression, popular chocolate bars such as Snickers and Mars were created. Cadbury chocolate sales have reportedly increased by 30% in tandem with McDonalds’ amazing business development during the 2008 recession. As a result, the food industry is one of the most recession-resistant industries.
Accounting and Tax Services
It must be so tempting to avoid paying those taxes! Regardless of whether there is a recession or not, taxes must be paid on time or face the repercussions.
What’s even worse is when an individual or a corporation tries to do their own bookkeeping in the hopes of saving money. While it appears to be a quick gain, there is a great deal of danger involved, and incorrect calculations could backfire and cause more problems down the road.
Resources should have been safeguarded by this stage, rather than causing potential harm. Entrusting a trained accountant to deliver the work while you focus on and target revenues is a prudent decision to make, especially during difficult circumstances.
Accounting firms are another business area that thrives during economic downturns. It is extremely important for firms to have a robust accounting and bookkeeping system in place during recessions.
In times of slowing economic development, a company’s initial instinct will be to decrease costs and keep its finances under control. When cash flow is limited, many businesses will want accounting assistance. When a business is in trouble, an accountant’s skills are needed to review spending, manage remaining resources, and offer sensible advise on how to resolve financial issues.
Unfortunately, most business owners are unaware of their tax obligations. Accounting assistance will be able to tell you where these tax benefits can help you. More importantly, these experts will assist a person in navigating and comprehending the latest adjustments in company regulations brought on by the COVID-19 pandemic. When an economic downturn strikes, it is critical to rely on accounting help.
Financial Advisors
Have you noticed that a growing number of financial advisors and money managers are emerging from the shadows recently? The most basic explanation is that they are in the business of providing services that people will require as the market falls. To put it frankly, their work was designed specifically for current economic downturn.
Business owners, investors, and people with significant investments and assets all want to protect their fortune and ensure that they are well taken care of in the event of a disaster.
It is only normal for us to be concerned and defensive with our resources during a downturn in the economy. Financial advisors frequently advance at this phase because their profession is in high demand. Their sound guidance will inform investors about the various types of investment accounts available.
Information Technology
I.T. occupations are clearly the most in-demand and recession-proof profession in today’s age of technical breakthroughs. Its major task is to promote innovation, which leads to business success. In reality, the current recession is one of the reasons for increased web traffic, which leads to increased sales.
Every department in today’s business world relies on information technology to improve their work method and strategy. A company can’t function without information technology. During this epidemic, the information technology industry has shown a lot of potential for enterprises, especially now that the work-from-home experience is widely accepted. More businesses are allowing employees to work from home.
Close, on the other hand, is an internal dialer software designed to help every sales team achieve maximum growth and productivity. By bringing predictive dialers to their firm and so producing more sales, a company may stay ahead of their competitors with this creation. The website has been up and running since 2013, and it is still developing. This is an excellent example of how information technology modernisation benefits the business world.
Furthermore, Information Technology is one of the key factors that has contributed to the expansion of international trade and markets in recent years. Businesses that engage in linked assets and exploit information technology get closer to the international market, perhaps growing sales despite the recession.
We’ll even go so far as to argue that, in order to increase efficiency, every industry today will need to include information technology. Their service has shown to be beneficial to businesses. Businesses that refuse to adapt to technological improvements face a gloomy future. There are several compelling reasons why information technology is regarded as the world’s fastest-growing industry. Their services are required today and will continue to be required in the future.
Telecommunications
The Telecom business, like Information Technology, is here to stay, regardless of the economy. The consequences of the Coronavirus outbreak only served to emphasize the industry’s importance today.
To communicate online, people need their phones, among other things. As a result, the industry became inextricably linked to the global economy. People are interested in learning how to talk naturally in the local language of their clients as a result of the globalization of consumers. Furthermore, as the telecom industry has innovated, online enterprises have thrived alongside it.
Many people have been able to make money and learn new skills without having to leave their homes thanks to the online sector. People can also sell products online as a result of this sector.
Furthermore, the pandemic breakout prompted institutions to follow suit. Since the implementation of social distance, telecommunication has become a prerequisite in educational institutions, along with the instantaneous rise of study materials.
Despite the fact that some consumers have reduced their devices, telecommunications sales continue to grow, demonstrating that it is one of the most recession-proof industries. Even before the pandemic, the sector had demonstrated its efficacy, and it will undoubtedly play a key part in the current global catastrophe.
Healthcare Services and Providers
Someone will become unwell every now and then. When people are sick, they will always seek medical help, even if their funds are limited. Because of its price inelasticity, the healthcare industry might be considered recession-proof.
Clinical institutions and medical occupations are among the few industries that are unaffected by economic downturns. In difficult economic circumstances, this company is unlikely to cut costs and retrench.
For example, during the Great Recession, the Occupational Employment Statistics (OES) assessed nurse employment in the United States. Focusing on the recessionary years of 2007 to 2010, the study found that, despite a nationwide job loss of roughly 7,257,090 million jobs, nurse employment increased by 7.6% over the same period.
Healthcare and food (discussed before) are two key industries that can thrive during a downturn. We’ve even seen the public health response to the COVID-19 outbreak today, and how healthcare providers play a key role in the midst of unprecedented financial instability.
However, due to the unique circumstances and emergencies brought on by the pandemic, several medical industries, such as surgeries, were forced to close and were unable to thrive in comparison to past recessions. Furthermore, we thank our COVID-19 front-line fighters who are risking their lives to combat the virus at this critical time. Doctors and nurses in the front lines, in particular.
Auto Maintenance and Utility Services
During recessions, companies that focus on utilities, repair, and maintenance will likely survive and prosper. People are even returning to do-it-yourself crafts and mending items on their own. Some fixes, however, are simply beyond our control. This is where the service industry comes into play.
Things will eventually fall down as time passes. The so-called wear and tear elements on autos will require special attention. Plumbers will need to inspect a leak in water pipelines for utilities. During times of adversity, the services provided by these handymen remain unaffected. This is also true of companies who sell tools and materials for home and car improvement.
Furthermore, as the current epidemic continues to spread around the world, coronavirus cleaning and disinfection services are gaining popularity as they become more valuable to businesses and residences affected by the outbreak.
Despite widespread uncertainty and the arrival of the new normal, utility services remained afloat and continued their operations alongside new cleaning-related enterprises. You might wonder why this is the case. The simple reason for this phenomena is because such services are already recognized necessary by the general public, particularly in light of today’s global health crises.
Furthermore, with the rise of work-from-home setups in our shelter, the utilities industry is unlikely to fade away anytime soon. Furthermore, businesses would need to engage cleaning services to ensure cleanliness and avoid being cited for health breaches. As a result of post-pandemic ramifications, this sector is here to stay.
The bottom line is that, as a result of the pandemic, everyone appears to be more concerned about hygiene. As a result, demand for cleaning equipment and commercial cleaning services increased dramatically. Cleaning is unquestionably one of the few industries that thrived throughout the COVID era.
Children’s Goods and Dating Industry
Diapers, milk, and bottles, among other basics for a newborn, are almost recession-proof. You must provide for your child regardless of your financial status when you are raising a child. As a result, firms that sell infant and childcare supplies can weather a downturn and rarely fail.
For the sake of their children’s health, parents are now compelled to confine them within their houses. The times have changed, and most parents are now responsible for teaching and entertaining their children. As a result of the pandemic’s consequences, the number of purchases of children’s books, games, and crafts increased dramatically.
Even children’s toys and clothing are recession-resistant for both practical and emotional reasons. The total sales of children’s toys in the United States increased by 27 percent in March of last year. Parents cannot deny the reality that their children grow up quickly, necessitating the purchase of larger clothing and shoes. And, while a toy is only a “wish,” parents will require it to calm their children.
Parents, being the loving, caring individuals that they are, would rather save money in other areas than forego their children’s necessities.
Another consequence of the COVID-19 pandemic today is disturbed family planning, which leads to unwanted pregnancies, as a result of long-term lockdowns and community quarantine. As a result, while starting a recession-proof firm, childcare items cannot be disregarded.
Nonetheless, family planning is still important and should be followed. When family planning is stated, individuals are likely to interpret it as non-sex information. Birth control is only encouraged by family planning. Couples can still be affectionate and fun with lingerie and other such items, but they must use prudence.
On that topic, the pandemic epidemic has shown the corporate world that the dating sector is still alive and well, and recession-proof. As it happens, one piece claims that consumer interest in the subject has not waned.
Courier Services
This is what sets courier services apart from other companies. With the rise of E-commerce during this pandemic, freight and logistics companies are well-positioned and unfazed in today’s global market.
Similarly to maintenance and utility services, industries that provide delivery services are able to stay afloat during economic downturns. During today’s crisis, social distancing established around the world had a good impact on the freight business. Even routine errands like grocery shopping are now available through delivery services like the Grab App, one of Southeast Asia’s most popular mobile apps for consumer mobility. Of course, this means that the industry will have to adjust to the pandemic’s changes.
However, the sector has become sufficiently diverse to reap significant benefits and profit from internet transactions. Furthermore, shipping behemoths may save millions by leveraging fuel, a commodity that often falls in price during economic downturns.
Whatever economic condition we are in, courier services will continue to thrive since consumers are obligated to send parcels from time to time, whether for personal or business reasons. Being able to function and provide that one-of-a-kind kind of support to customers makes them less vulnerable to economic downturns. Furthermore, their ability to target both the BTC and BTB sectors earns them a place among the top recession-proof enterprises.
What will the state of the economy be in 2022?
“GDP growth is expected to drop to a rather robust 2.2 percent percent (annualized) in Q1 2022, according to the Conference Board,” he noted. “Nonetheless, we expect the US economy to grow at a healthy 3.5 percent in 2022, substantially above the pre-pandemic trend rate.”