What is a recession, and is it possible to prepare for one?
The word "recession" seems to be popping up a lot lately. Economic uncertainty stemming from President Donald Trump's tariffs on Canada, Mexico and China have fueled the biggest stock market selloff in years, and now some economists are putting the likelihood of entering a recession by next year between 20% and 40%.
The topic is clearly on people's minds: Google Trends data shows "recession" searches were recently up 1,200% in the United States.
Here are some answers to the Top 3 most frequently searched questions regarding recessions.
What is a recession?
While there is no single universally accepted definition, two consecutive quarters of negative growth is widely considered a recession.
A nonprofit, nonpartisan organization called the National Bureau of Economic Research determines when the U.S. economy is in a recession, based on a number of factors including economic growth, employment, industrial production, consumer spending and retail sales.
Recessions are typically marked by a significant decline in economic activity, accompanied by rising unemployment. They tend to be cyclical, historically occurring every 6-7 years.
The U.S. has had 14 official recessions since the Great Depression of 1929. The most recent recession was also the shortest on record: The COVID-19 recession of 2020 lasted just two months, from February to March.
Prior to that, the Great Recession of 2007 lasted 18 months and was triggered by the subprime mortgage crisis in the housing market.
How does a recession impact the average person?
One unfortunate byproduct of a recession is that millions of people often lose their jobs. As spending by consumers and businesses slows down, the economy shrinks and businesses tighten their belts, slashing budgets and laying off workers.
In this environment, companies are also less likely to hire workers, making finding a new job more challenging.
For those who have a job, many lose their bargaining power during a recession. Bosses may freeze pay raises, eliminate bonuses and become more strict about flexible work schedules.
Access to credit can also be impacted by a recession. Lenders may be less willing to give out loans when job security is scarce. Even if someone has the income to support a loan, lenders may more heavily scrutinize financials, credit history and credit score.
Recessions also tend to have a negative impact on the stock market, denting many investors' portfolios.
Even if someone experiences job security and has a solid financial cushion, a recession can cause stress and anxiety, preventing them from taking vacations or making large purchases like a house or car.
How can I protect myself from a recession?
Unlike some unforeseen events that can throw finances into disarray, like an unexpected illness or natural disaster, there are warning signs ahead of a full-blown recession. If those warning signs are flashing, experts say it's best to be proactive.
Experts also suggested that individuals should boost their emergency funds, so that they have at least three months' worth of living expenses -- and more if possible.
People are encouraged to review their budgets and separate "needs" from "wants." They should trim unnecessary spending by slashing unused subscriptions, eating out less and shopping around for things like insurance rates and cellphone plans.
It is important ahead of a recession to focus on paying down debt, especially debt that carries highest interest rates, and to consider learning a new career skill or turning a hobby into a side hustle to create alternate streams of revenue.
Experts said that riding out a recession starts with planning for the worst-case scenario.
