Worried About a Recession? We May Get a ‘Slowcession’ Instead

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That’s actually much better news. 

“Gear up for a recession now, while you can.” Such were the warnings many financial experts issued during the latter part of 2022 on the heels of interest rate hikes by the Federal Reserve.

The Fed has been raising interest rates in the hopes of slowing the rate of inflation. There’s been progress since inflation levels peaked in mid-2022, but the Fed insists there’s more work to be done.

By making it more expensive to borrow, the central bank is hoping to encourage consumers to spend less. That should, in turn, help close the gap between supply and demand that’s been causing inflation to surge.

But if consumer spending declines to an extreme degree, it could fuel an economic downturn. And that could lead to a prolonged period of higher-than-average unemployment.

But recently, economists have changed their tune with regard to those recession warnings. And while many experts still think economic conditions could worsen in the near term, they’re not as convinced that things will be truly terrible.

We could get a ‘slowcession’ in 2023

Consumers were warned to boost their savings account balances and pay off high-interest debt in 2022 to gear up for a 2023 recession. But now, Moody’s Analytics says that the most likely near-term scenario is not a full-blown recession, but rather, a “slowcession” — a period of economic decline without the full-on assault of a recession.

Now to be clear, a “slowcession” doesn’t mean things will be rosy. We could still see unemployment levels rise from where they are today.

But it’s also important to recognize that the national unemployment rate is currently at almost the lowest level in 20 years. And so if the jobless rate rises modestly, that wouldn’t necessarily drive the economy into crisis mode.

Furthermore, a “slowcession” — or even a full-blown recession, for that matter — won’t necessarily impact stock or home values. Stocks had a miserable 2022, and home values, though still high, have dropped over the past number of months as mortgage rates have risen and buyers have been forced out of the market. But things won’t necessarily get better or worse in either regard if the broad economy declines.

It still pays to prepare

While the idea of a “slowcession” may not seem as bad as an actual recession, it’s still a good idea to get ready for a downturn. That could mean boosting your emergency fund and paying off lingering credit card balances you racked up during the holidays.

It’s also not a bad time to set yourself up with a second job. That extra money could help you shore up your savings and chip away at costly debt. Plus, a side gig can serve as a backup income source in case economic conditions worsen and your job winds up on the chopping block.

Whether we call it a recession, a “slowcession,” or simply a decline, the fact of the matter is that most experts think the economy will worsen to some degree this year. Preparing for that could spare you a world of stress and financial upheaval.

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