Learn from history: what goes up must come down. In 2018, more than 1 in 7 Americans were 3 or more months behind on their car payments; could another recession be on its way?
The economy cycles through boom and bust periods. It forms a economic bubble as asset prices flood due to over excited market behavior. The bubble eventually bursts when prices get too high for investors and massive sell-offs begin. When an economic bubble bursts, the economy goes into a recession state and, if the economy remains in this state for long enough, a depression begins. Depressions are also caused by a particularly bad recession, not only if a recession lasts long enough.
There are several signs of a down economy. Compare long-term and short-term interest rates; if short term rates are higher, a recession is probable. In 1980, the Federal Reserve caused a recession by raising interest rates to combat inflation. Initial claims for unemployment insurance could a forefront indicator by assessing businesses that need to reel in expenses to prepare for the coming recession.
In 1933, The Great Depression raised unemployment all the way up to 25%; and it kept above 10% all the way until 1941. Housing and residential construction can also be affected by increased interest rates; a common spark of recessions is the Federal Reserve tightening. In 2007, The Great Recession was prompted when the subprime mortgage bubble burst and spread to the economy as a whole.
There are some things that we are always willing to spend our money on, even during a recession. Beauty products have showed continual growth through each of the past 4 recession, and U.S. cosmetics sales increased from the last three. Alcohol also tends to do well during recessions and generally sales rose during recessions.
We might be headed to a recession, but there’s still time to recession-proof your business. Find out more about preparing for future recessions from the infographic below!
Infographic Source: Great Business Schools
