Recession 101What you need to know about the R-word and when it's time to prepare for oneNEW YORK (CNNMoney.com) -- Unemployment is soaring, foreclosures are mounting and Americans are having more trouble paying off their loans - and that's stoking fears of a recession. We'll tell you what you need to know about the R-word. 1. Know the terms The back of the envelope calculation that some economists make to determine a recession is two back-to-back quarters of negative GDP growth. But we went right to the source - the folks who are the recession referees. According to the National Bureau of Economic Research, a recession is a broad-based economic decline that lasts more than a few months. This decline should be visible in the GDP (this is the value of goods and services the U.S. produces in a given year) income, employment, industrial production, and wholesale-retail sales. 2. Get the indicators Declaring a recession is like looking in a rearview mirror. It can take 6-18 months to declare a recession. Whether or not we actually do have a recession is still being debated. But if the economy took a nosedive now we may not even know we're in a recession until July at best. As a consumer, there are a few indicators you can use. First, is the economy producing jobs? We got news just last week that it's not. If you know people who are losing their jobs and can't find another one, it's a sign of economic slowdown. If prices aren't rising that fast, it may be another sign of a recession says Hugh Johnson of Illington Advisors. The Fed's trend of lowering rates is also a sign that policymakers are worried about economic weakness. Take a look at the personal savings rate that comes out from the Bureau of Economic Analysis. If people are saving more, it generally means they're worried about the economy says Ken Mayland of Clearview Economics. And finally, you have to look at catalysts. The recessions of 2001, 1990 and 1981 were preceded by bubbles - real estate bubbles, tech stock bubbles - inflation bubbles. This time, the concern is a housing bubble. A recession may be the economy's way of relieving this excess. 3. Look at the bigger picture Here's the good news. Recessions have become shorter and milder since 1981 when the recession lasted 16 months. The recessions in 1990 and 2001 lasted about eight months and there were relatively small declines in the economy. Economists say that's because the Fed has been more proactive in preventing problems. And given the recent spate of Fed cuts, there is some reassurance out there. 4. Stay ahead of the game The number one thing you want to do is to raise your profile at work. Make sure your boss knows your value. Make it a point to work on the best and most high-profile projects. Renew connections. Join sites like Linkedin.com or post your professional profile at Ziggs.com, a professional networking website. Make sure your emergency fund if you don't have 3-6 months of living expenses tucked away. Lock in your mortgage with a 30-year fixed loan if you can afford to. If you're afraid you're going to lose your job, it's a good idea to investigate no-cost HELOCs, or home equity lines of credit. This way you'll be able to pay your mortgage in case you lose your income. Gerri's Mailbox: Got questions about your money? We want to hear them! Send e-mails to toptips@cnn.com or click here - each week, we'll answer questions on CNN, Headline News and CNNMoney.com. |
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