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Are We Actually in a Recession? It's Complicated.

By Maurie Backman – Jun 7, 2020 at 7:18AM

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It's clear that today's economy is in bad shape. But how bad is it?

The economic picture in the U.S. has been pretty bleak since mid-March, when COVID-19 cases started multiplying rapidly. Though unemployment levels fell in May compared to April's number, the jobless rate is still at 13.3% -- a far cry from 3.5% back in February, before the pandemic. Meanwhile, in March, the stock market hit an ugly milestone -- it reached bear market territory, defined as a 20% decline in value or more.

Thankfully, the stock market has recouped some of its losses since March, and while the jobless situation is still dire, things have seemingly improved. It therefore begs the question: Is the U.S. actually in a recession right now? Or are we simply teetering on the edge of one?

Graph with yellow arrow pointing downward

Image source: Getty Images.

What is a recession?

In its most basic form, a recession is a period of economic decline. But there are certain metrics that are typically used to define one -- namely, two consecutive quarters of declining gross domestic product. Right now, it's too soon to arrive at that data, because the pandemic didn't actually start its economic toll until March. Therefore, while we may be in a position to declare an official recession come July, right now, we're technically not there yet.

Still, our economy is certainly experiencing some recession-like disturbances, specifically on the unemployment front. And stock values, while nowhere near their lows in mid-March, have yet to return to pre-pandemic levels.

Housing is another big metric used to define a recession, but so far, housing prices haven't seen a decline. That could be due to the fact that housing activity has largely been paused during the pandemic. With social distancing measures in place, the once-simple act of viewing properties has been far less feasible in the wake of COVID-19, and with so much economic uncertainty, it's fair to say that many would-be buyers have put their home searches on hold until conditions improve.

So are we in a recession?

Technically, we may not be in a recession -- at least not yet. But the semantics involved shouldn't really matter as much as the practical day-to-day impact of what's going on. Right now, millions of Americans are out of work and struggling. Many who still have jobs have seen their hours – and paychecks -- reduced. And small businesses across the country are in danger of closing permanently.

Therefore, regardless of whether we're actually in a recession, it pays to act like we're in the midst of one. If you're still working, take the money you're not spending on essentials and sock it away in the bank so you have an emergency fund to tap if things get worse. And if you're doing well on emergency savings, use whatever money you can eke out of your paychecks to eliminate any high-interest debt you may be carrying. Finally, you might think of securing a home equity line of credit. That way, if you're still working but lose your job, you'll have a relatively low-cost way to borrow money if you need to. Of course, that only works if you own a home, so if you don't, now might be the time to apply for a modest personal loan through your bank.

Though we may not officially be in a recession, it's clear that we're also, as a whole, not in a good place. Rather than fixate on terminology, focus on getting your financial house in order in case things get even worse.

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