Bloomberg Economists See 100% Chance of a Recession Within a Year

Many experts now believe a recession is almost inevitable.

According to the Bloomberg Economics probability model, there's now a 100% chance we'll see a recession in the next 12 months. The Bloomberg team isn't the only one predicting economic difficulties; many economists have been warning about a recession for several months. However, Bloomberg is unusual in being so certain. Most other predictions are couched in language of it being a strong likelihood rather than a 100% possibility.

Bloomberg's 100% recession warning

The Bloomberg Economics model uses 13 different macroeconomic and financial indicators and to predict the chances of a recession at various points in the coming two years. It shows that the probability of a recession is increasing. In spite of aggressive moves from the Federal Reserve, inflation continues to be high, which is a worry for economists and consumers alike.

Here's what the model says about the chances of a recession within different time frames:

• One year: 100% (up from 65% in previous forecast)
• 11 months: 73% (up from 30% in previous forecast)
• 10 months: 25% (up from from 0% in previous forecast)

Recessions are usually characterized by falling productivity and rising unemployment. They can last anywhere from a couple of months to more than a year. The U.S. has already seen three recessions since the turn of the century. The last one, triggered by the COVID-19 pandemic, was extremely short. The one before is known as the Great Recession and lasted around 18 months.

What recession warnings mean for you

It's all very well sounding the alarm bell, but what do all these dire economic warnings mean for you as a consumer? Understandably, a lot of people are tired of being told the sky is falling -- especially after the pandemic and everything that came with it. Now just as life is starting to return to some kind of normal, we're being told we're on the verge of economic disaster.

Know that you are not powerless. There are things many of us can do to prepare for an economic slowdown. If the Bloomberg team is correct, we may have a year before recession strikes. Here are some of the steps you can take:

• Understand your spending: If you don't know where your money goes each month, now's the time to face it head on. You don't need to make a complicated spreadsheet. Try using a budgeting app or a pen and paper. Once you know how much you earn versus what you spend, you can start to prepare for a recession.
• Work on your emergency fund: One of the best ways to handle an economic slowdown is to have money put aside in a savings account for emergencies. The rule of thumb is to put three to six months' worth of living expenses in an emergency fund. But as the economic storm clouds gather, a lot of financial experts suggest saving as much as a year's worth of cash.
• Look for areas you can cut back: You may feel as if you've already pared back your spending so much there's nothing more to cut. Unfortunately, if you are spending more than you earn right now, or your emergency fund isn't up to scratch, you may need to make some more drastic cuts -- even if they are only temporary.
• Consider a side hustle: There are pros and cons to taking on extra work. The big pro is that an extra income stream can help you cover higher living costs and also beef up your savings. But be careful you don't dedicate so much time to your side hustle that it impacts your performance at your main job.
• Avoid impulse purchases: Try to keep a check on any impulse purchases, especially as the holiday season approaches. There can be a strong temptation to spend now while the job market is good and there's money coming in. But that could be counterproductive further down the line.
• Pay down debt: If you're carrying high interest debt of the credit card variety, do everything in your power to pay it down. That may feel like an impossible task, but debt will weigh you down more as interest rates. See if you can set yourself some achievable goals in terms of putting a dent in what you owe.

Bottom line

As consumers, it's important to neither ignore recession warnings nor give in to panic. It is true that a recession could impact the job market and lead to economic hardship. But they are also part of every economic cycle and will pass. The job market is strong right now, so try to use this time to strengthen your financial bases and position yourself to deal with whatever may happen next.