Treasury Secretary Janet Yellen Says Likelihood of 2023 Recession Is Low

Now that's some good news.

"Prepare for a 2023 recession." Such was the warning a lot of financial experts were quick to sound during the latter part of 2022. 

But given the current state of the economy, a near-term recession seems fairly unlikely. And Treasury Secretary Janet Yellen certainly feels similarly. 

Why we might manage to escape a recession

A big reason so many economists feared a 2023 recession was that they expected a major pullback in consumer spending on the heels of the Federal Reserve's numerous interest rate hikes in 2022. But while the cost of borrowing in different forms, from credit cards to personal loans, may be up, consumer spending has not declined in an alarming way.

More so than that, the labor market is looking so strong that it's hard to imagine going from where we're at today to a full-blown recession in a matter of months. CNN recently quoted Janet Yellen as stating, "You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in 50 years." And it's easy to get on board with that line of thinking.

In January, the U.S. economy added 517,000 jobs, and the jobless rate fell to 3.4%. And while we have seen a number of larger-scale layoffs come down the pike, the reality is that jobs in the U.S. are still plentiful. So it may be time to scale back those recession warnings for the time being.

It still helps to be prepared 

We may not need to worry as much about a 2023 recession given the state of the labor market, and given that consumer spending has not declined to an extreme. But it's still a good idea to make sure you're recession-ready -- even if our next downturn doesn't hit for quite some time.

One of the best ways to get ready for a recession is to make sure you have a solid emergency fund. At a minimum, aim for three full months' worth of bills in your savings account. And for added protection, aim higher. If you're able to sock away enough money to cover half a year's worth of expenses, you'll have that much less to worry about if a recession hits, you're forced out of a job, and it takes months to find a new one.

At the same time, it's always a good idea to make sure your job skills are current. Read up on industry news and look over the shoulders of colleagues who are seasoned and great at what they do.  

And finally, consider some income diversification. Pick up a side hustle that works for your schedule so you have a second income source to fall back on in case your main job goes away. Working a gig on the side could also make it easier to shore up your savings. 

A near-term recession may not be in the cards. But it's still smart to prepare for one in case economic conditions reverse course later on in the year.