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Recession: Out Of The Frying Pan Into The Fire

Stated often in this column, I use many different news sources and analytic services in my work, always attempting to get the best consensus of what is to come. Following the financial and geopolitical news is absolutely necessary to carrying out a successful personal financial plan. Starting in 2008, we plunged into a serious recession. By many accounts that recession has ended some months ago, yet there has been a constant concern for a "double-dip" recession, for lack of a better term. I read The Economist magazine on a regular basis, finding their coverage very independent and accurate. Recently they cited the track record of the Economic Cycle Research Institute (ECRI) as being very good, having never broadcast a "false alarm" over the years of their existence. This account lead me to further investigation of what ECRI has to say currently. It was a timely investigation as they just made their latest call on the US economy this week.

Weakness in leading economic indicators has become so pervasive that the Economic Cycle Research Institute now predicts a new recession is unavoidable. "The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales," says Lakshman Achuthan, co-founder of ECRI. Although the current recovery has been "subpar" by nearly every measure, Achuthan refutes the idea the economy never got out of recession in the first place. "Just because it looks and feels a certain way doesn't mean it's a recession," he says. "You haven't seen anything yet. It's going to get a lot worse."

It's too soon to predict just how bad it's going to get, but he expects another spike in unemployment and further expansion of the federal government's $1 trillion deficit. This forecast has huge ramifications for the 2012 election and the already struggling U.S. consumer and Achuthan says a "mild" recession is the best-case scenario. You can read much more detail upon which ECRI base their analysis at their web site: http://www.businesscycle.com/

If we lend some credibility to the assessment by ECRI, then the logical question is "what can we do about it?"

Our common concerns for our personal financial health include our jobs, our housing, our educational goals for both ourselves and our children, eventual retirement security, and of course just the day to day costs of living. Recession plays havoc with all of those concerns, catching many of us unprepared to weather the economic storm. Another recession on the heels of what we just experienced will only compound the seriousness of its impact. If we focus on the main concerns listed herein, it makes sense to review our circumstances with regard to each.

Jobs have been and will continue to be a major issue. We should do all that we can do to insure our current positions, including continuing education, putting forth the extra effort, and looking for challenging opportunities that may arise within. Employers generally take a very serious look at cutbacks; it is important to keep our productivity and performance above the crowd so as to keep our chances for cutback or dismissal at an absolute minimum. Just as important, while we are drawing a paycheck, never lose sight of how we allocate those dollars. I have preached long and hard about personal savings...now is the time to squeeze every penny possible from that monthly budget and put it away.

Of course budgeting is the key to all elements of a personal financial plan. We need to fund education, retirement, day to day living, and just about everything else from whatever source (s) of income we have. The best allocation of that income depends on our individual needs and preferences, however the allocation must be done and the plan must be followed if we expect to achieve the desired results. I know many who have attempted to supplement current income with part time jobs or short term consulting agreements as an independent contractor. Many companies have moved to solving staffing needs by hiring independent contractors. They have done this both to save some costs associated with hiring long term full time employees, and to gain flexibility to make staffing changes by hiring specialists for a particular task. Again, taking on part time work or a short term consulting job is simply a way to supplement the funds available to fulfill our plan.

The Wall Street Journal recently ran a series of articles on the behavioral modification of Americans regarding saving and spending. They cited many statistics such as the skyrocketing number shoppers using coupons, the switch to "house brands" by grocery store shoppers, and the growth in the number of "big box" shoppers seeking to lower their per unit costs by buying in bulk. Perhaps a change in the way we handle our personal finances is long overdue.

©Patrick J. Catania 2010
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.

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