For three years, Americans have been juggling a variety of anxiety-producing uncertainties. After emerging from lockdown cocoons, people thought things would return to normal. They discovered nothing was expected.
You are not alone if you are puzzled about why and how this happened. Even the world’s most experienced money managers are stunned by these economic jolts.
Nerves become jittery as the prices climb. No one needs a degree in economics to know that a grocery trip costs far more than last year. The sky-high prices are causing Americans to rethink their purchasing decisions. They wonder when the prices will stop rising.
Understanding the factors in play can remove some of the fears that consumers are experiencing. We spoke to the experts at Symple Lending they offered their perspectives on inflation and recession.
Can you give us an Explanation of Inflation in Layman’s Terms?
Symple Lending: It’s paying a lot more for a product you did one year ago. True, if you rewind the clock to 2000, gas and milk were cheaper. It’s normal for prices to increase over time. That’s a sign of a healthy economy because it means more people are employed and increasing their paychecks. Thus, the price of a product will rise gradually. But when we see a surge in the cost of goods in weeks – or sometimes in a few days – that’s inflation.
And if your monthly groceries are $200 higher now than 12 months ago, that throws a wrench into how much you have left – if any – for discretionary spending: less money for buying your children new school clothes and dining out.
When will Inflation Start to Slow Down?
Symple Lending: This is one of the most frequent questions we hear at Symple Lending. It’s the $64,000 question! During this wait-and-see period, we are keeping a close eye on the moves that the Federal Reserve is making. And we listen to what experts around the world have to say. Some believe this may stretch well into 2023 before it eventually tapers off. JPMorgan Chase strategists see daylight at the end of the tunnel; they believe stabilizing consumer confidence and rebounding growth may lead to a soft landing.
The average consumer knows that inflation is out of their control. But what steps can they take to help them focus on their control?
Symple Lending: Anyone can get swept away by the undercurrents of fear if they only envision doom and gloom. We advise our borrowers to adopt a mental shift that will allow them to focus on what they can control.
We recommend creating an itemized budget and keeping it nearby. Don’t view it as a life preserver only required when you are in deep water and can’t find the bottom.
We also like to say: Keep it Symple. If you prefer to track your expenses on paper, that will work. It’s not necessary to create an online spreadsheet, and writing down every expenditure will paint a picture of where your funds are going.
How can people minimize the impact that inflation has on their lifestyles?
Symple Lending: This question can tie in with the previous one. If you follow our suggestions and create a budget, our next nugget of advice is to stick to it. It’s safe to assume that people could easily cut 10% of their expenses. For instance, opt for a store brand instead of buying brand-name items at the grocery. Also, schedule your errands so that you aren’t hopping into your vehicle ten times a week. This will reduce some of the pain at the pump. That line-item budget will also reveal how much money you spend a month zipping through a fast-food drive-through. Eating at home will not only save you some hard-earned cash, but it will also probably be a healthier source of nutrition.
Now that we have a better understanding of inflation and identified steps to alleviate stress and save money, let’s steer the conversation toward the awful “R” word: Recession. I suppose it’s not as frightening as depression. For starters, what is a good definition of a recession?
Symple Lending: Yes – let’s dive into this topic. In technical terms, a recession is a substantial economic activity plunge that lasts longer than several months. If you survey your coworkers or listen to your favorite news program, they may tell you America is in a recession. However, the National Bureau of Economic Research (NBER) declares when a recession begins and ends. And the NBER doesn’t officially label an era a recession until it has passed.
Most people admit they don’t pay too much attention to the economy until it awakens us. It’s nice to be reminded that if a recession does occur, it certainly won’t be America’s first. So, how often does the U.S. economy dip into a recession?
Symple Lending: Looking back to 1948, we count 11 recessions. They occur twice every six years. They typically last 11 months, except for the Great Recession.
Are you referring to the 2008 recession?
Symple Lending: Yes. The Great Recession of 2008 began when housing prices started to tumble. It was more of a freefall. That recession resulted from a meltdown of a global financial system and bad mortgage loans made by many lending institutions across the country. And since you mentioned the dreaded depression, I’d like to explain the difference. In a recession, the economy contracts for two or more quarters, but depression lasts for years. A century ago, there was the Great Depression, which lasted from 1929 to 1939. And just two decades ago, we had the 2001 recession, which lasted from March to November. That was triggered by a boom and bust in dot-com companies.
While these are cringe-worthy times, it’s refreshing to remember that the U.S. has endured many financial hardships and always cycled out of them. Can you share some final thoughts or tips on how American households can prepare for a recession?
Symple Lending: I’d be happy. We tell our customers to remember inflation and recessions are cyclical. People should seek financial guidance, so they don’t feel like they are all alone. We have helped borrowers who find themselves in a pinch. Our goal is to help customers become financially stable.
