Recession Already Here?
If you have noticed changes for the worse in your local economy, you are not imagining it. Businesses are struggling, hiring is slowing, and more homes are showing “for sale” or foreclosure signs, signaling stress across multiple sectors. Economic experts are seeing the same signals in their data and warn a recession may be approaching. These early signs suggest a broader economic slowdown could be underway, which may put retirement savings at risk if markets and incomes decline.
Moody’s Analytics Signals Recession Risk
Earlier this month, Moody’s Analytics chief economist Mark Zandi stated that the U.S. is “on the precipice of a recession”. He cited multiple pressures on the economy. Including tariffs, restrictive immigration policy, and Federal Reserve actions that have slowed growth. According to Zandi, these factors have increased economic uncertainty. They’ve also delayed investment and hiring.
“In my view, the tariffs are substantive,” Zandi said. “They’re slowly but still being passed through, and that’ll become vividly clear in the next few months, as the tariffs get fully passed through to consumers.”1
A recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months. By that definition, the overall U.S. economy is not in a recession yet. However, Zandi warned that several industries, including construction and manufacturing, are already experiencing recession-like conditions. States representing nearly a third of U.S. GDP are either in recession or at high risk. While another third is treading water and the remaining third continue to expand.
“States experiencing recessions are spread across the country,” Zandi added. He now estimates a 49 percent chance of a downturn in the next 12 months.2
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Labor Market and Payroll Data Indicators
Recent labor data provides further evidence of economic vulnerability. Payrolls expanded by just 73,000 last month, well below forecasts. Revisions to May and June data lowered the average gain over the past three months to only 35,000 jobs. Zandi explained that when more than half of the roughly 400 industries in the payroll survey are shedding jobs, the economy is likely in recession. In July, over 53 percent of industries cut jobs. Health care was the only sector with significant additions.4
Barclay’s bank analysis supports Zandi. They used a “tipping points” model based on payroll and unemployment data. It indicates that the pace of growth has slowed to levels that leave the economy highly susceptible to downturns. Barclays says the U.S. economy has entered a “stall state.” (The economy can be in one of four states: rapid expansion, expansion, stall speed, or recession). According to them, the risk of recession within two years has risen around 50 percent.5
Expectations for Rate Cuts
With the economy showing signs of strain, Barclays expects the Fed to pivot to interest rate cuts in September. The bank anticipates 25-basis-point cuts in both September and December. Zandi cautioned, “The actual rate cuts themselves may not have as much of a benefit as one might think, because they’ve already been anticipated and discounted. It’ll help cushion the weakening of the economy, but it won’t stop it.”6
Gold as a Safe-Haven Asset
Analysts at Barclays describe gold as “the best place to hide” in a recession.7 History shows gold’s enduring role as a hedge against recession-driven volatility and uncertainty. During the 2001 dot-com recession, the S&P 500 fell nearly 40 percent while gold prices gained about 12 percent. In the 2008 financial crisis, gold rose almost 6 percent even as the S&P 500 collapsed over 38 percent. More recently, during the 2020 COVID-19 recession, gold surged to an all-time high above $2,000 per ounce. 8
Conclusion
Experts increasingly agree that the U.S. is on the precipice of a recession. Even a small economic shock could trigger a downturn. Recessions can sharply reduce retirement savings by lowering the value of stocks, bonds, and mutual funds. Job losses or reduced income can also slow contributions to retirement accounts. Making it even worse. For those nearing retirement, these combined effects can be particularly damaging because they may not have sufficient time for investments to recover.
While there still is time, you can protect your savings with a Gold IRA. Contact American Hartford Gold today at 800-462-0071 to learn how to safeguard your financial future.
