The latest unemployment numbers are somewhat encouraging, indicating that jobless claims are heading down. However, that doesn’t change the fact that the Federal Reserve downgraded the outlook for the U.S. economy, and that Paul Krugman, not too long ago, gave the economy a 50% chance of heading back into a recession. There are some economic indications that a double-dip recession could be on the horizon. Are you ready for what that could mean?

Could We See a Double-Dip Recession?

There are some that think a double-dip recession is definitely on the horizon. Even though jobs data, which is a lagging indicator, might point to some improvement, the reality is that there are some concerns. Most of the data has been almost as volatile as the stock market, with a silver lining one week, and nothing but doom and gloom the next. It’s hard to work out what might be happening next. However, there are still a few items of concern for many:

 

• Weak jobs market: Even though the most recent numbers are encouraging, the fact of the matter is that the jobs market is somewhat weak right now. Without employment, consumers don’t have money to spend – and consumer spending accounts for right around 2/3 of economic activity in theU.S.
• Continued housing market weakness: Many consider the housing market one of the cornerstones of the economy. With continued weakness in the housing market, it is hard to be optimistic about what’s next for the economy. There are hopes that record low mortgage rates might spur some buying, but so far tighter lending standards have limited home buying activities.
• Worries about Europe:  It looks as though European banks will get some of the help they need, and that the EFSF might just get all the support it needs for a bailout fund meant to contain the sovereign debt problem. However, even with this good news, there are still concerns. Votes of support don’t translate directly into action, and European policymakers and leaders have been quite slow to effectively address the problem so far. As a result, there are concerns that Europe could contribute to an economic slowdown and upset markets.

 

Some hope that Operation Twist will provide enough stimulus to get things going without having to resort to true quantitative easing measures (the Fed insists that Operation Twist is not the same thing as QE3). However, there are others who are not so sanguine.

Of course, the best thing you can do is to prepare your finances as if there is a recession right around the corner. You will be ready for just about anything in that case. If your finances are always prepared for a recession, with your emergency fund built up, and your debt paid down, it won’t matter as much if a recession comes, and you won’t worry as much about money. Even when the economy is going well, it’s a good idea to prepare your finances as if there is a recession right around the corner – because there very well could be.