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Are We Headed for Another Recession?

Is this the beginning of another recession? The truth is: It doesn't matter. No matter what we call it, the economy stinks right now.

I know we haven't qualified as being in a recession based on the two ways that it's usually defined: (1) the rule of thumb method, which is two consecutive quarters of contraction in GDP or (2) the official way-the National Bureau of Economic Research (NBER) has not declared that the economy has experienced "a significant decline in activity."

But really, do we need NBER or an analyst to tell us that we are "dangerously close to a recession"?

Here are the facts: the US economy grew by less than 1 percent in the first half of the year; there are nearly 25 million Americans who are either out of work or working part-time; wages are stagnating for those with jobs; and housing is still in the tank. Whether or not we call that a recession, there's no denying that the economy continues to struggle.

The Great Recession, which officially ended in June 2009, according to NBER, was the culmination of an asset bubble (housing) fueled by a credit bubble. Now, the credit binge has now morphed into the bad hangover phase for the economy.

The one group that seems to have exited the hangover phase is corporations. Companies have continued to rack up profits, which is why despite a bad August, the US stock market is still up nearly 70 percent from the March 2009 lows. Unfortunately, the money that companies have earned during the recovery has mostly stayed within corporate America and has not trickled down into higher wages or robust job creation.

Whether we call is a recession, slow growth recovery or chronic hangover, here are some things that you should do to cope with the current economic malaise:

  • Beef up your emergency reserve funds: financial advisors used to recommend keeping 3-6 months of living expenses in cash or cash equivalents, but I have always preferred 6-12 months . If the slow-growth economy continues or if we slide into another recession, keep cash levels on the high side.
  • Pay down all consumer debt as quickly as possible: the last thing you want is to be saddled with debt when you could be at risk of losing your job or seeing a reduction of hours or pay.
  • Maintain your diversified, balanced portfolio: don't forget to re-balance, to keep allocations in line.
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