The labor market is robust
In most recessions, economic output and employment decline simultaneously. Lower revenue compels businesses to cut back on staff, which leads to higher unemployment. Ultimately, higher unemployment leads to lower consumer spending and that creates a vicious cycle.
In 2022, however, unemployment is still at a record low. The official unemployment rate in June was 3.6% – the lowest since February 2020. A robust job market is “historically unusual” during a recession, according to economists at Goldman Sachs.
This unusually strong job market could be deriving strength from another unusual source: corporate financial strength.
More: Got spare change? Here's how to easily invest your money if you're not rich
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
Learn MoreCompanies are cash-rich
Corporations see a decline in sales and earnings during recessions. That process may have already started. However, U.S. corporations are sustaining profits and sitting on an immense cash hoard going into this recession.
The average U.S. corporation’s after-tax profit margin is around 16% right now. In traditional recessions, this rate drops down to single digits. Meanwhile, these corporations are collectively sitting on over $4 trillion in cash. That’s a record level and also highly unusual for a recessionary environment.
Companies may have raised these funds during the era of easy money and low-interest rates over the past decade. Now, this cash is acting as a buffer and could allow companies to retain staff despite the economic slowdown.
Rates are rising
Another unusual factor of this recession is the Federal Reserve’s hawkish stance. In most recessions, the central bank cuts interest rates and adds more money to the economy to stabilize it.
In 2022, however, the Fed has been aggressively raising rates to curb inflation. Considering the strength of the job market and corporate balance sheets, the central bank may have more reason to keep raising rates.
More: Take a break from your debt this month with the help of Credible
This 2 minute move could knock $500/year off your car insurance in 2024
Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.
There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.
Get StartedWhat comes next?
“This is unsustainable,” says WSJ’s Jon Hilsenrath. He believes that one of two things must happen to resolve this misalignment: either the economy recovers swiftly, ending the recession, or the economy keeps dipping, compelling employers to cut jobs.
These two scenarios could potentially be the “soft landing” and “hard landing” the Fed has previously mentioned. Investors need to keep an eye on all indicators to see which scenario is playing out because the impact could be severe.
This could be an ideal time to bet on beaten-down growth and tech stocks if a soft landing occurs. However, in a hard landing investors may need to take refuge in asset-backed defensive stocks like healthcare companies and real estate investment trusts.
In either case, 2022 is shaping up to be an interesting year for investors.
Follow these steps if you want to retire early
Secure your financial future with a tailored plan to maximize investments, navigate taxes, and retire comfortably.
Advisor is an online platform that can match you with a network of vetted fiduciary advisors who are evaluated based on their credentials, education, experience, and pricing. The best part? - there is no fee to find an advisor.