5 Good Things About Recessions
Concerns about a coming recession are on the horizon. Even though the unemployment rate remains a low 3.6%, some believe a recession could be on the way.
For example, experts cite the recent slowing in the housing market as a sign of a looming recession. On top of that, inflation continues to surge and the Federal Reserve has signaled that it could raise interest rates even more through the end of the year.
No one wants to try to manage their money — or their lives — through a recession.
However, it’s not all doom and gloom. There are some things that actually improve during a recession. So while we don’t wish difficulty on anyone, the following are some silver linings that accompany an economic downturn.
1. Cheap stocks
For those hoping to boost future portfolios, a recession is a time to go bargain hunting. As the stock market drops, you might be tempted to sell and abandon what feels like a sinking ship. However, instead of locking in losses, recessions can be a time to look for good deals and buy more stock while shares are cheaper.
Money Talks News founder Stacy Johnson recently wrote about the benefits of buying when the market is on sale.
Markets go up and down, and there is no guarantee that what happened in the past will repeat in the future. However, history has shown that buying when the market is low can pay off down the road.
Of course, you won’t be able to predict exactly when the market bottom will arrive, but you can still get a good deal on stocks if you buy them when they’re at a lower price. Stacy recommends looking at blue-chip stocks with dividends as well as considering index funds.
2. Lower death rate
Interestingly, the mortality rate can fall during a recession. Between 2005 and 2010, a time period that included the Great Recession, mortality rates actually fell as unemployment in urban areas rose, a study found.
One of the biggest contributions to a lower death rate was a decline in the cardiovascular (heart) disease mortality rate. Car accidents were another category that saw a reduced mortality rate.
While there isn’t a direct link between a recession and a lower death rate, one of the study’s authors shared a theory with NPR about why mortality might decrease during times of economic distress.
“When the economy is worse, people have less money to spend. They may go out and have unhealthy meals less often. They may smoke less or drink less. They may drive less. That’s kind of what people have in mind when they’re thinking about why increases in unemployment are linked to decreases in mortality.”
We probably need more information to figure out the causes of a lower death rate during a recession. However, a decrease in mortality might be one of the positive aspects of an economic slowdown.
3. People re-evaluate what matters
Many people re-evaluate their lives in times of stress and reconsider their budget priorities.
Additionally, they might also think about other life choices during a recession. The New York Times Magazine reported that many people rethink what it means to have a good life during tough economic times.
“And yet, despite this bleak reality, some talk persists of silver linings: less cash to spend means less materialism, a real change to “the definition of living well,” as Jim Taylor, a vice president of Harrison Group, a market research firm in Waterbury, Conn., told The Times as the big banks melted down in the fall of 2008.”
It’s not all sunshine and rainbows, but there are those who find that economic stress causes them to look at what really matters — time with family and friends. That is a lesson we all have learned in the midst of the coronavirus pandemic.
4. Increased savings rate
In the early part of 2009, during the thick of the Great Recession, the savings rate increased to 6.9% — its highest level since 1993, according to a PBS report at the time. That also represented a jump from the near-zero savings rate of early 2008.
By December 2021, the savings rate reached 8.4%, according to the Bureau of Economic Analysis. The steep rise from the zero savings rate of more than a dozen years ago shows that as people feel more concerned about economic conditions, they shift their priorities to thrift.
During the COVID-19 pandemic, savings rates reached as high as 35%, according to the St. Louis Fed. Even though the savings rate has fallen since the pandemic has been perceived to ease, it’s still abnormally high from a historical perspective. As a result, a new recession could potentially see a higher savings rate, helping more households stabilize.
5. Increased efficiency
With a recession, it’s possible that businesses could become more efficient — and be better over time. According to the Harvard Business Review, about 9% of companies come out of a recession stronger.
Additionally, a recession can be a way of resetting the playing field and getting rid of dead weight in the markets. The Harvard Business Review research also found that about 17% of public companies don’t survive a recession, but that doesn’t necessarily mean they went bankrupt. Some were acquired while others became private.
The current climate, with the recent crypto crash, could also potentially thin the herd for cryptocurrencies, NFTs, metaverse properties and Web3.
Few people really look forward to recessions. And one might not even be on the way. A recent Money Talks News podcast episode looks at the likelihood of a recession — and what you can do to prepare your finances in the event that a recession materializes.
Recessions are rarely fun, but for those who are prepared, it’s possible to find a few silver linings.
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