Recession.  Few of us can define/explain it yet so many of us fear it like the mythical bogeyman.  (Note:  A recession is not an evil hobgoblin with special powers who will carry off our children.)

Just what is a recession?  Economists define it as two consecutive quarters of negative economic growth.  In plain language it’s a slowdown in economic activity.

Why do we fear it?  Well, obvious reasons.  As the economy slows our ability to finance our day to day lives and invest for the future is negatively impacted.  Some people will lose jobs.  Others will have a difficult time finding work.  The prices of tangible assets (e.g. real estate) and financial assets (e.g. stocks) often fall.

Recessions and their potential impacts often cause worry.  As humans we like to worry.  Big Media makes it worse – trumpeting headlines of the next impending economic disaster in a drive for ratings, clicks and advertising dollars.  (Note:  Don’t call us to discuss what some talking head on CNBC said.  We don’t care.)

One of the most important indicators of economic activity is the labor participation rate.  The labor participation rate indicates how many of us are employed or seeking jobs.  Here’s how it looks going back to 1990.

Some good news.  In March 2019 the percentage of Americans in their prime working years with a job or looking for a job reached the highest level since April 2010.  More of us working means more economic activity.

Some better news.  While the participation rate has recovered from lows it hasn’t reached 2007 levels.  Reaching those levels means new workers could fuel the economy for years to come.

As the adage goes we can hope for the best while preparing for the worst.  Put another way we can allocate a portion of our investments to equities to participate in anticipated economic growth but we can diversify away some of the risk through boring, unsexy and unexciting bonds.

 

 

During the last two recessions and the 4q18 selloff bonds have been a safe haven when stocks (as represented by the S&P 500) have sold off.

The takeaway?  Stop worrying about recessions.  They’re normal and their damage can be mitigated with some (often uncommon) commonsense investment strategies.