It’s been a decade since the US economy went into recession. According to experts and reports, the risk of a recession in 2022 has grown significantly. For instance, journalist Colin Lodewich has asserted that experts have been debating the inevitability of a recession for months.
In addition, concerns about inflation and increasing prices, as well as the impacts that these could have on American small businesses are particularly discussed in these still pandemic times.
For instance, California is particularly vulnerable since it has been struggling with high levels of debt and poverty. Michael Bernick, a former California Employment Development Department director, explained that a recession can impact quickly employment.
In this blog post, we discuss the risk of recession in the US from a historical perspective. Also, we explain to you what factors can lead to a new recession in the US in 2022 and how to protect your business from its impacts.
History of Recessions in the US
A recession is a period of economic decline, typically characterized by falling GDP, high unemployment, and low levels of consumer confidence. In the US, there have been dozens of recessions since the early days of the republic.
The first recorded recession began in 1807 and lasted for two years. Since then, there have been recessions at approximately ten-year intervals, with the most recent occurring in 2008.
The Great Depression of the 1930s was the longest and deepest recession in US history, lasting for more than a decade and resulting in widespread suffering across the country.
Today, economists and policy-makers are working to prevent future recessions by trying to identify early warning signs and implementing appropriate policies.
However, given the complex nature of the economy, it is impossible to completely eliminate the risk of another recession occurring in 2022.
Learn more about the Great Recession in the US in this video.
Factors That Can Lead to a Recession in the US in 2022
While the US economy is currently strong, there are a number of factors that could lead to a recession in 2022.
One of the most important is inflation. As prices increase, businesses find it more difficult to turn a profit, and consumers have less money to spend. This can quickly lead to a decrease in demand and a sharp decline in economic activity.
According to the World Economic Forum, there is a high probability of recession over the next two years. With inflation reaching 76.0% in 2022, the Federal Reserve of the US moved to increase the federal funds rate by 0.25 percent in March. In other words, the current levels of inflation in the US indicate a high probability of recession.
Another potential trigger for a recession is an increase in interest rates. This makes it more expensive for businesses to borrow money and can lead to decreased investment and slower growth. Additionally, small businesses are particularly vulnerable to recessions.
They often have difficulty accessing credit and may be forced to lay off workers or close their doors entirely. As a result, any downturn in the economy can have a devastating impact on small businesses.
CNBC reported in May that more than 80% of small businesses in the US expect a recession this year. The truth is that high inflation is contributing to a dour economic outlook among small businesses. Currently, the levels of inflation in the US are a cause of common concern among business owners and executives in 2022.
How to Protect Your Business From a Recession?
Most business owners understand the importance of being prepared for a downturn in the economy. After all, even the most well-run businesses can be vulnerable to a recession.
However, many entrepreneurs don’t know where to start when it comes to protecting their businesses from a recession. The good news is that there are some simple steps you can take to protect your business from a recession.
One of the most important things you can do is to create a reserve. This will give you the funds you need to weather a decrease in sales or an increase in costs. Also, you can consider loans to strengthen your finances.
Moreover, you should focus on diversifying your customer base and creating multiple revenue streams. This will ensure that your business is less reliant on any one particular market.
Finally, it’s important to review your expenses and make sure that you’re not overspending. Creating an excellent staffing plan and researching the labor market will provide you with the tools to face a possible recession successfully.