According to a recent Associated Press-Ipsos poll, 61 percent of Americans think we are currently in a recession. While President Bush and other government officials have repeatedly denied that fact, it seems America has already made up its mind. Whether or not the U.S. is actually in a recession doesn’t really matter if everyone is behaving like it.
There are a couple definitions of a recession, so I’ll mention both to be clear. The first and most commonly known is simply having back to back quarters of negative economic growth. While the U.S. economy is slowing down it has not reportedly entered into negative territory. So according to that definition we couldn’t be in a recession quite yet.
The second definition of a recession is a bit more confusing, but is part of a formula compiled by The National Bureau of Economic Research. According to the Associated Press the formula takes into account such things as employment and income growth. By that measure, the last recession was in 2001, starting in March and ending in November.
No matter whether you think we are in a recession or not, if consumers behave as though we are, investors will be affected likewise. With recession typically comes significant cut backs in spending. This happens both from consumers and businesses. When this occurs, many investment types—from stocks to real estate—will be negatively affected, and investors need to account for that.
Luckily for investors, there is money to be made when the economy is performing poorly just as there is when the economy is doing well. For example businesses and other investments relying on consumer spending will typically perform poorly, while businesses selling necessities (or staples) should continue on course. For a list of some good alternative investments to look at during recessionary times read our article: The Top 5 Recession Investments.