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Is a Recession on the Way?

Economists say it’s unlikely — but it’s still a good idea to prepare for one

Sandra Block,

AARP

Published June 26, 2026

inflatable tube men in the shape of a bar chart

It’s a good idea to prepare for an economic downturn, even if economists say it’s unlikely.

Pete Ryan

Key takeaways

Currently, many economists don’t believe the U.S. is at risk of a recession, but it doesn’t hurt to prepare for one.
The National Bureau of Economic Research, a private nonprofit, determines whether a recession has occurred based on a variety of economic indicators, including real personal income, consumer spending, employment and industrial production.
You want a strong credit score in the event that you need to borrow money to make ends meet during a downturn.

Here’s the weird thing about a recession: By the time it’s official, it’s probably over.

The National Bureau of Economic Research, a private nonprofit organization, determines whether a recession has occurred if there has been a significant decline in economic activity that is spread across the country. However, because it takes the NBER several months to analyze the data — which includes a range of monthly measures of economic activity published by different federal agencies and other organizations — a recession may already be over by the time it makes a determination.

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Of course, that doesn’t stop economists, investors, business owners and others from predicting whether a recession is imminent based on different factors such as the unemployment rate, interest rates and consumer spending.

Currently, many economists don’t believe the U.S. is at risk of a recession, despite the recent spike in energy prices, which caused the Consumer Price Index, a measure of inflation, to rise 4.2 percent in May, its highest level since April 2023. However, economists surveyed by The Wall Street Journal said that if oil prices continue to remain elevated, the risk of a recession could rise.

One survey respondent noted that the U.S. economy has shown resilience despite disruptions created by the war in Iran and other circumstances. The unemployment rate remains low, at 4.3 percent in May, and consumer spending, which accounts for about 70 percent of gross domestic product, or GDP (the total value of goods and services produced in the U.S.), is still relatively strong. That said, the Conference Board’s Consumer Confidence Survey, which measures how consumers feel about business and labor market conditions, slipped in May, reflecting concerns about inflation and the war in Iran.

How to prepare for a recession

In early 2020, the COVID-19 pandemic precipitated a sharp, sudden economic downturn, as lockdowns forced businesses to shut down and lay off employees. That recession turned out to be quite short — only two months, according to the NBER — as government stimulus measures fueled a fast turnaround, but it underscores how unexpected shocks to the economy can trigger a recession.

Also, you can’t always count on a fast turnaround. The meltdown of the mortgage market in 2007 led to the Great Recession, which lasted until June 2009 and was followed by a long, slow recovery.

For that reason, it’s a good idea to prepare for an economic downturn, even if economists say it’s unlikely. These steps can help recession-proof your finances:

Pay off high-interest debt. Credit card and other short-term debt may be manageable when the economy is strong, but if you lose your job, you could end up defaulting on that debt, potentially tanking your credit score. If you have long-term debt, such as a mortgage or student loans, make sure you’re current on payments. You want a strong credit score in case you need to borrow money to make ends meet.
Shore up your emergency fund. The unemployment rate typically rises during recessions, as companies cut back on spending to offset declines in revenue. Aim to have at least three to six months’ worth of expenses in a bank savings or money market account so you can keep the lights on if you lose your job.

If you’re the sole breadwinner in your family, you may need to save more. Retirees need a rainy-day fund, too, particularly if they rely on part-time work as a source of income, since those jobs could be cut during a recession.

Diversify your portfolio. Given the stock market’s recent robust performance, you may be tempted to put more of your savings in stocks. But while many factors can lead to a bear market — defined as a drop of 20 percent or more in financial markets such as the S&P 500 index over at least two months — recessions may lead to a sell-off in stocks. During the Great Recession, for example, the Dow Jones Industrial Average fell more than 50 percent.

Some retirees who were forced to sell stocks to pay their expenses inflicted permanent damage on their portfolios. The amount that financial advisers recommend you have in stocks, bonds and cash depends on several factors, including your age, other sources of income (such as a pension) and your tolerance for risk, but you want to have enough in cash and other conservative investments to ride out a storm.

But don’t be too conservative. If you’re concerned that a recession is looming or are troubled by recent swings in the stock market, you may be inclined to abandon stocks in favor of low-risk, conservative investments. The problem with this strategy is that your investments won’t keep pace with inflation, which means your spending power will be reduced. Another drawback is that it’s very difficult to determine when to reenter the stock market. By the time you decide to reinvest your money, it may be too late. For example, the average 20-year return of the S&P 500 index between January 2006 and December 2025 was 11 percent, but if you missed just the top 10 days during that period, your annualized return was only 6.6 percent. While recessions can cause stocks to drop, the market historically has turned around.

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