What Is a Silent Recession and Do Financial Experts Advise a Different Approach

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Forecasts for a sustained U.S. recession have been making the rounds for a couple of years now, but so far that hasn’t happened. The economy continues to grow (albeit slowly), unemployment rates remain low and many economists now predict a “soft landing” instead of a deep recession, Reuters reported. Much of the chatter now involves a “silent recession” that focuses more on personal financial realities than broader economic trends.

Unlike a recession — which is typically defined as two straight quarters of declining gross domestic product — there’s no clear definition of a silent recession. A recent blog on the Medium website describes it as a “disparity within the economy where a segment of the population… faces economic downturns while the majority remains unaffected.” Traditional recession metrics like GDP contraction and rising unemployment don’t capture the “hidden crisis” found in a silent recession.

A separate blog on the Stansberry Research website put it this way: “While government statistics may present a picture of prosperity and growth, the personal experiences of ordinary citizens and the private sector tell a different story… The private sector is suffering from declining consumption, dwindling private investment, and shrinking real wages — which together form the ‘silent recession’ currently undermining the economic well-being of individuals.”

In simple terms, a silent recession measures the financial security of individual households regardless of what the larger economy is doing. This can be impacted by numerous factors, ranging from real wage growth and inflation to market volatility and asset depreciation. While the overall economy might seem fine, personal finances become increasingly strained.

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The Stars Insider website pointed to the following metrics showing how personal wealth has failed to keep up with living costs over the decades:

  • In 1930, the average American earned just more than $4,800 a year, which equals nearly $85,000 today adjusted for inflation. However, in 2023 the average income is only about $56,000, which means Americans today earn less than their counterparts did during the Great Depression.
  • Gasoline cost an average of 10 cents a gallon in 1930, which equals about $1.73 in today’s dollars. As of Sept. 21, 2023, the national average for a gallon of gas is $3.87, according to AAA.
  • In 1930, the average home price was $3,900, or roughly $70,000 in today’s dollars. Compare that to the real cost of a home sold in 2023, which the Federal Reserve pegs at $495,000.

These disparities have contributed to a “shrinking middle class” in the U.S. where many Americans struggle to afford even the most essential items — all of which contributes to the silent recession.

The challenge is figuring out how to navigate a silent recession. A good first step is to realign your expectations so they are consistent with financial reality. Even if you earn a higher-than-average income, that doesn’t necessarily mean you can afford a higher-than-average lifestyle or buy a more expensive home or car. It’s never a bad idea to spend less than you think you can afford.

You should also maintain a diversified portfolio that focuses not just on different types of assets but also on which assets provide a better hedge against inflation and economic downturns.

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Finally, consider taking on a side hustle to boost your income, grow your savings, and give yourself more financial breathing room.

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