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The word “recession” is spinning around media reports and Americans’ minds this week.
The Dow Jones Industrial Average lost almost 900 points at closing Monday, and Commerce Secretary Howard Lutnick said Donald Trump’s world-rattling tariffs would be “worth it” even if they led to a downturn.
“These policies are the most important thing America has ever had,” Lutnick told CBS News when asked whether the tariffs would be worth it if they lead to a recession. “It’s worth it!”
Here’s what you need to know about a recession — and what experts say you can do to prepare:
What is a recession?
Economists use the term “recession” to describe a period of decline in economic activity, explains the International Monetary Fund.
One popular definition of a recession is at least two quarters of negative real gross domestic product, or GDP, which is the total value of goods and services in a country.
The National Bureau of Economic Research, a non-profit that tracks U.S. business cycles, defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” For the bureau to ultimately call a recession, the economic downturn has to be significant, spread across sectors and not limited to a short period of time.
The bureau uses six key indicators to determine if there’s a recession. These factors include personal consumption, personal income, and manufacturing and trade sales, among others.
A downturn in gross national product (the total value of goods and services produced in the U.S. over a year), a rise in unemployment and falling stock prices can all signal a recession is coming, according to the Tax Foundation.
A recession typically lasts more than six months and it can take a country years to recover.
How to prepare for a recession
The U.S. isn’t in a recession right now. But experts say it’s best to prepare beforehand in case trouble strikes.
Kyle Newell, certified financial planner and owner of Newell Wealth Management, told Time that people should ramp up their savings to prepare for potential layoffs — which often go hand-in-hand with recessions.
“We want to make sure [people] have enough cash reserves, hopefully without having to touch a 401(k), or anything of that nature, to live,” Newell told the magazine.
He suggests that a two-income household should have three months of expenses saved, while a single-income household should have six months of expenses saved.
Newell also warned that workers — especially younger ones — should keep investing in their retirement account and shouldn’t panic if they see their 401(k) go down.
“The stock market will start declining before a recession happens,” he told Time. “And oftentimes people’s 401(k) are tied to the stock market, so they may see value go down. They should know not to panic, because they have the time to make it up.”
Is the U.S. in a recession?
No, the U.S. is not currently in a recession. Despite layoffs across the federal government, the overall job market has remained sturdy, so far.
Furthermore, four of the six indicators measured by the National Bureau of Economic Research are pointing toward economic growth, ZipRecruiter’s chief economist Julia Pollack told CBS News.
But an increasing number of economists see the odds of a future recession rising.
How could a recession impact me?
The impacts of a recession will vary from one person to another. However, millions will likely experience layoffs and face difficulty finding employment during a recession.
Those who keep their jobs might see their bosses freeze pay raises or cut bonuses as businesses are forced to tighten their belts.
Investment portfolios could also tank, while lenders may be more hesitant to provide loans.
