Is a recession on the horizon? Many economists think so. In May, half of the economists surveyed by the National Association for Business Economics said they predict a recession by late 2019 or early 2020. Two-thirds said they predict a recession by the end of 2020.
A few factors are contributing to this outlook. For one, the nation is in its ninth year of economic growth, which is the second-longest period of expansion in U.S. history. In addition, the gap between short-term and long-term interest rates, known as the yield curve, is shrinking. If this trend continues and leads to an inverted yield curve, it sends a strong signal that a recession is coming. In fact, every recession of the past 60 years has been preceded by an inverted yield curve.
CEOs may be starting to perceive this downward trend or at least sense the end of growth. In Vistage's Q3 2018 survey of 1,484 CEOs, just 25 percent of CEOs said they expected economic conditions to improve in the next 12 months, down seven points from Q2. That same survey revealed that 21 percent thought economic conditions would worsen in the coming year, a five point increase from the prior quarter.
Here are three ways to prepare for the next recession, no matter when it arrives.
1. Keep costs variable.
Instead of making investments in long-term assets, keep your costs as variable as possible so you can maneuver in a down cycle. For example, it might make sense to buy equipment that has a three- to five-year shelf life, as opposed to making long-term real estate investments.
2. Build flexibility into your labor force.
Learn from history: During the Great Recession, many U.S. companies fired their employees while European companies moved them to part-time roles. As a result, when the economy improved, the European companies could deploy their workers quickly.
3. Plan for the long term.
Instead of worrying about how you'll weather the next downturn, plan for how you can be most competitive five or 10 years from now. With a strong strategy in place, you may find that the next recession is nothing more than a blip.