Prepare your finances for a recession despite strong GDP report, warn financial advisors

The U.S. system grew successful the 3rd quarter, reversing a antagonistic inclination from the archetypal fractional of the twelvemonth — but weakness looms nether the aboveground and households shouldn't beryllium lulled into a mendacious consciousness of fiscal security, economists and fiscal advisors said.

"I deliberation investors should inactive proceed to beryllium cautious ... and program for much disruption," said Winnie Sun, co-founder and managing manager of Sun Group Wealth Partners, based successful Irvine, California, and a subordinate of CNBC's Advisor Council.

Gross home merchandise — a sum of each the goods and services produced successful the U.S. — grew by 0.6% from July done September, the Bureau of Economic Analysis estimated Thursday. That fig amounts to 2.6% maturation connected an annualized basis.

"For the U.S. economy, a developed economy, that's precise respectable, somewhat supra average," said John Leer, main economist astatine Morning Consult, a information probe company.

That GDP enlargement marks a rebound from a deceleration successful some Q1 and Q2. Two consecutive quarters of antagonistic maturation meets the communal explanation of a recession — though the National Bureau of Economic Research, mostly considered the arbiter of downturns, hasn't officially declared one.

Nonetheless, galore economists don't expect the caller maturation to persist.

The header maturation successful Q3 was driven by non-domestic factors, similar an summation successful exports overseas, Leer said. But the U.S. can't beryllium connected beardown planetary request to continue, owed partially to a strong dollar, which makes U.S. products much costly to buy, arsenic good arsenic economical challenges successful Europe, an ongoing slowdown successful China, and precocious nutrient and vigor prices globally, Leer added.

He besides pointed to a slowdown successful residential and non-residential fixed investment, which includes things similar homebuilding and operation of commercialized buildings and warehouses.

And user spending, which accounts for two-thirds of the U.S. economy, "slowed to its weakest gait since the archetypal 4th erstwhile spending archetypal deed a partition successful effect to soaring inflation," Diane Swonk, main economist astatine KPMG, wrote successful a tweet.

"Bottom Line: This whitethorn beryllium the strongest and lone affirmative people connected GDP maturation we spot for a while," Swonk wrote. "Bundle up for what looks to beryllium a chilly winter."

And determination are concerns beyond immoderate underlying weakness successful the national data, economists said.

Consumer prices this twelvemonth have risen astatine astir the fastest gait successful 4 decades, pressuring household finances. The Federal Reserve has besides been raising borrowing costs aggressively to trim inflation. Higher involvement rates person already pushed owe request to the lowest level since 1997.  

"Export maturation volition soon slice and home request is getting crushed nether the value of higher involvement rates," Paul Ashworth, main U.S. economist astatine Capital Economics, said successful a probe note. "We expect the system to participate a mild recession successful the archetypal fractional of adjacent year."

What this boils down to: Don't beryllium lulled into a mendacious consciousness of security, fiscal advisors cautioned.

While a downturn isn't inevitable, households tin instrumentality fiscal steps to hole successful lawsuit 1 comes and triggers layoffs and much marketplace volatility on the way.

"Think of a tenable worst-case script — however would you money it?" said Allan Roth, a certified fiscal planner and certified nationalist accountant based successful Colorado Springs, Colorado.

1. Shore up your currency reserves

Households should ever guarantee they person entree to currency successful lawsuit things spell wrong, whether occupation loss, location repairs oregon unexpected aesculapian bills, for example. But with recession mightiness travel greater likelihood of needing to gully from that fiscal buffer.

The wide regularisation of thumb is to person three to six months' worthy of expenses handy. Sun advises clients to person six months, positive an other 3 months for each kid successful a household.

Consumers should see adjusting their emergency-fund needs based connected wide stability, Roth said. For example, idiosyncratic moving astatine a start-up institution mostly has a little dependable occupation income watercourse than a tenured assemblage prof and whitethorn truthful request much currency access, helium said.

"Cash" besides has a broader explanation than parking wealth successful a accepted slope relationship with paltry returns, advisors said. Consumers tin look to high-yield online savings accounts oregon wealth marketplace funds, for example, advisors said, which presently wage a higher return.

2. Reduce your indebtedness burden

Paying down credit-card indebtedness and different high-interest loans — and making definite households aren't racking up much — is besides of superior importance, experts said.

Something that lends further urgency to this advice: Variable rates are apt to summation much owed to the Federal Reserve's anticipated interest-rate hikes.

"There's a imaginable for immoderate folks to suffer their jobs, and you'd hatred to spot successful 2 oregon 3 months radical don't person immoderate savings, person gone into debt, and it triggers a question of idiosyncratic bankruptcies oregon different forms of fiscal hardship," Leer said.

Clients are showing much fiscal anxiousness these days than they person successful galore years — but paradoxically, galore households walk much to consciousness better, and that whitethorn beryllium happening connected recognition cards, said Sun. Credit-card balances jumped 13% successful Q2 — the largest year-over-year summation successful much than 20 years, according to a caller study from the Federal Reserve Bank of New York.

Sun advises focusing connected paying down indebtedness with involvement adjacent oregon supra the ostentation rate, which is presently astir 8% connected an yearly basis. The lone imaginable deviation would beryllium to archetypal prevention wealth successful a 401(k) program up to the institution match, if that's available, she added.

Households mightiness besides effort to trim their indebtedness load by downsizing to 1 car alternatively of 2 to chopped monthly car payments, for example, Sun said.

Borrowers with a fixed-rate location oregon different indebtedness astatine 3.5% are successful a bully presumption and don't needfully request to accelerate their indebtedness payments, Leer said.

3. Stay the people connected investments

Investors should besides instrumentality to their concern strategy — and not panic successful the look of large banal and enslaved losses, Roth said.

Pulling wealth retired and ditching a well-laid concern program locks successful losses, which close present beryllium lone connected paper. The S&P 500 banal scale is down 20% successful 2022; meanwhile, U.S. bonds, typically a ballast erstwhile stocks tank, are down astir 16% successful the past year.

"We're similar vigor seeking missiles," Roth said. "We bargain precocious and merchantability low."