The economics of recessions have become increasingly complex. One word that has been bandied about recently is “stagflation”, which refers to an occurrence of inflationary prices and a subsequent recession – meaning loss of jobs and consumer purchasing power, simultaneously.

Traditional economic theory says this sort of simultaneous occurrence should not happen. After all, inflation happens when consumers have jobs and buying power, not when they don’t have jobs. But the real world is filled with economic complexities, and as such, stagflation could happen when technology replaces humans, leaving them jobless.

The concentration of technology in the hands of a few leads to the concentration of economic power in those hands. This leads to a complex scenario of simultaneous inflation (owing to the monopoly of technology) and recession (loss of the masses’ purchasing power).

Countries need to know how to manage such situations well to maintain socioeconomic stability. With this in mind, here are three indicators to help you recognise the signs of a recession.

1. Yield curve

The yield curve is among the most frequently monitored indications of an imminent recession. A yield is simply the interest rate on a bond, often known as a Treasury bill. These have different maturities or periods of maturity: some last a month, others 30 years.

The curve compares how those interest rates fluctuate over time. A bond with a longer term typically has a higher interest rate, which is how the United States government, which issues these securities, compensates investors for risks.

However, when the yield curve inverts, it becomes downward sloping. This indicates that investors are demanding a greater yield on shorter-term Treasuries. Traders, economists, and strategists all keep an eye on this curve since it has a historical record of predicting downturns.

In a world where economic indicators lag, most data is inherently backward-looking. Inversions of the yield curve, on the other hand, have preceded recessions over the last 50 years.

2. Confidence index

Even in economics, how individuals feel is important. Confidence indexes provide an indication of households’ consumption and saving, based on answers regarding their expected financial situation and their sentiment about the economy, unemployment, and capability of savings.

Malaysia’s consumer confidence, for example, increased from 99 points in last year’s fourth quarter (Q4 2021) to 108.9 in the first quarter of 2022, driven by the improvement in existing salaries and employment.

Consumer confidence remains historically high, despite a drop in early 2019 due to lengthy government closures. It has since rebounded and remained stable.

3. Employment data

A rise in employment and a decline in unemployment are associated with higher labour demand. As such, employment data are crucial to evaluating the state of the economy.

With an increase of 2.3% on-year to 16.34 million people in Q2 2022, Malaysia’s labour force has continued to show signs of growth since the country moved into the endemic phase.

Accordingly, the labour force participation rate increased by 0.2% from the first quarter to 69.2%, exceeding the pre-pandemic rate of 69.1% in Q4 2019.

And the trend continues: the Department of Statistics reported that the number of unemployed people reduced to below 700,000 last month, the lowest since April 2020.

What you can do

Instead of despair in the face of an impending recession, here are four things you can do to prepare:

1. Update your resume

For jobseekers, the labour market has been hot, but this might change if a recession occurs. It may, therefore, be a good idea to update your resume in the event of layoffs.

Also, if you have pondered returning to school to obtain an advanced degree or improve your professional abilities, now may be the time to do so. It boosts your future career prospects regardless of the economy.

2. Reduce expenses

Consider areas where you can save money, and look at where you want your budget to be in the worst- and best-case scenarios. Examine all the things you spend money on and try to find ways to cut unnecessary costs.

3. Build your emergency fund

Many financial gurus advocate having three to six months of living expenses saved. Depending on your unique circumstances, this may be worth reviewing. In today’s climate, it could make sense to have even more than six months, especially if you are at risk of unemployment in the future.

4. Get rid of debt

If you have any high-interest debt – or any debt at all – focus on getting rid of it, as this would help you be more prepared should you lose your job. Also keep in mind that interest rates would rise in reaction to US Federal Reserve rate hikes.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.