SEGOVIA – “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design” – Economist Friedrich A. Hayek, The Fatal Conceit
There’s a timebomb ticking under the US Treasury Building. The only problem is, no one knows how much time is left, what the bomb is attached to, or what the damage will be. Will ballooning student loans topple the economy? Will automotive lending cripple the industry? Or will the American public’s trillion dollar credit card bill finally come due on the world’s table? All we know for sure is that the sirens are ringing for the next round of widespread economic misfortune.
The alarms were sounded loudly back in Mid-August with the inversion of the yield curve in the US. For our unfamiliar readers, the yield curve refers to the relation between interest rates and their respective US government securities, otherwise known as Treasury bonds or Treasury notes. Normally, when the economy is healthy, longer-term bonds hold higher interest rates than shorter term bonds. Which makes sense. If you’re going to give up your money for longer to some bondsman or banker, the risk is higher, and therefor so should the potential reward for doing so. For instance, a two-year Treasury bond may gain 2%, but a ten-year Treasury bond should gain more, maybe around 4%. Should being the key word.
In August, the yield curved inverted; two-year Treasury notes held a higher return than ten-year ones. Now, most of us would throw our hands up in the air – who cares? What’s the big deal about some inverted yield curve? Nothing much … except an inverted yield curve has preceded every US recession since 1955. While this has varied, sometimes being only months in advance, sometimes several years, it has signaled each one without fail. With the world ever more globalized, and the US still the largest of the world’s intertwined economies, it could have devastating effects.
So, another global recession is likely on the way, according to history and the Fed. The when and how are still to be determined, but what does that all mean, particularly for us students expecting to enter the job markets soon?
That really depends on what industry you’re planning on going into says Forbes. The tech field is currently experiencing “something of a bubble,” particularly in data sciences and AI, and is an area that generally requires advanced graduate and postgraduate degrees – which means if you’re a younger undergrad tech student, you’ll need to find some way to hunker down through any recession as you attain those higher degrees.
And despite a growing job market, signs are already showing that other industries are beginning to falter. The BLS (Bureau of Labor Statistics) reported concerning losses (-32k jobs) in the manufacturing sector, as well as in information and utilities, for the month of October. Additionally, there were signs of economic weakness from construction and mining, with mixed indications from retail (generally a strong gauge for measuring recessions). Business students need to be careful and considerate when choosing their preferred fields, as you can’t manage a team that’s been laid off. Architecture students need to be even more careful choosing contracts, as the general demand for buildings plummets during recessions.
The public sector certainly isn’t one to rely on either; governments typically tend to stop hiring when they’re busy bailing out banks and halting economic collapse. In the same report, the BLS found (small) overall losses in governmental jobs in October – this is mainly due to losses from the US federal government, as local governments jobs grew by 11k. This may stem from the current federal administration’s management style, which has included pay and hiring freezes along with decentralization efforts, but economist aren’t certain. In a recession, options for public defenders, ambassadors, and advisors will all but dissipate – unless you happen to be the unlikely economic student who knows how to calm the coming storm.
It’s all a lot to consider. What can students do in the meantime then as we all wait for looming doom?
In terms of financing, that depends on your taste for risk. You can try to cruise the bull market while there’s still time, but you risk being financially marooned in the event of a stock market crash. On the other hand, you could play the game safer by anticipating a harsh bear market, either by liquifying your assets and transferring to savings or perhaps by investing diversely in low-risk or recession-resistant financial products such as indices or the securities of vice-or-comfort-based companies. Unsurprisingly, people tend to indulge themselves with chocolates and drinks more often during a recession, opting to purchase small treats for themselves to compensate for hard times. To be clear though, when it comes to the stock market, nothing is guaranteed, and we recommend you research carefully before making any investments.
Of course, like any emergency, it’s a good thing to keep cash on hand. Forbes recommends keeping about $2-$3k on hand in smaller denominations, and for IE students, keeping to the lower end of that amount in euros is probably not a bad idea. Other than that, it’s the same old spiel: save more, spend less where you can, focus on making networks, and slowly build up your skill set to maintain your job or to secure one in the future.
Most of all, don’t worry too much. Job markets, like any other, will eb and flow as time goes on. From attending IE, most of us are privileged enough to have made meaningful connections that will transcend the majority of economic perils, and our education specialization and reputation precede us as we enter into the workforce. So, while the world may be in for another downturn, keep your head-up, keep your wits about you, and you’ll be just fine.