Here in the Northern Hemisphere it is Winter. At least as far as the weather goes it is winter. Snow and cold, rain and wind… all the signs are about us.
By another measure however it is actually Summer moving into Fall. Here I refer to where we are in the economic cycle. There is a natural cycle to our economies just as there is in the weather but with one difference. Just as summer surely follows spring then followed by fall and then winter, then back to spring in nature, in our economies there are cycles of growth and recession as surely as there is winter and summer.
The Economic Cycle
Like the weather on most of the Earth the economy generally follows four “seasons”:
- Summer: The economic summer is the time of economic growth, expansion, and growing affluence. Stocks increase in value. Business is good. Employment is high.
- Fall: This is followed by fall, a period of economic retraction. It is slow at first but accelerates into winter, the bad economic times of higher unemployment, slowed growth, decreased affluence, and for some financial ruin.
- Winter: After a time, this will be followed by winter, a bleak period of economic retraction, recession or depression. Unemployment rises. Prices may go down some. Production goes down.
- Spring: And as assuredly this will be followed by a spring of economic improvements, expansion, and better times. Employment begins to improve, production increases slowly, things get better.
This cycle is as sure as the weather is. It has repeated itself over the centuries and continues to do so. Our last winter was the period from 2007-2011 when the West suffered a great recession. Spring followed in 2012-2013 as the US pulled out of recession and began to enjoy better economic conditions. The period since 2013 has been summer – a generally improved economy.
Most of the world is currently enjoying that summer right now. When will it change again? We cannot predict that with any certainty. The one difference between weather and the economy is that while weather’s seasons are very predictable as to duration (each lasting about three months) economic seasons are not so predictable as to duration. The economic seasons may sometimes be long as has the current expansion period, or they may be much shorter. While the duration of each part of the cycle is uncertain the fact that one part of the cycle will inevitably follow the last is certain.
What To Do Now – Time to Be an Ant
We cannot predict when this current economic summer will change into fall and winter even though we know it surely will. Knowing this allows us to prepare. During these relatively good times it is best to save and invest. Like the ant in Aesop’s fable of the Ant and the Grasshopper, this is the time to store away wealth to tide us over through the more difficult times that will inevitably follow.
Since we know that more difficult times will surely follow it is essential to prepare now for those times. This is the time to save any money we do not have to spend. It is the time to make wise long-term investments. Then, when hard times come again we will have reserves that will see us through and enable us to take advantage of opportunities that always present themselves in economic winters.
What are you doing to prepare for our next economic winter?
Learn how to manage your money, eliminate debt and build wealth in my book, Your Financial Success.Wishing you well,
Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.