The economy is going to get worse. That’s the message from the stock market. The 11-year-old bull market is over. Interest rates are down sharply, a signal that the credit markets expect anemic growth. How much worse the economy will get and for how long I don’t know. But the unemployment rate will rise and gross domestic product will shrink.

Conferences are being canceled. More employers are asking employees to work from home rather than come to the office (assuming their job allows for it). High-profile sports tournaments have been canceled. Colleges and universities are moving classes online. And so on.

Moves like these in the aggregate are smart policy from a public health perspective. But these decisions will ripple throughout the economy. People will start losing their jobs, especially low-wage workers at coffee shops, food courts and similar places. With business debt greater than household debt for the first time in almost three decades, the risk of corporate defaults is also high. Corporate cash flow in several highly indebted industries such as fracking are being squeezed.

Monetary and fiscal policy are critical for shoring up the economy and confidence. The Federal Reserve has already cut its benchmark interest rate by half a percentage point, and it will continue to act. Fiscal policy is still sorely lacking. President Donald Trump’s television address laying out his proposals for countering the coronavirus underwhelmed investors. Expect a bigger fiscal package shortly.

What does all this mean for household finances? The advice to not panic isn’t the same as saying be passive. The focus for the months ahead should be on household risk management. That varies by stage of life, resources, job security and so on. Two practical recommendations:

First, many readers remember well the Great Recession more than a decade ago. What did you do right and what did you do wrong with your finances during that cataclysmic downturn? Tap into those lessons. If you are too young to recall that economic period, talk to your parents, colleagues and neighbors about that time. Draw on their experience.

Second, a theme of my recent columns has been to focus on where your household is at greatest risk — too much debt, job loss, college tuition — and take to steps to shore up your household finances. For many these actions translate into taking actions that increase savings and reduce debt. The bigger your margin of safety, the better.

 

Chris Farrell is senior economics contributor, “Marketplace”; commentator, Minnesota Public Radio.