There are statistical and anecdotal signs that an economic recovery may be underway. That does not mean we should all go back to the debt-happy spendthrift ways we once embraced. Many expect the recovery to be slow and a bit lethargic. Jobs and easy credit may remain hard to come by for a while. But if recovery is around the corner, some strategies, like buying bonds and waiting for home prices to keep dropping, may not work going forward. Here’s how to get ready for the next economic phase:
Jump on the deals you really want. The Cash for Clunkers car rebate program expires Nov. 1. The tax deduction for sales and excise taxes on a new car expires Dec. 31. The $8,000 refundable tax credit for first-time home buyers expires Dec. 1.
Watch your local market. If you need a house or a home loan, think local. In some parts of the country, housing prices seem to have bottomed out. While nobody’s expecting a wild climb, inventories are falling and it’s a good time to start shopping. The same is true of mortgages; community banks and credit unions are stepping up with loans while big national lenders stay mired in their backlog of mortgage modifications.
Invest for recovery. Sectors that are predicted to do well in a recovery include consumer discretionary, technology, infrastructure (companies that build roads and bridges, where a lot of stimulus money is aimed), and energy.
Expect interest rates to rise. If a recovery increases demand for money at the same time the government has to issue trillions of dollars in bonds to cover its payments, long-term rates could shoot up. That would be bad business for holders of long-term bonds. In the last year, long-bond returns have beaten stock returns, and that is an anomaly, reports the research firm Ibbotson Associates. You should lock in low-rate mortgages and personal loans while you have the chance. And redouble your efforts to pay off variable-rate debt (credit cards and home equity lines of credit).
Prepare for your next job. Job market projections in many industries remain gloomy. But growth would eventually lead to more hiring, so use the time to position yourself for it. Pick up one more skill, take one more class, use the slow periods to get up to speed on online social networking and job-listing sites. Consider your career a work in progress and come up with alternative plans that allow you to manage self-employment and part-time work without going broke. Or retrain for a growth field - education, healthcare, or environment, for example.
Keep the belt cinched. Nobody knows when the recovery will come. But whether it turns out to be anemic or amazing, it will be good for you to have less debt and more money. Keep those cautious spending habits through the recovery and you’ll be ideally suited to make it through the recession after the recovery, and even prosper. That’s what the business cycle is all about.
Linda Stern is a freelance writer. 
© Copyright 2009 Globe Newspaper Company.
