It’s not too soon to start preparing for the next economic downturn.

Shrink your debts, build savings and avoid new entanglements that will place additional strain on your finances. Plan for weak stock markets, squishy housing and stingy pay raises. The end of this boom is coming and it might happen as soon as 2019.

In many parts of the world, there’s a sense of uncertainty about whether economic growth has peaked. The United States is going strong for now. But low oil prices are a negative for a Canadian economy that has been growing at a respectable rate, and output actually shrank in both Japan and Germany in the three months ended Sept. 30. China also shows signs of a slowdown.

The unemployment rate in Canada remains quite low at 5.8 per cent, but the level of growth in earnings and wages in no way suggests a hot labour market. A firm called Capital Economics sized up the latest trends in income and advanced the theory that growth has already peaked. Hourly earnings growth came in at 2.2 per cent in October, compared to a 3.9-per-cent increase in May.

Judge your wage increases by how they stack up against the rising cost of living. The inflation rate in October was 2.4 per cent, which means the typical household is falling a bit behind.

The stock market’s performance this fall suggests a realization by investors that we’ve seen the best already for economic growth and corporate profits, even if interest rates in some countries continue to rise. The S&P/TSX Composite Index lost 5 per cent for the year through Oct. 30, and that’s with dividends included. The S&P 500 eked out a 3-per-cent gain over that same period when measured in U.S. dollars, a far cry from the annualized 11.5-per-cent gains of the past three years.

The housing markets in the country that qualify as hot this fall are Ottawa and Montreal, both of which are late bloomers, and some of the cities outside Toronto. The average resale price in Toronto rose 2.6 per cent in October on a year-over-year basis, but it’s well down from spring 2017 levels. Vancouver home sales fell 35 per cent in October, although prices were a tick higher. In Alberta, Saskatchewan and Eastern Canada, prices are generally weakening.

Three big wealth drivers in your life are your investments, your house (if you own one) and your paycheque. All three could falter when the economy next slows down.

We’ve not seen the likes of this in ages. Remember, the 2008-09 recession was a fairly mild one for most Canadians. Wage growth has been consistently disappointing for the most part, but we’ve had good stock-market gains for globally diversified portfolios and a stellar housing market in many cities.

A four-part survival plan for tough times ahead:

  • Don’t sweat a down market for housing: Declines from the peak value of your home are painful to see but meaningless if you stay put, pay down your mortgage and wait for the next upturn. Housing wealth is overblown, anyway. It can’t do much for you unless you sell in an expensive market and move somewhere much cheaper.
  • Build savings: The best high-rate savings accounts are edging toward the mid-2-per-cent range, which puts you just ahead of inflation. If you see any risk to your job or income, pad your savings.
  • Shrink debt: Decreasing your monthly debt payments is the no-fail way to increase your financial flexibility.
  • Buy stocks: Buying stocks when they are beaten down is a great way to position yourself for long-term gains. Buying hot stocks at a market peak feels smart, but it’s not.

The best financial move right now might be to hold off on big purchases that take you into a higher league of spending. Examples: A more expensive car with higher monthly payments, a bigger house with higher mortgage payments or a renovation that triggers a big monthly payment on your line of credit.

Stay nimble as we head toward the uncertainties ahead. We may yet see more from housing, stocks and the economy, but winter is coming.

The Globe and Mail, November 27, 2018