Top 6 U.S Economic Trends
In just a few months, the COVID-19 pandemichas decimated the U.S. economy. It will take a lot longer to recover. Meanwhile, the other five trends listed below have not gone away. That’s because larger forces are at play. Understand these six trends, and you can protect your financial future.
The Economy Is in a U-Shaped Recovery
In the first quarter of 2020, growth declined by 5%.1 In April, retail sales plummeted 16.4% as governors closed nonessential businesses.2 Furloughed workers sent the number of unemployed to 23 million.3
The Congressional Budget Office predicts a modified U-shaped recovery.
These early reports indicate that the second quarter will be worse. The Congressional Budget Office (CBO) predicts the economy will decline by 38%. The number of unemployed will rise to 26 million.4
The CBO says the third quarter will improve, but not enough to make up for earlier losses. Effects will linger until the fourth quarter of 2021, with slightly lower economic output and higher unemployment.
Interest Rates Are at Historic Lows
The Federal Reserve has lowered the benchmark fed funds rate to its current range of 0% to 0.25%.5 It’s much lower than the Fed’s target of 2%.6 It means inflation is lower than its 2% target.7 The pandemic has sent unemployment screaming past its target natural rate within the range of 3.5% and 4.5%.8
As a result, the cost of loans for everything from furniture to automobiles to mortgages is at record-low levels. It also means savers are earning less on their deposits than they did during the recession.
Climate Change Is Causing More Natural Disasters
The U.S. climate is changing as a result of global warming caused by increased greenhouse gases. As the country experiences more extremely hot days, food prices are rising. That’s because corn and soybean yields in the United States plummet precipitously when temperatures rise above 84 degrees Fahrenheit.9
Climate change creates unpredictable and violent storms, droughts, and floods.
Rising sea levels worsen flooding in low-lying towns, affecting eight of the world’s largest coastal cities. It will impact 40% of Americans who live in coastal counties.10 Floods have hit U.S. coastal towns three to nine times more often than they did 50 years ago.11 From 2005 to 2017, sea level rises cost eight coastal states $14.1 billion.12
The California drought cost the state an estimated $3.8 billion in 2014-2016, the deepest two years of the drought. Almost three-quarters of the losses were in the southern Central Valley.13 Studies have predicted that by 2050, the American Southwest and Great Plains will experience a megadrought.14 It will last more than 35 years, according to scientists at Cornell University.15
The frequency of western U.S. wildfires has increased by 400% since 1970.16 Damaging wildfires have occurred in recent years in places like California, Colorado, Arizona, and New Mexico.17
Financial Markets Control Oil, Gas, and Food Prices
Supply and demand have become less important in controlling prices. Instead, commodities traders set prices for oil, gas, and food. Foreign exchange traders determine the value of the dollar.
The speed of transactions also increased economic volatility. Gas and oil prices rose and fell, depending on investors’ moods. That translated to either higher food costs or plummeting commodities prices.
Gold prices hit an all-time high in 2011.18 The following year interest rates hit a 200-year low.19 The dollar rose 11.8% between December 2014 and December 2015.20 At the same time, oil prices fell to an 11-year low.21
America Is Declining in Global Economic Power
Before the recession, the United States was the world’s only superpower. In 2009, the G-20 took center stage in the global economy.22 That organization gives more clout to China, Russia, India, and Brazil.
These emerging market countries initially survived the recession better than Europe or the United States did. They regulated their banks to avoid derivatives. Their strong economies gave them the leverage to demand more global economic power. Although they’ve since created new economic problems for themselves, they’ve retained much of their clout.
This shift in global economic power has contributed to American unease.
It’s behind the attacks on free trade, jobs outsourcing, and currency manipulation. But even as Trump succeeds in passing protectionist policies, these emerging market nations will continue to grow in power.23 24 Their people want the same standard of living that America has. Their leaders know they must provide that to stay in power.
Baby Boomers Aren’t Retiring
A Pew Research Center survey showed that 35% of adults ages 62 and older, who are still working, delayed retirement because of the recession.25 Even those who can afford to retire will probably keep working in some capacity. The Great Recession left emotional scars. That created a new willingness among many Baby Boomers to keep costs low and incomes high. That means the old idea of playing golf and truly retiring gives way to many forms of semi-retirement.
This retirement crisismeans the older generation won’t get out of the way for the younger generation.
That is making Millennials adapt by giving up the old “career track.” They want to earn a living that is meaningful to them. Some use technological innovation to create new jobs that don’t exist today. Many have gone on to receive higher-level degrees.
Others use temporary jobs to fund a rewarding lifestyle, such as travel. They are complying with a business trend.
Companies are less likely to hire full-time workers for three reasons:
- To keep overhead low
- To remain flexible in an uncertain environment
- To keep from paying higher health care benefits
To thrive, workers must create multiple streams of income and remain flexible themselves.
The best ways to do this? Find a freelance gig. Try to find a way to make money from a hobby. Be realistic about your attractiveness in the job market, whether due to your age or your work history. Get new skills for a part-time job that could turn into something more. Be open-minded about what you can do to earn more money. Stay focused on turning your skills, assets, and time into more cash. Be aware of economic trends and take advantage of them.