Understand economic trends
DENVER – We have a lot of headlines about the economy, which often seem at odds with one another. Colorado Friday reported very strong job numbers with the unemployment rate dropping to 3.4%.
This lower number should make economists feel optimistic about the economic outlook. On the other hand, the jobs report was released on the back of rising inflation, and the Federal Reserve raising interest rates to try to control it – signals that, usually, would warn economists of an impending recession.
Caleb Silver, Investopedia’s editor-in-chief, said acknowledging how difficult it can be to filter the hype in a barrage of economic headlines. We are facing a rise in inflation above 9%, as everything from food and energy to rent continues to rise on the one hand. We also have high interest rates from the Federal Reserve to combat this inflation. But the job market is still very strong, and consumers are stuck there. We’ve never had a situation quite like this, where demand remains very strong while prices remain very high. It’s a really interesting dynamic.”
Consumer confidence in the United States fell to a 16-month low in June, as inflation and rising interest rates caused Americans to become more pessimistic about the future than at any time in nearly a decade, according to the Associated Press. Consumer spending is also showing signs of slowing, which silver considers the most important gauge of the economy’s health.
“Consumer spending is the most important part of our economy, because it accounts for 70% of US GDP,” Silver explained. “If consumers start to pull back and start tightening their belts – either because they fear a recession or they feel they are already in a personal stagnation – you will see companies start to rein in spending as well, which means less hiring, which means less expansion. And that could really lead to to accelerate the recession.
With the converging mix of factors, Silver said, the United States could look into an economic slowdown that is less severe but more prolonged than other recessions. Before that possibility, he said it was important to have enough savings to cover at least six months of expenses.
“You don’t want to overspend,” he said, “and you don’t want to spend on things you can’t afford now.” “The one thing you really don’t want, in the event of a recession, is having a lot of debt that could really set you back years if not generations.”