2 Simple Ways to Tell if the Economy is Getting Better – Guest Post
Want a pay rise? A stronger U.S. economy means employers have more money, and therefore better chances for you to find a new job or increase your current salary. That can mean more disposable income for you – extra income you can spend or save as you choose. So how can you tell what the economic outlook is likely to be over the next few months?
Like the weather, future levels of business can be forecast, although there’s always an element of uncertainty in both areas. When you hear economists and journalists talking about economic trends, they’re often using a few well-chosen data, like the ones below.
Basic Forecasting Truths
First of all, if you want to improve the economy and grow productivity and profits, then you have to accept a higher rate of inflation. Inflation is something we all have to tackle on a daily basis. It’s the relentless increase in prices of goods and services, year after year. The meals you bought for $50 last year and that now cost you $52 or $53 this year? – That’s inflation.
The government knows this. It also knows that inflation is linked to interest rates, the extra amount banks charge when they loan money. If inflation is getting out of hand, then the government (in fact, the Federal Reserve) can make less money available for loans. This pushes interest rates up, puts the brake on spending and discourages prices increases, thereby lowering the rate of inflation. On the other hand, if the economy needs a boost, it can open the floodgates for lower interest rates, more spending and higher inflation.
Two Simple Rules for Predicting a Pay Rise
There are always exceptions, but the general rules are:
1. If the rate of inflation is rising, the economy is getting better and so are your chances of a pay rise
2. If interest rates are falling, the economy is trying to get better, so a pay rise may still happen given a little patience.
Impress Your Family and Friends
There are other indicators as well – lots of them. The ones known as leading indicators indicate general business trends earlier than others. Experts spend their entire day researching and analyzing them; if you feel you have better things to do, we’d be the first to understand. However, here are a couple of such indicators that might let you impress your acquaintances with your economic savvy.
The first is the number of new building permits issued (for private housing.) Building companies need time to build and to get paid, so they ask for their permits a little ahead of the time when they think customers will have more money to spend. More new permits mean the economy should get better. The second is the stock market, measured for example by the “S&P 500 index”. This is the level of the stock market measured by Standard & Poor’s by looking at a cross-section of 500 major companies. Typically, the stock market goes up before an improvement in the economy overall.
If the economy gets better, is it good for you?
It should be, but remember what we said about inflation rising at the same time. To make the most of the extra money you garner in a rising economy, you’ll have to decide what to do with it before inflation starts to seriously eat into it. Buying things you need now will save on price increases down the line. Alternatively, if you want to save effectively, then look for investments that offer a return that is higher than the rate of inflation.
Hadley Jones is a writer for Learn Bonds, a site providing information that people can evaluate when they’re thinking about what kind of savings or investments they might want to make.