What to Do When Your Crazy Uncle Wants to Talk Economics Over the Holidays

Ever wondered how the economic climate might be shaping your finances and investments? On this episode of A Wiser Retirement™ podcast, Casey Smith and Missie Beach, CFP®, CDFA® talk about the Fed target rate, consumer price index, US GDP, housing, employment rates, and interest rates. They also go over the impact of economic indicators on various sectors.

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Summary:

The Fed Target Rate is used to lend money out to Banks, and it has gone up by 75% over the last year as the Fed raised interest rates to help cool down the economy. The Consumer Price Index, representing different parts of things that people can purchase, sits at 3.12%, and the US GDP is up by 6%, but still growing at a relatively low rate of 2.15%. Be cautious of believing everything you hear from family members who want to talk about the economy or politics at your holiday gathering. People are often misinformed, and it is important to look at accurate data to determine the current state of the economy. Currently, there are indications of a slowdown in the economy that does not necessarily mean a recession is on the horizon.

Economic Indicators

The 4%-5% annual growth achieved by the Trump Administration has since tapered down to around 2%, which is still considered a bit weak. Other economic indicators, such as manufacturing, personal consumption expenditures, retail sales, and total non-farm payrolls, are showing positive signs. However, there is a slowdown in housing starts and a decreasing trend in new orders from manufacturing. The unemployment rate has fluctuated widely, falling from around 4.4% prior to Covid to 3.7% at the beginning of 2022, but it reached a peak of 14% during the pandemic. While there are some layoffs in the tech sector, the labor market is generally stable, and this trend is unlikely to trigger a recession unless the unemployment rate increases significantly, perhaps to around 5%.

Long-Term Investing in 2024

It is important to ensure that you have no debt and an emergency fund in place before investing. It is also wise to educate yourself by looking back at past investment decisions without emotions to gain perspective on long-term returns. Educate yourself on different investment strategies and take a more informed approach to investing, rather than relying solely on mainstream beliefs and advice. We recommend speaking with a financial advisor prior to making investment decisions.

What defines a recession?

The definition of a recession in the US has changed over time. For foreign countries, a recession is defined as two negative quarters of GDP. However, the US defines a recession as two negative quarters of GDP, also including job loss. Job loss has not always been a factor in determining if the US is in a recession.

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