Top Six US Economic Trends

Pay Attention to These Trends or Pay the Price

Seeing economic trends with binoculars

Getty Images/sorbetto

There is a lot of uncertainty surrounding Donald Trump's plans and their impacts on the U.S. economy. But the following six trends will occur regardless of whatever Washington DC does. Trump can only accelerate or slow them down, but he can't stop or reverse them. That's because larger forces are at play. Understand these six trends, and you can protect your financial future. 

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.

Climate change creates unpredictable and violent storms, droughts, and floods. That's according to John P. Holdren, Director of Woods Hole Research Center, and other experts.

Rising sea levels worsen flooding in low-lying towns. Floods have hit U.S. coastal towns three to nine times more often than they did 50 years ago. In Miami, Florida, the ocean floods the streets during high tide. To cope, the City of Miami Beach launched a five-year, $500 million public works program.

The frequency of western U.S. wildfires has increased by 400% since 1970. The 2017 fire season was one of the most destructive in recent history. It burnt 9.1 million acres in the United States. Recent wildfire intensity and frequency are worse now than it’s been in the past 10,000 years. The U.S. Forest Service spent almost $2.5 billion, much more than the $1.4 billion spent in 2016. The 2018 North American fire season was 25% worse than during the same time period in 2017. 

Financial Markets Control Oil, Gas, and Foods 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. The following year interest rates hit a 200-year low. The dollar rose 25% in 2014 and 2015. At the same time, oil prices fell to an 11-year low. 

Baby Boomers Aren't Retiring

A recent Prudential survey showed over half of those aged 45 to 75 were forced to delay retirement because of the recession. 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 crisis means 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:

  1. To keep overhead low,
  2. To remain flexible in an uncertain environment, and
  3. 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. 

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. That organization gives more clout to China, Russia, India, and Brazil. These countries initially survived the recession better than Europe or the United States did. That's because 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.

That 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. Their people want the same standard of living that America has. Their leaders know they must provide that to stay in power.

Interest Rates Have Leveled Off

The Federal Reserve has raised the benchmark fed funds rate to its current rate of 2.5%. It's reached its 2% goal. That's the Fed's sweet spot. It means inflation is at its 2% target, and unemployment is below its target natural rate of 4%.

As long as the economy doesn't look like its falling back into recession, the Fed would typically keep raising rates. But the global economy has slowed, so the Fed is holding off on further rate increases through 2021.

That means the cost of loans for everything from furniture to automobiles to mortgages has stabilized. It also means savers are earning more on their deposits than they did during the recession. 

The Economy Is in the Expansion Phase

The phases of the business cycle are like the seasons in the year. The 2008 financial crisis was so devastating that the economy took seven years to return to robustness. That was delayed by the U.S. debt crisis in 2011, the fiscal cliff in 2012, and the government shutdown in 2013. The shutdown in 2019 also hurt economic growth.

We are currently in the expansion phase. The economy can remain in this phase for several more years. But at some point, it will go into the peak phase. That's marked by the irrational exuberance that creates asset bubbles. That's the precursor to the contraction phases and another economic crisis. The history of booms and busts predicts that could occur between 2019 and 2020.