6 Trends That Affect the U.S. Economy

Understanding these trends can help you protect your financial future

An accountant pores over an economics book.

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In just a few short months, the COVID-19 pandemic decimated the U.S. economy in what was a largely unforeseen crisis—one that will affect the economy for years. Five other trends listed will continue to affect the U.S., too, because larger forces are at play.

Understanding these six trends could help you can protect your financial future.

1. U.S. Recovery From the Pandemic

In the first quarter of 2020, growth declined by 5%. This signaled the onset of the 2020 recession. It also ended 128 months of expansion, the longest in U.S. history. In Q2, the economy contracted by a record 31.4%. Quarterly GDP had never experienced a drop greater than 10% since record-keeping began in 1947. The economy recovered in the third quarter, expanding by 33.1%. Although a record, it was not enough to offset earlier losses.

In December 2020, it was forecast that U.S. GDP would contract by 2.4% in 2020 but rise by 4.2% in 2021. In the first quarter of 2021, it increased by 6.4%.

At the onset of the pandemic, the unemployment rate skyrocketed to 14.7% in April as companies furloughed workers. It remained in the double digits through July. By the beginning of 2021, the unemployment rate decreased to around 6%, where it remained in June 2021.

2. Interest Rates Will Remain Low Until 2023

In March 2020, the Federal Open Market Committee (FOMC) held an emergency meeting to address the economic impact of the COVID-19 pandemic. It lowered the fed funds rate to its current target range of between 0% and 0.25%. The fed funds rate is the benchmark rate for adjustable-rate and short-term loans. It's much lower than the Fed's target range between 1.5 and 2%.

It also means inflation is lower than the Fed's 2% target. On September 16, 2020, the FOMC announced it would keep the benchmark rate at its current level until inflation reached 2.0% over a long period of time. The Fed's December 16 forecast said that wouldn't occur until at least 2023.

The Fed is also taking steps to keep interest rates low on fixed-rate and long-term loans. It restarted its quantitative easing (QE) program. In March 2020, the Federal Reserve announced it would purchase $500 billion in U.S. Treasuries and $200 billion in mortgage-backed securities. It soon expanded QE purchases to an unlimited amount.

As a result, the cost of loans plummeted, with mortgages falling to record-low levels. It also means savers are earning less on their deposits than they did during the recession.

3. 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 hot days, food prices rise. Both 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.

Rising sea levels worsen flooding in low-lying towns, threatening the nearly 40% of Americans who live in coastal counties and eight of the world's 10 largest cities. Floods have hit U.S. coastal towns three to nine times more often than they did 50 years ago. From 2005 to 2017, sea level rises cost 20 zip codes in Florida, Virginia, and South Carolina more than $2 billion. 

The California drought of 2014 to 2016, the deepest two years of the drought, cost the state an estimated $3.8 billion. Almost three-quarters of the losses were in the southern Central Valley. Studies have predicted that by 2050, the American Southwest will experience a mega-drought. It will last more than 35 years, according to scientists at Cornell University.

The frequency of western U.S. forest fires has increased by nearly 400% since 1970. Damaging wildfires have occurred in recent years in places including California, Colorado, and Oregon.

4. 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, and foreign exchange traders determine the value of the dollar. The speed of transactions has also increased economic volatility. Gas and oil prices rise and fall, depending on investors' moods. This translates to either higher food costs or plummeting commodities prices.

Gold prices hit a high in 2011; however, this was surpassed in August 2020 with a new record high. In 2012, interest rates hit a new low. Once again, 2020's interest rates dropped lower than the previous record.

The dollar rose 11.8% between December 2014 and December 2015. At the same time, oil prices fell to an 11-year low. 

5. The U.S. Is Declining in Global Economic Power

Before the Great Recession, the United States was the world's only superpower. In 2009, the G-20 took center stage in the global economy and gave more clout to Brazil, Russia, India, and China.

These emerging-market countries initially survived the recession better than Europe or the United States did. 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.

The emergence of other global economic powers has contributed to American unease.

The perceived loss of American superpower status is behind the attacks on free trade, jobs outsourcing, and currency manipulation. But even if the U.S. passes protectionist policies, these emerging market nations will continue to grow in power.

6. Older Generations 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 Great Recession. Even those who can afford to retire will probably keep working in some capacity. The 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 that as older generations continue in their positions, there isn't as much room 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 didn't exist. Many have gone on to receive higher-level degrees. Others use temporary jobs to fund a rewarding lifestyle, a trend that falls in line with companies wanting to keep overhead low, avoid health care expenses, and keep hiring and firing fluid by employing gig workers.

To thrive, workers must create multiple streams of income and remain flexible themselves.

The best ways to thrive? 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.