Educational Economic Update – Apr 2017

With April in full swing, the first quarter of 2017 is now in the books. We won’t have quarterly economic data for a little while, but we do know that all three major indexes gained at least 4.5% during Q1. The NASDAQ even experienced its best quarter since 2013.

But, most of these gains occurred in January and February, as the NASDAQ was the only one of the three indexes to increase in March. After numerous record highs in February, March saw the S&P 500 flatten and the Dow give back 0.72.

While the markets may have provided fewer record-setting headlines in March, we did pass a milestone in the economic recovery: the 8th anniversary of the Great Recession’s lowest market day. Looking at a few data points can show just how far the economy has rebounded since 2009.

First, consider unemployment.

In March 2009, the unemployment rate was 8.7%, and it reached 10% by October of that year. The most recent readings for 2017 were 4.7% — less than half of the highest rate during the recession.

Next, the GDP also improved during the same time. In March 2009, we learned that the economy had contracted by 6.3% in the fourth quarter of 2008; its worst decline in 26 years. Last month, we received the final fourth quarter 2016 GDP readings, which reported an increase to 2.1% from the previously calculated 1.9% growth. While the recovery pace has been slower than many people would prefer, the economy has grown almost every quarter since 2009.

Another sign of our continuing economic recovery is the Federal Reserve’s tightening fiscal policy.

The Fed raises rates in an attempt to keep the economy growing at a reasonable pace and control inflation. For a decade between 2006 and 2016, the Fed did not raise rates a single time and took the rate from 5.25% to 0% between June 2006 and December 2008. Then, on March 15, 2017, the Fed announced its third interest-rate increase since December 2015. The new benchmark rate is still historically low, but we could experience two or more increases this year.

In fact, the most recent PCE deflator data — a key inflation measure — went beyond the Fed’s desired 2% benchmark for the first time since 2012. As a result, some analysts believe we may see more than two more interest-rate increases before the year is over.

For now, anyone with credit card debt, a home equity line of credit, or other liabilities with adjustable interest rates may see an increase in their payments soon. But remember: Rising interest rates indicate that the economy is growing stronger. Overall, 2017 has experienced a largely positive start, and we continue to see a variety of encouraging economic data.

If you want more guidance on approaching your financial needs or balancing your assets and liabilities in this current environment, we are here to talk.

That’s it for this month’s educational economic update.