The Current State of the Economy

Knowing the state of the economy is beneficial to people in general. People tend to make financial decisions based on current rates and financial income. By knowing the current market and the state of the economy, the public will be better prepared and be informed before making important financial decisions, like buying a house.

The current economy is contracting instead of expanding. While, there was an expansion from -2.6% in 2009 to 2.8% in 2010, the economy shows a contraction from 2.8% in 2010 to 1.7% in 2011. Staying aware of a contracting and expanding economy can be beneficial because it will help in making decisions on whether or not it is a good time to spend money that was saved for luxuries instead of saving the money for future necessities.

Another important information to know in determining the current state of the economy is the WSJ Prime Rate. As of December 12, 2012 the WSJ Prime Rate is 3.25%. This rate is used to determine current interest rates on loans and credit cards. The lower the WSJ Prime Rate the better the odds are of receiving a better interest rate.

Credit cards are a tool people use on a day-to-day basis. It is important to be aware of the current interest rates credit card companies are offering because it can have an impact in financial planning as well as financial decisions. A good way to get an idea of what the interest rates for credit cards may be in the near future is to look at the three-month credit card rate trend. This will give the general public a comparison to use when trying to figure out whether or not an existing credit card has a high interest rate. As of December 12, 2012, the credit card interest rate is 14.02% on a fixed card and 14.58% on a variable card.

Another way to know the state of the economy is by looking at the current unemployment rate. A high unemployment rate usually means that many people are out of work, and there are not much jobs to be offered in the labor force. This means the current economic state is in trouble and financial planning should be done with a higher necessity for savings. Where a low unemployment rate usually means that few people are unemployed a work is much easier to find. As of February 1, 2013, the current unemployment rate is 7.9%.

Gross domestic product and the inflation rate also have an effect on the current economic state as well as financial planning. Gross domestic product is an indicator of the countries standard of living. A higher Gross domestic product is an indicator that the economy is moving at a good speed. Versus a low gross domestic product that usually means the economy is slowing down for varies reasons.

Like Gross domestic product that helps indicate if the economy is headed in the right direction, inflation affects people in a more direct way. Inflation plays a role in the value of the dollar and not an increase in price. When inflation is up the dollar losses value, thus buying, for example a gallon of gas that was $3.009 will later cost $3.259. It is not necessarily that the price of gas went up. Simply that the value of the dollar went down because of an adverse effect of inflation. As of December 31, 2012 U.S. Annual Inflation is at 1.74%.

In conclusion, the state of the economy influences an individual’s personal financial choices, because many factors are taken into consideration. When the economy is headed in the wrong direction people will tend to spend less money and attempt to save. While, in a good economy it is believed that people will spend money without thinking too much about the adverse effects the spending might have.

References

Bankrate.com (December 12, 2012) Wall Street Journal prime rate . Retrieved from http://www.bankrate.com/rates/interest-rates/wall-street-prime-rate.aspx

Bankrate.com (December 12, 2012) Current credit card interest rates. Retrieved from http://www.bankrate.com/finance/credit-cards/current-interest-rates.aspx

Bureau of Labor Statistics; Trading Economics (December 14, 2012) United States unemployment rate. Retrieved from http://www.tradingeconomics.com/united-states/unemployment-rate

Bureau of Labor Statistics; Trading Economics (December 14, 2012) United States GDP growth rate. Retrieved from http://www.tradingeconomics.com/united-states/gdp-growth

Bureau of Labor Statistics; Trading Economics (December 14, 2012) United States inflation rate. Retrieved from http://www.tradingeconomics.com/united-states/inflation-cpi

CIA World Factbook (January 01, 2011) GDP-real growth rate (%). Retrieved from http://www.indexmundi.com/g/g.aspx?c=us&v=66