Sometimes the economy is what we think it is. In April, the University of Michigan’s preliminary index of sentiment, which climbed to an eight year high, showed that many Americans are feeling better about what the nation is doing. This is an important macroeconomic variable.
The economy grew at just a 0.2 percent annual rate in the first quarter. That was down from the pace seen in the second half of 2014.
When things seem good, consumers loosen the purse strings and spend money. Gas prices, which more than doubled from 2008 to 2014, dropped back enough to make Americans feel like they had more disposable income. Labor Department figures also show a small gain in hourly pay during the first quarter. Retail sales, on the other hand, have not reflected these improvements and have fallen short of economist’s expectations.
Then, there is always the possibility of the Fed raising interest rates. Fed members have speculated that they would be willing to pull the trigger as job numbers improve. The jobless claims have captured some recent headlines and appear to be falling. The reported figures do not include those who have left the workforce and who can no longer file new claims for benefits. These people, who are still of working age, may be permanently out of the workforce.
The Rest of the World
How does the U.S. economy compare with its neighbors over the pond? By one measure, not as good, and by many others, much better.
We have read much about the troubles in Greece, Spain, Ireland, and Portugal. These countries have had to borrow heavily, while their balance sheets and debt rating have suffered.
In the fourth quarter of 2014, the euro zone economy grew by 0.3 percent. The European Commission is anticipating growth of 1.6 percent for 2015. That would be the best rate in four years.
France and Italy saw a reversal of fortune in the last quarter of last year. Deflation has been a concern across the eurozone and that is only recently been abating as of April somewhat. Unemployment in the eurozone stands at 11.3 percent.
Spain has seen some success with growth of 0.9 percent in the first quarter of 2015. That has fueled speculation that the eurozone, as a whole, saw growth of 0.5 percent during the first quarter; better than the U.S.
The rich in Great Britain have fared very well since 2009. They have seen their wealth increase by 112 percent. The average British middle class citizen has not fared as well, with most not yet recovering from the recession.
Russia cut interest rates and French consumer spending is on the wane. Greece continues to see its debt rating downgraded while it contemplates an exit from the Euro. But it may agree to a deal that would provide the €7.2 billion it needs to avoid default. Greek savers, afraid of the impact of not striking a deal, pulled funds from banks, leaving deposits at a 10-year low.
Even China, the primary source of consumer goods in the U.S., has seen its economic growth stagnate compared to its recent historical gains. Growth in China, saw expansion of 7 percent in the first quarter. The last quarter of 2014 was a slightly more robust 7.3 percent. China has seen double-digit annual growth for decades. Many economists believe that growth for 2015 and 2016 will likely be below 7 percent.
Don’t let the economy affect your retirement plan. Be certain that if you work with our firm, we our watching things very closely. If you do not have a comfort level with your retirement income plan and you want a second opinion, please contact our office, today!