Our current economic condition is complex and, in some ways, unprecedented. Because of the pandemic, we have seen massive changes in how the market behaves and must learn to adjust our finances accordingly.
Government Payouts
One of the major changes that we saw during the pandemic was the government directly stepping in to help with the economic downturn. The issue with this is that federal payouts can increase inflation, and when that is coupled with the constant creep of normal inflation, prices may rapidly grow.[1] causing inflated fees for everyday items such as groceries, and home goods. The 2022 spike in inflation followed a major federal government spending program, the $1.9 trillion American Rescue Plan. This initiative in response to the economic downturn caused by the COVID pandemic distributed $1,400 to every American, provided extra funds to state and local governments and expanded unemployment benefits.
Changes in the Global Economy
For many years the world has been growing economically. Because our ability to travel and move goods is significantly more efficient than it was in the past, the world saw a massive expansion in industry as companies spread their operations throughout the globe.[2] Recently, Inflation has rapidly accelerated and is now at or near its highest rate in decades in most developed economies like the U.S. and in Europe, causing living standard to decline in many countries. This has particularly hurt the poorest people, who suffer a higher rate of inflation than the general population because they spend more of their income on food and energy.
Changes in the Workforce
Since the pandemic, the workforce of the country has not fully recovered. Wage increases are not keeping up with inflation, so even if you see a yearly raise, it may not have increased your purchasing power. This is a concern because if workers don’t feel like they are making enough money, they likely won’t stimulate the economy by spending money on things they want.[4]
Banking Failure and the effect on the economy
The recent failure of SVB and other banks may add to consumer fears, further promoting an unstable economy. Banks perform several important functions. They make it easier to move money from buyers to sellers. They hold money for depositors. They provide credit – lending money to individuals and businesses. When depositors lose confidence in their banks, banks can have a harder time performing those functions. It may become more difficult for people and companies to transact, to store money, and to find credit. This may lead to slower economic activity and eventually a recession.
What This Means for You
The economy is in an uncertain place right now. Inflation, in particular, is a big concern for retirees and pre-retirees because it affects how much mileage you will get out of your saved money. An uncertain economy also means that your investments need to be made carefully, with an eye on all the current factors influencing the market.
If you are looking for financial guidance in these uncertain times, reach out to us for a complimentary review of your finances.
Advisory services offered through EGSI Investment Management, Inc., a Registered Investment Advisor with the State of Ohio. Insurance services offered through EGSI Financial, Inc. Guarantees offered with insurance products are based on the claims-paying ability of the issuing company. Investing may involve risk and may result in the loss of principal. Ohio Insurance License # 619337. Please contact EGSI Investment Management if there are any changes in your financial situation or investment objectives, or if you wish to impose, add, or modify any reasonable restrictions to the management of your account, EGSI Investment Management Form ADV Part 2A&B is available for your review upon request.
