In 2008 the U.S. fell into the deepest recession since the Great Depression of the 1930’s. Economic growth was negative only for a short period of time the recession was deep. 2008 third quarter Gross Domestic Product (GDP) was a negative 4.0 percent, fourth quarter 2008 GDP was a negative 6.8 percent and the first quarter of 2009 saw GDP at a negative 0.7 percent. The unemployment rate swelled to 10 percent, the highest rate of unemployment since the early 1980’s.

GDP growth turned positive again in the second quarter of 2009 and we have had six consecutive quarters of growth. Unfortunately the rate of growth hasn’t been fast enough to make a big dent in the unemployment rate. The current unemployment rate is 9.00 percent, still very high historically speaking and not low enough to bring the economy out of the current funk.

The rate of unemployment isn’t even across the United States. The West reported the highest regional unemployment rate in December at 10.9 percent while the Northeast recorded the lowest rate, 8.4 percent. Midwest was the only region to experience a statistically significant over- the-month unemployment rate change (-0.3 percentage point). Two of the 4 Regions registered significant rate changes from a year earlier: the Midwest (-1.1 percentage points) and Northeast (-0.6 point).

There is hope for future growth. In fact, the Federal Reserve disclosed that policy makers had substantially upgraded their forecasts for how much the economy will grow in 2011. Unfortunately they expect unemployment to remain high for some time to come.

The Federal Reserve now expects the output of goods and services, GDP, to grow by 3.4 to 3.9 percent this year. The rate of growth was increased considerably from the previous forecast, released in November 2010, of 3 percent to 3.6 percent.

The expected unemployment rate is still high and wasn’t revised down by much. The Fed’s outlook for the unemployment rates was pretty much unchanged. The jobless rate is expected to be between 8.8 to 9 percent unemployment for the rest of 2011.

Expecting a brighter future ahead, conditions in financial markets recently improved. Financial markets lead the way in an economic recovery as investors anticipate an increase in companies’ earnings and an increase in stock prices.

Bond yields also increase as the economy improves. Yields on longer-term Treasury securities like 10 year bond have increased quite a bit in recent months, leaving the Treasury yield curve noticeably steeper. A steep yield curve is a typical feature of an economy in recovery, and that much of the steepening appeared to have occurred in response to stronger-than-expected economic data recently released.

Deflation which was a big concern during the recession seems less and less likely the more the economy improves. Inflation has gone up recently boosted by higher prices for energy and other commodities. The prices of imported goods have also gone higher recently as the cost to produce those goods increases.

The Fed noted in their most recent meeting that some business contacts indicated that they were going to try to pass a portion of these higher costs through to their customers but were uncertain about whether that would be possible given current market conditions.

For the past several years producers of goods have been unable to pass on some of the rising cost of commodities to finished goods. Although prices of commodities have increased recently there is still significant slack in resource markets and longer-term inflation isn\’t expected to be an issue.

To keep inflation in check the Federal Reserve will increase interest rates as inflation becomes a concern. If you rely on interest from deposits for income you’re in luck. Savings account rates, money market account rates and CD rates will go higher in 2011. On the flip side if you’re thinking about buying a home or refinancing your current mortgage loan be prepared to see higher rates then you have recently.

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Category: Finances
Keywords: finance, banking, CD rates, mortgage rates, savings acount rates