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After a Brutal Start, Can the Economy Recover in 2016?

oil
oil

Two main players will determine if we see the economy recover in 2016: the Fed and the oil cartel. Those two will essentially call the shots for this year’s economic outlook, but we may not be as FKD as you think.

Belt Tightening and Crude Oil

We know you’re stumbling through the first three weeks of New Year’s resolutions. Your body is in shock with your carb-free, paleo-whatever diet. The absence of chocolate, bread, or anything tasty has backfired and you’re slightly depressed. We get it, but you are not alone in the struggle.

Considering its rough start in 2016, the economy seems to have made some tough resolutions of its own. There are mixed feelings about whether or not the economy can withstand the small shocks of its new diet plan, so let’s see how we can prepare for it.

“Hey Stock Market, how’s that resolution going for ya?”- GenFKD

“Oh, just sweatin’ off the inflated ass-et prices!”- The Stock Market

[postquote]

On December 16, the Fed decided to raise the fed funds rate and shrink the economy’s waistline for the first time in nearly a decade. In response to decreasing the money supply, the stock market took a dive of close to ten percent in the first two weeks of 2016 in its effort to correct itself.

In addition, to the increased interest rate, crude oil prices dropped below $30 per barrel, which is the lowest price in twelve years. Due to the overproduction of oil, downward pressure has been applied on the prices, which is why it’s so cheap at the pump. Oil, being one of the most influential commodities in the world, has devastated the economies of some countries, like Venezuela and Russia. The United States has definitely felt the hit as well, with over 100,000 jobs lost in the oil sector. Yep, too much oil isn’t good for business, but it sure is good for our wallet.

Some forecasters are calling this the re-emergence of the bear market, in which asset prices, like stocks, lose around 20 percent of their value. Others are claiming that this may be a quick market correction in which it essentially cleans house and strengthens up to hit another year of record highs in the stock market. We’ll find out soon enough.

Looking for a Gig? Skip the Energy Sector

Gas prices may increase slightly, but, compared to the last four years, it will still be super cheap to fill up the tank. It doesn’t look like the oil cartels are going to quit over-producing oil.

The Fed says it will increase the interest rate four times in 2016. Depending on whether or not the stock market dip of January is just a correction and doesn’t lead to a crash, you can pretty much count on it doing just that. The economy has gone way too long with the interest rates so low and has distorted prices all around.

The housing market, which is a good indicator of the health of the economy, will keep on keepin’ on at a slightly lower pace. With the increase in the interest rate, mortgages and long-term financing will become slightly more expensive, reducing the demand. However, homebuilders will be eager to carry on building this year.

Although the oil and gas industry is hurting, the BLS has laid out a trend of 200,000 new hires per month, showing strength in the job market. The Fed also seems to think along those same lines, hence the interest rate increase.

The tech giants — Amazon, Apple, Facebook, Google, and Microsoft — don’t seem to be slowing down. The “Frightful Five” as Farhad Manjoo from the New York Times calls them, will continue to engage in fierce competition, bringing us sweet goodies at lower prices and revolutionizing the economy and how we do things as a whole.

Our Take – Get Your Wealth Swag On

This year seems to have a ton of cautious optimism from a wide variety of forecasters, but forecasts should be taken with a grain of salt. Nonetheless, optimism is what we should engage in all the time. It makes the tough times a bit easier to swallow and reassures us in the good times.

The economy’s interest rate diet and cheap oil could make 2016 the year that we kill some of our debt and maybe invest a couple bucks to start getting our wealth swag on. Even more, we’re hopeful that you’ll have some success in the job market, so long as you’re looking in the right place.

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