The economic condition of the country doesn’t solely depend on the stock market, GDP, and other sources which are relatively easy to measure. There are quite a few things that you wouldn’t expect to affect the economy, yet they do! If you’re curious to learn more about these unexpected factors that affect our economy, keep reading!
1) The oil market
For most of modern history, oil has been abundant and cheap. However, over the past decade oil prices have surged to more than $100 per barrel, up from less than $30 just 10 years ago. There are several reasons for today’s high oil prices, including weak global demand and increased competition for supplies. It may be tempting to ignore these figures but one thing is certain: higher gas prices affect your bottom line! Here are 6 unexpected factors that have an enormous impact on our economy …and what you can do about them.
2) Trade policies
International trade policies are some of the biggest factors affecting our economy. For example, China’s restriction on exporting rare earth metals has limited exports from countries that mine those materials, such as Australia. As a result, prices for these metals have skyrocketed. Policies like these can cause a ripple effect on global economies. It’s important to be aware of how your actions and decisions affect others—and vice versa. The more connected we become through technology and globalization, the more interconnected our fates become.
3) Consumer credit
The amount of consumer credit, which is mostly made up of mortgages and credit cards, has a significant effect on our economy. Consumer spending accounts for roughly 70% of our GDP and almost all growth in consumer credit is driven by mortgage lending, according to economist Richard Koo. More recently consumers have used credit to borrow money for services like education and health care, but in recent years there has been a slowdown in consumer debt (as opposed to business borrowing), which could indicate a weaker economic outlook. Less spending also means fewer jobs at businesses that serve consumers—such as restaurants and retailers—meaning less revenue for these businesses, causing them to hire fewer people themselves. So yes, take out those mortgages; just make sure you can handle them before you do so!
4) Foreign investment in the US
The value of foreign investments held in the United States reached a record $4.3 trillion in 2011, according to a recent report from The Bureau of Economic Analysis (BEA). This is made up of ownership stakes in US-based companies and US government securities, as well as other investments such as real estate and stocks. Foreign investment is an important role in our economy: it creates jobs, expands markets for American exports, helps keep interest rates low, and ensures that we have access to vital technologies. At its current level, foreign investment has more than doubled since 2000—clearly indicating how important overseas investors see doing business here. To learn more about foreign investment in America visit BEA’s data page
5) International capital flows into America
It’s not just demanding our exports that determines how much money we get from foreigners. A lot of it also has to do with capital flows into America. More foreign investment in things like real estate, stocks, bonds, and new businesses means more cash coming into our country–and more demand for American goods and services. It’s an important thing to keep a close eye on right now given ongoing world financial problems. Investors don’t have a lot of places they can put their money these days, so they’re turning to American markets as a relatively safe place to park it while they wait out turbulence overseas. As long as that continues, we could see our trade deficit shrink even further in 2011—and maybe beyond.
6) Legal actions against the government
When companies or individuals feel wronged by government agencies, they sometimes sue. These cases can take years to be resolved and cost millions of dollars. This might sound like an obscure factor that would affect a tiny portion of businesses—but when you look at how many companies do business with government agencies and also consider that legal cases against a given agency can drag on for years, it’s clear that legal actions can have a wide-ranging impact on our economy. For example, a federal appeals court recently overturned an FCC rule prohibiting prison phone companies from charging inmates exorbitant fees. The decision could lead to lower phone rates in prisons across America and save taxpayers billions of dollars over time. Of course, if telecom providers decide to appeal, there’s no telling how long it will take before changes are made in prisons across America (if ever).