Question

how does the health economy affect your dinancial health? how healthy is the U.S. economy right now? On what measures do you base your judgement? how will your appreciation of the big licture help you in planning for your future?

Answer 1

Answer to finance question

how does the health economy affect your Financial health?

Answer: You couldn’t have escaped some of these statements in the recent past: The market has tanked, the GDP figures were disappointing. Another few hundred points down, the rupee is going to sink more; inflation figures are going to be bad. Sure, the disappointment in the tone and falling economic indicators must have caught the attention of every investor. But what most have missed is that the market is increasingly getting influenced by economic indicators and events — that too in faraway lands — in a big way.

Consider, for example, how the market danced to US Federal Reserve’s decision to continue with monetary easing or how it reacted to the appointment of the new Reserve Bank of India governor or his maiden policy. Sure, such events always influence markets, but the magnitude is something new.
Therefore, it is important to keep a close eye on the developments in this space. Also, all these events cannot be seen in isolation.

There are five such factors and can be concluded as shown below

Gross Domestic Product: In simple terms, the any economy is directly related to the rate of GDP as if there is rise in GDP, there will be rise in economic growth. There will be rise in employment hence vice versa.

Inflation: it would be safe to assume that even laypersons are aware of how inflation rate of growth in prices — affects their consumption spends. From an Individual’s perspective, the consumer price index and food inflations are more relevant then the whole sale price index.

However, not many understand its impact on their savings and investments. “It helps you ascertain whether your portfolio is giving you real returns. For example, a bank deposit may fetch 9% return for the year. If you are taxed at a marginal rate of tax of 20%, then post-tax, your return would be 9% - (20% x 9% = 1.8%) = 7.2% pa. Now, this is the nominal rate of return your money earns, post tax. If inflation is at 8% per annum that year, then effectively you have earned a real rate of return.

Central Bank’s Monitory Policy: The Reserve Bank of India, through its policy measures, influences the interest rate movements in the market using several tools at its disposal, including repo and reverse repo rates. Any action on this front directly impacts interest rates in the system, which in turn affect your home loan or fixed deposit rates. For instance, a hike in the repo rate could push up the interest rates on your loans and also deposits.

Exchange Rate: A high fiscal deficit and a high CAD that lead to currency depreciation would eventually lead to inflation pressures,” explains Pan.

Exchange rate affects plans to study abroad, go on holiday, air fares and so on,” says Sabnavis

Stock Market Indices: An indicator of the economic situation and the level of business confidence in the country, any rise and fall in stock indices is directly reflected in your equity investment- stock or mutual fund on daily basis.

These indices are keenly watched by investment professionals, as they tend to be the barometers of economic conditions in the industry and hence, the economy as well,” says Apte.

How healthy is the US Economy now

Real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the first quarter of 2019 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2018, real GDP increased 2.2 percent.

The Bureau’s first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2019.

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased (table 2). These contributions were partly offset by a decrease in residential investment.

The acceleration in real GDP growth in the first quarter reflected an upturn in state and local government spending, accelerations in private inventory investment and in exports, and a smaller decrease in residential investment. These movements were partly offset by decelerations in PCE and nonresidential fixed investment, and a downturn in federal government spending. Imports, which are a subtraction in the calculation of GDP, turned down.

Current dollar GDP increased 3.8 percent, or $197.6 billion, in the first quarter to a level of $21.06 trillion. In the fourth quarter, current-dollar GDP increased 4.1 percent, or $206.9 billion (table 1 and table 3).

The price index for gross domestic purchases increased 0.8 percent in the first quarter, compared with an increase of 1.7 percent in the fourth quarter (table 4). The PCE price index increased 0.6 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 1.8 percent.

Personal Income

Current-dollar personal income increased $147.2 billion in the first quarter, compared with an increase of $229.0 billion in the fourth quarter. The deceleration reflected downturns in personal interest income, personal dividend income, and proprietors’ income that were partly offset by an acceleration in personal current transfer receipts.

Disposable personal income increased $116.0 billion, or 3.0 percent, in the first quarter, compared with an increase of $222.9 billion, or 5.8 percent, in the fourth quarter. Real disposable personal income increased 2.4 percent, compared with an increase of 4.3 percent.

Personal saving was $1.11 trillion in the first quarter, compared with $1.07 trillion in the fourth quarter. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 7.0 percent in the first quarter, compared with 6.8 percent in the fourth quarter.

Source Data for the Advance Estimate

Information on the source data and key assumptions used for unavailable source data in the advance estimate is provided in a Technical Note that is posted with the news release on BEA’s Web site. A detailed "Key Source Data and Assumptions" file is also posted for each release. For information on updates to GDP, see the "Additional Information" section that follows.

How your appreciation in the big picture help you in planning for your future?

Financial planning means creating a long term vision and clear goals for the future we want. Creating a financial plan help us what we are trying to achieve and how all the major pieces of our financial world add up into one complete picture.

Major financial plans includes

Job or Business

Spending plans

Asset owned

Debts

Real estate

Insurance

Investment

Planning for next generation

Thus the answer concluded.

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