Economic Forecasts

Why I’m Optimistic

If we look ahead and see straight—and focus on what’s good for all of us—we will emerge from the darkest hours even stronger.

Americans are fundamentally optimistic. No matter how bleak it seems, we believe that things will get better. That belief inspired Willard Kiplinger when he founded our company a century ago—in the wake of World War I and the Spanish flu pandemic, which claimed between 50 million and 100 million lives worldwide. Another legacy of the irrepressible Kip was the quote he chose to display for many years on the contents page of the magazine, by the quintessential American philosopher, Ralph Waldo Emerson: “This time, like all times, is a very good one if you but know what to do with it.”

Silver linings. So in the sanguine spirit of Kiplinger (and America), I’ve been looking for silver linings behind COVID’s dark clouds and the economic turbulence. Here’s one: Consumer prices fell 0.8% in April, the biggest decline since the Great Recession. The consumer price index is running at a barely perceptible 0.3% year over year.

If you are still working or have a steady source of retirement income, chances are your household balance sheet is showing more black ink. Gasoline prices are down 32% from a year ago, and clothing, car insurance, airline tickets and hotel rooms have all seen price drops. In our house, we are spending hundreds of dollars less each month than we did pre-pandemic. Gym memberships have been suspended, we are cooking at home most of the time rather than dropping a bundle on restaurants, and we’re spending zilch on travel. In the past two months, we have spent $50 on gasoline (premium!) instead of our usual $50 a week. No haircuts, no lattes in the morning on my way to work, no impulse purchases at the mall.

Notably, the cost of food prepared at home, particularly meat and eggs, is on the rise because of supply-chain disruptions and strong demand. The cost of health care and health insurance are also going up. (If you or someone you know lost a job and health insurance along with it, see the Rx for Your Health Insurance.) And low inflation isn’t all good. The Federal Reserve targets a minimum level of 2% inflation to help ensure economic growth, so the low CPI number is another sign of an ailing economy. Plus, Social Security cost-of-living adjustments will be low, or even nonexistent, for 2021.

What to do. Less spending may be a silver lining for households, but it’s what you do with the savings that’s really important. Bolstering your emergency fund is a good idea, because you never know for sure when your rainy day could turn into a deluge. In­terest rates on savings are low—but with mortgage rates also low, you may be able to offset that to some extent by refinancing.

If you have extra cash, COVID-inspired market volatility is an opportunity to grab bargain-priced shares of exchange-traded funds, mutual funds or stocks on your watch list. Our cover story offers our forecast for the markets (expect lots of volatility, with stocks showing little progress by the end of the year) and a road map for your investing strategy.

Finally, I’m hoping that those of you still feeling flush will share with those who are less fortunate (see “Giving Back” in 52 Super Deals and Discounts for 2020 for information on coronavirus-related charities), as well as support local businesses however you can right now. One of the admirable attributes of Americans is a willingness to pull together and help others, especially in our own communities.

We have a long climb ahead of us, and our lives are likely to change permanently after the threat from the pandemic is past. But especially as we celebrate July 4 and the 244th birthday of our nation, if we look ahead and see straight—and focus on what’s good for all of us—we will emerge from the darkest hours even stronger.

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