As the first half of 2012 closed, the economy seemed to be losing steam. Looking forward to the second half of the year, the question is no longer whether the nation will see a newly robust economy, but rather whether it can avoid lapsing back into recession.
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You can line up arguments on both sides of that discussion. In fact, the odds of continuing a fragile recovery or enduring a new recession seem to be about a 50/50 proposition. As for what to do with your money in that environment, while both the stock market and savings account interest rates are somewhat dependent on a strengthening economy, the odds appear to slightly favor the fate of savings accounts.
A 50/50 proposition
Ever since the Great Recession, economic indicators have seemed to persistently give mixed signals. There are four factors that are especially noteworthy as of mid-2012, but these too are split between optimistic and pessimistic signs. First, here are the chief reasons for pessimism:
- Slowing employment. When net new job creation topped 200,000 in December, January, and February, the economy seemed ready to move forward. The numbers since then, however, look like the economy has slammed on the brakes: 143,000 new jobs in March, 77,000 in April and 69,000 in May.
- Trouble in Europe. Actually, you can call it double trouble. Troubled European economies mean less export demand for American goods. Meanwhile, if shaky European banks start to infect their U.S. counterparts, there could be another 2008-style financial crisis -- only on an even bigger scale.
On the other hand, optimists could point to two factors that appeared more favorable as the economy heads into the second half of the year:
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- An uptick in housing. The latest reading of the S&P/Case-Shiller Home Price Index showed it rising for the third consecutive month. Admittedly, it is scant progress so far -- less than a 2% total gain across those three months -- but at least it shows home prices moving toward the positive for a change.
- Lower gas prices. This could be the most optimistic sign of all. After peaking above $108 a barrel in early March, oil prices had dipped below $80 by late June. Since high oil prices were blamed for slowing the economy, the reverse should be true as oil prices fall.
The nature of this mixed environment is that those who want to make a pessimistic case have enough evidence to do so, but optimists can just as easily do the same.
Better odds for savings account rates
While the odds for the economy itself are no better than a coin toss right now, you could safely argue that there is more upside than downside for savings account and CD rates. If the economy falters, savings account rates could conceivably go lower, but not much lower because they are already near zero. On the other hand, if the economy strengthens, there is plenty of room for savings account rates to rise, simply because they are so far below normal. In fact, with inflation easing due to lower fuel prices, which is a de facto boost for savings account rates, things are already looking a little better for the second half of the year.
The original article can be found at Money-Rates.com:
Will deposit yields improve in the second half of 2012?