Q: I find the financial news to be confusing despite my efforts to keep up with developments and trends in the economy. What do I need to know about the current state of the economy and how can I learn to read the financial news?
A: Kudos to you for taking the initiative to learn all you can about how the economy impacts your money and livelihood! Indeed, financial news can be confusing. One day the economy is headed for a deep recession, or worse. But the next day’s headlines will boast about rising stocks and a climbing dollar. It’s hard to make sense of it all and to sift through the noise and find what’s relevant to your life. Here, we’ve outlined the factors you need to know about today’s economy and provide a primer on how to read the financial news.
Which factors characterize the economy now?
While your grocery bills may have you thinking otherwise, there’s actually good news on the economic front … right now, at least. The consumer price index (CPI), which tracks the cost of household staples, rose 4.9% in April, 2023. It’s the smallest increase in two years. The inflation readings of the U.S. Bureau of Labor Statistics report weakening inflation readings for 10 consecutive months since its peak in June of 2022. This means consumers should be seeing relief in staple categories like food, energy and housing.
However, the state of the economy is measured by more factors than the inflation rate alone. Consumer spending, for example, has weakened in recent months following a spike in January. Additionally, the U.S. Gross Domestic Product (GDP), rose at an annual rate of 1.1% in the first quarter of 2023, falling short of the 1.9% that economists had expected. It’s also important to note that the average interest rate now averages 5-5.25%, which is its highest level since 2007. On the flip side, though, new home sales rose in March for the fourth consecutive month.
While the economy has definitely seen better days, all is not doom and gloom on the financial front. Inflation is easing and there is hope for more good news in the coming months and years. As a consumer, look out for fluctuating interest rates and a decreasing rate of inflation. While these factors may influence your spending, it’s important to practice responsible money management in any economic climate.
How to read the news
Follow these tips to make sense of the financial news:
- Be prepared to read news items you’ll disagree with. The internet is bloated with content, and you can find articles, memes and videos on nearly any opinion in the world. This makes web surfers vulnerable to confirmation bias, in which their browser continuously spits out blogs that confirm their already-established opinion. This can be particularly dangerous as you may mistakenly believe your own opinion to be fact. This is why it’s a good idea to open your mind a bit and read some articles where you don’t agree with the opinion.
- Read both professional and amateur content. The articles you’ll read at The Wall Street Journal and The New York Times may have more reputable sources than your average basement blogger, but they’re also written with deadlines and the company’s quarterly earnings in mind. Be wary of clickbait and of doomsday headlines that have little basis in reality. Amateur writing, though it may be less-sourced, will likely be less biased and dramatic.
- Remember that not every news story is actionable. You may read dozens of articles on the economy each week, but few, if any, require you to take action. Ignore most of what you read about the stock market because it’s usually best to keep your investments in place for years to achieve optimal growth. You also don’t need to take any action when reading about inflation highs and lows, the GDP or most other financial news items. Read these articles for the purpose of broadening your understanding and knowledge of the state of the economy.
Financial news can be confusing. Use this guide to learn what you need to know about the current state of the economy and how to read financial news.