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Attitude is everything: Savings and money market rates held back by tepid business optimism

February 02, 2011

| MoneyRates.com Senior Financial Analyst, CFA

An old commercial used to say "attitude is everything." When it comes to getting rates on savings accounts, money market accounts, and CDs moving back upward, that slogan may be partly right.

When playing the waiting game of watching for movement in CD, savings, and money market rates, there are several indicators you can monitor. Ultimately, it all comes down to looking for signs of sustained, strong economic growth.

Employment, for example, is a key not just to indicating that business conditions have improved, but that this improvement might be sustainable because more people are getting back to work. An even more advance indicator might be small business optimism.

The role of small business optimism

Small business optimism is a good indicator to watch for three reasons:

  • It provides a grass-roots assessment of economic conditions.
  • It suggests what direction employment may be about to take, since small businesses are an important source of new job creation.
  • It gives some insight as to when small businesses are getting ready to borrow for the sake of expansion. A revival in lending is necessary before banks will start to value new deposits enough to raise CD, savings, and money market rates.

So what is the mood of small business owners in America? Like so much of the economy, it seems stuck in a rut. The National Federation of Independent Business (NFIB) has conducted a monthly survey of small business optimism since 1986. Based on attitudes towards ten different business factors--including plans to hire and plans to make capital outlays--the NFIB assembles an index of overall optimism.

At 92.6, the level of this index ended 2010 up appreciably from the low of 81.0 reached in March of 2009. However, it slipped slightly in December, from 93.2 in November. In fact, since reaching 92.2 last May, the index has tended to waver up and down, and remains well below pre-recession levels.

In short, this indicator seems to hang in the balance, but when that balance tips towards optimism it should be a sign that higher CD, savings, and money market rates are on the way.

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