Friday, August 31, 2018

America's Old Cars

How old is your car? If it follows the trends of most American drivers, it's probably pretty old. According to a study from the Energy Department, the average age of vehicles owned by households increased from 9.3 years in 2009 to 10.5 years in 2017.

Cars may just be living longer. In 2009, about 7 percent of all vehicles were five years old, and by 2017, this had fallen to just 5.8 percent of all vehicles. But in 2017, there were more vehicles on the road that were 10 years and older than in 2009.

This is up sharply from recent decades. The average car's age rose from just 6.9 years in 1980 to 7.9 years in 1985. For a while, the average age hovered just below 8 years, and as recently as 1992, it was just 8.1 years. But it's risen pretty consistently since then.

Thursday, August 30, 2018

Stocks and Hurricanes

We're now heading into the thick of hurricane season, and various sectors of the market will be positively or negatively affected by the amount of severe weather we experience. But some of these effects are not as obvious as others.

Some of the market segments that react positively to preparation and recovery efforts include home-improvement retailers like Home Depot and Lowe’s, which typically see a boost in sales post-storm as damaged property is repaired. Grocery retailers often see a prestorm surge in sales as consumers stock up on necessities, and hotel companies benefit if people are forced into temporary lodging.

But the industry with the largest negative impact is branded apparel and footwear stocks, according to an analysis by Morgan Stanley. PVH Corp., the parent company of Calvin Klein and Tommy Hilfiger, scored the highest possible “hurricane exposure score” in Morgan Stanley’s analysis, alongside Tiffany & Co. Dunkin’ Brands Group is also among the companies with high hurricane exposure: In the third quarter of 2017, there was a 120 basis-point drag on the doughnut company’s same-store sales because of hurricanes.

Wednesday, August 29, 2018

Housing Hits the Brakes

There are a couple signs out there that the housing market is softening. First off, sales of previously-owned homes, which make up the vast majority of housing market sales, declined for the fourth month in a row in July. They've touched their lowest point in over two years, according to the National Association of Realtors.

Another sign of a slowdown: Although prices are not declining, price growth is decelerating. The national index’s 6.2 percent annual gain was down from 6.4 percent in the three-month period ending in May. The 20-city’s annual gain was also down two ticks, from 6.5 percent.

In addition, the number of new homes available for sale hit its highest level since 2009. At that month’s pace of sales, it would take 5.9 months to exhaust available inventory. Six months has historically been considered a marker of a market evenly balanced between supply and demand.

Tuesday, August 28, 2018

Young People's Money Woes

Young adults are living on the edge with their finances, according to a new study from the University of Illinois. About a third of young adults (those between 18 and 24 years old) were considered “financially precarious,” meaning they had few money management skills and little income stability, according to the study.

Another 36 percent of participants were considered financially “at risk” because they had an unexpected drop in income within the year and had no savings to support themselves - and didn’t have enough to pay for a $2,000 emergency. Approximately 10 percent also said they struggled with money management, such as budgeting and credit-card usage, and would put their health in jeopardy by avoiding doctor visits and prescriptions because of costs.

Only 22 percent were deemed financially stable, meaning they were saving at a mainstream bank and steered clear of financial services that charge higher interest and fees, such as payday lenders. Members of this group were more likely to be white males, employed and college-educated.

Monday, August 27, 2018

The Worst Place to Retire

We talk a lot here about how to get the best out of your retirement years, but what's the worst place to retire? According to a new survey from WalletHub, it's right here in New Jersey. Newark rates as exorbitantly expensive while also having little in the way of activities for retirees. On the bright side, the health care options are good.

Jersey City also finished high up on the list, at No. 8. Its primary advantage over Newark appears to be that there's more to do there. The top ten unfavorable cities for retirees:

  1. Newark
  2. Bridgeport, Conn.
  3. Warwick, R.I.
  4. Baltimore
  5. Stockton, Calif.
  6. Providence, R.I.
  7. Bakersfield, Calif.
  8. Jersey City
  9. Modesto, Calif.
  10. Fresno, Calif.

Friday, August 24, 2018

The Cost of the Crisis

What did the economic meltdown of 2007-2009 cost us? A new report from the Federal Reserve Bank of San Francisco points out that not only is the economy “significantly smaller than it should be based on its pre-crisis growth trend,” but says that Americans lost $70,000 apiece in present-value lifetime income thanks to the financial crisis.

The letter says that “the size of the U.S. economy, as measured by GDP adjusted for inflation, is well below the level implied by the growth rates that prevailed before the financial crisis and Great Recession a decade ago.” Actual U.S. GDP is running about 12 percentage points below where it would have been had the crisis not occurred.

We're not the only ones, though. The report said that the U.K. and European economies are also trailing where they would have been, had the financial crisis and Great Recession not intervened.

Thursday, August 23, 2018

The Record Bull

Welcome to the longest bull market in history. Since March 9, 2009, which marked the low of the financial crisis and which many consider the birth date of the current bull market, the S&P 500 index has advanced 320 percent.

This bull now has 113 months under its belt. The previous longest was set during the 1990s. Then, the S&P 500 index bottomed out on October 11, 1990, and finally peaked nearly ten years later on March 24, 2000.

One advantage for that bull: With the dot-com fueled runup in the late 1990s, that market returned an annual average of 19.0 percent per year. The current buildup, by contrast, has returned a slightly more modest average of 16.5 percent per year.

Wednesday, August 22, 2018

Who Owns America's Debt

America’s debt climbed to a record $21.21 trillion at the end of June, a 6.9 percent increase from a year earlier. Who owns all this money? By and large, Americans. Some 70 percent of the national debt is owned by the U.S. government, institutional investors and the Federal Reserve. A shade under 30 percent is owned by foreign entities, according to the latest information from the U.S. Treasury.

American institutions such as private and state pension funds as well as individual investors were the biggest holders. They owned $6.89 trillion in debt or about 32.5 percent of the entire pie.

Foreigners, led by the Chinese and Japanese, owned $6.21 trillion, or 29.3 percent. Those two countries have cut their stakes since 2015, but each country still owns more than $1 trillion worth of Treasury bonds and notes.

Tuesday, August 21, 2018

Exiting Correction

The Dow Jones industrial average entered what is generally considered to be correction territory on February 8, when it completed a drop of 10 percent from its recent peak. This is the longest stint that the Dow has spent in correction territory since 223 trading sessions in 1961, according to Dow Jones Market Data.

But now the Dow stands less than 0.5 percent shy of emerging from correction territory. It need a gain of just 130 points to reach that mark, and notch a 10 percent gain from its recent low point.

Both the S&P 500 and the Nasdaq Composite Index also moved into correction territory back on February 8. But bot of those indexes have already emerged from their correction phases.

Monday, August 20, 2018

Young Folks Are Finding Work

The unemployment rate among young Americans fell to its lowest level in more than 50 years this summer, the labor Department said last week. On the other hand, the share of young people looking for work remained well below its peak in 1989.

Among Americans between 16 and 24 years old who were actively looking for work this summer, 9.2 percent were unemployed in July. That's a drop from the 9.6 percent youth unemployment rate in July 2017. It was also the lowest midsummer joblessness rate for youth since July 1966.

Similarly, the unemployment rate among older Americans who don’t have a high-school diploma fell to a record low this year. The jobless rate also fell sharply for those who completed high school but never attended college.

Friday, August 17, 2018

The Outlook for Raises

The tight job market means that employers are willing to part with “slightly larger” pay raises when the calendar ticks over, according to a new survey by Willis Towers Watson. The 2018 General Industry Salary Budget Survey finds that U.S. employers intend to reward their non-management exempt employees with average pay increases of 3.1 percent in 2019; this year they handed out pay raises of 3.0 percent. Executives are in for slightly smaller raises, 3.1 percent compared with 3.2 percent.

Pay increases have lagged in the neighborhood of 3 percent for the past 10 years, though only 3 percent of companies intend to freeze salaries next year. The last year in which raises were significantly larger was back in 2008, when they were around 3.8 percent.

Companies are still rewarding “star” performers at a notably higher percentage than “average” performers. Those with top marks in their evaluations got an average raise of 4.6 percent in 2018; that’s 70 percent higher than average-rated employees, who got 2.7 percent raises.

Wednesday, August 15, 2018

A Strong July for Retail

U.S. retail sales rose a healthy 0.5 percent in July, the Commerce Department reported yesterday. The report came with one big caveat, though: The government also said sales in June rose a smaller 0.2 percent instead 0.5 percent as originally reported.

That means the increase in July was starting from a lower baseline. On the other hand, retail sales have increased 6.4 percent over the past 12 months, close to the long-run average since 1980.

Clothing stores and restaurants posted a 1.3 percent increase in sales to lead the way in July. Sales also rose 1.2 percent for department stores and 0.8 percent for both Internet retailers and gas stations. Sales fell for home furnishings, pharmacies and stores that sell sporting goods and other hobby-style items such as books and music.

Our Shrinking Debt Burden

The debt burden of U.S. households is the smallest it’s been in nearly 16 years. Household debt — including mortgages, credit cards, auto loans, student loans and other credit — grew for the 16th consecutive quarter in the three months ending in June, rising by 0.6 percent to $13.29 trillion, the New York Fed reported yesterday. But that's only half the equation.

On the other side, personal disposable incomes reached an annual rate of $15.46 trillion in the quarter. That means the debt-to-income ratio dipped to 86 percent. That’s the lowest, by a very small amount, that this figure has been since the fourth quarter of 2002.

But it's a long way down from where this number peaked. At the height of the credit bubble in 2008, household debts topped out at 116 percent of disposable income.

Tuesday, August 14, 2018

A Slight Slowdown in Consumer Expectations

A monthly survey conducted on consumer expectations showed a notable pessimistic trend in July. The New York Fed’s survey — based on a panel of 1,300 household heads across the United States — found declines in one-year expectations on earnings growth , household spending, stock prices and house prices. Some highlights:

  • Median one-year-ahead wage-growth expectations fell from 2.7 percent in June to 2.4 percent in July, dropping below the 2.5 percent to 2.7 percent range it had been in since November 2017
  • Median home price change expectations dropped from a recent high of 3.9 percent reached in June to 3.7 percent 
  • The probability that stock prices will be higher in a year fell to 40.3 percent, the lowest level since October 2016
  • Median household spending growth expectations decreased by 0.1 percent to 3.2 percent in July

Monday, August 13, 2018

What's Your Goal?

Protection or production? That is the key question for most investors' portfolios. According to a new report from a global research and consulting firm Cerulli Associates, more than three-quarters of investors explicitly state that they would prefer a protection-focused portfolio versus one that outperforms.

The desire for protection is very strongly correlated with age, although not necessarily the way you think it might be. The report finds that a protection mindset is highly concentrated among investors who are 60 and older - and among affluent investors under 30 years old.

There are similar strata involved for different wealth tiers. The highest concentrations of the protection-focused mindset are among those investors with $250,000 to $500,000 (83 percent) and greater than $5 million (80 percent).

Friday, August 10, 2018

Signs of Inflation in July

U.S. consumer prices rose by 0.2 percent in July, pointing to a steady increase in inflation pressures, according to figures out from the Labor Department this morning. In the 12 months through July, the Consumer Price Index increased 2.9 percent.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, the same gain as in May and June. The annual increase in the so-called core CPI was 2.4 percent, the largest rise since September 2008.

Shelter costs were a big driver of this: Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent last month after increasing by the same margin in June. Overall, the so-called shelter index rose 3.5 percent in the 12 months through July. Prices for new motor vehicles rose 0.3 percent in July, apparel prices fell 0.3 percent, and healthcare costs fell 0.2 percent.

Thursday, August 9, 2018

The Tight Labor Market

The economy has reached a point of such strength that there are now more job openings in the U.S. than there are unemployed. Overall in June, the number of available jobs exceeded the number of unemployed Americans by nearly 100,000.

There were 6.7 million job openings on average in the three months ended in June—the highest quarterly level on record dating back to 2001. The number of available jobs grew by nearly 750,000 this spring, compared with a year earlier, according to Labor Department data released this week. 

The problem is most acute in a few fields, led by transportation. The number of unfilled jobs in transportation, warehousing and utilities, combined, grew by 109,000 over the past year to 298,000, a 58 percent increase. That's the largest growth rate of about 20 broad groupings tracked by the Labor Department.

Wednesday, August 8, 2018

Misunderstanding Long Term Care

There is a wide disconnect between what many Americans believe about long-term care versus what the actual needs are. Today, 70 percent of Americans will need some type of long-term care, but only 46 percent believe they will need it, according to a new study by the Moll Law Group, a personal injury firm.

Most Americans — 64 percent — have nothing saved for long-term care. In addition, 67 percent aren’t able to contribute to their parent’s long-term care. Most of study participants believe the age at which they will need long-term care is 79 years old, while it’s actually 73. Women will need long-term care on average for 3.7 years, while men will need it for 2.2 years.

Another misconception is the out-of-pocket cost of long-term care. The study found that the actual out-of-pocket cost is more than $47,000, while many Americans believe it is roughly half that, $25,350.

Tuesday, August 7, 2018

Earnings Beats by Sector

Earnings season always features headlines that say companies “beat” or “miss” analysts’ estimates. In the latest quarter, even more companies have been beating than usual, with a total of 80 percent exceeding the analysts' expectations for their earnings per share.

Leading the way has been the health-care industry. The S&P 500's health-care sector has 63 companies, of which 61 (a whopping 97 percent) beat analysts’ estimates when they most recently reported their results. Information technology isn't far behind, at 93 percent.

The worst sector for beating estimates has been energy: Just 55 percent of those stocks exceeded the street's forecast. But notice that even there, a majority of the stocks outperform the estimates.

Monday, August 6, 2018

The Race to $1 Trillion

Apple became the first U.S.-listed company in history to achieve a $1 trillion market capitalization on Thursday. U.S. Steel is generally cited as the first U.S. publicly listed company to reach a $1 billion market capitalization, immediately upon going public in 1901.

IBM is sometimes identified as the first publicly listed U.S. company to reach the $100 billion milestone, doing so on August 20, 1987. However, IBM never closed above that threshold. Meanwhile, AT&T Corp. closed above $100 billion in November 1992, according to FactSet.

A cautionary tale: On July 16, 1999, Microsoft became the first U.S. company to reach a market cap of $500 billion. It stayed above $500 billion for just two trading sessions before dipping back below that level. This was, of course, the heyday of the dot-com boom. Microsoft went on to again hit $500 billion in market value, eventually reaching $607 billion in market cap, in December 1999. But in the spring of 2000, the bubble popped — and Microsoft finished that year with a market cap of $231 billion.

Friday, August 3, 2018

July's Jobs Report

The U.S. economy added 157,000 jobs in July, according to figures out from the Bureau of Labor Statistics this morning. Incorporating revisions for May and June, which increased employment by a net 59,000, monthly job gains have averaged a very healthy 224,000 the last three months.

The unemployment rate ticked down to 3.9 percent after edging up in June, reflecting more job seekers entering the labor market. Another 105,000 people joined the civilian-labor force in July, but that was nearly exactly matched by the increase in Americans reporting they’re not in the labor force.

White-collar professional firms added 51,000 jobs last month, continuing a strong run of employment gains. Manufacturers filled 37,000 jobs. Health-care providers hired 34,000 people.The financial industry and government were the only industries to lose jobs over the month.

Thursday, August 2, 2018

Will You Owe More in Taxes?

Despite the tax cuts that take effect this year, more than 30 million taxpayers could owe money to the government next year, according to a Government Accountability Office report based on a simulation run by the Treasury Department. Taxes for more than a fifth of Americans (21 percent) could be underwithheld, meaning that their employer hasn’t taken enough money out of their paychecks to cover taxes.

Had there been no change in the tax law, 18 percent would have been underwithheld. That’s 3 million fewer people. Six percent of taxpayers are expected to break even next year, and the remainder will get some sort of refund.

So why might more Americans owe taxes next year? The IRS and Treasury Department had “limited documentation” for how it updated the withholding tables, according to the GAO report. And employees in high-tax states - like New Jersey - may be affected by the new limitations on state and local tax deductions, which would increase their tax burden.

Wednesday, August 1, 2018

Apple's Massive Buybacks

Apple reported its earnings yesterday, and also noted that it had bought back $20.8 billion of its stock in the year’s second quarter. That’s down from its record $22.8 billion worth of buybacks in the first quarter, but still ranks as the second-largest ever among S&P 500 companies, according to S&P Dow Jones Indices.

Apple's first quarter repurchases made up the entirety of 12 percent of S&P 500 buybacks. Companies in the broad index bought back $189 billion in the first quarter, according to S&P Dow Jones Indices, and are on pace to be about flat in the second quarter.

If Apple hadn’t bought back its stock, the S&P 500′s total buybacks wouldn’t have set a new record high in the first quarter. Subtracting out Apple buybacks from all quarters would have left first quarter buybacks trailing the third quarter of 2007.