The U.S. economy slowed a bit more than initially thought in the second quarter, the Commerce Department reported yesterday. The strongest growth in consumer spending in four and a half years was offset by declining exports and a smaller inventory build.
Gross domestic product increased at a 2.0 percent annualized rate, the Commerce Department said in its second reading of second-quarter GDP, revised down from the 2.1 percent pace estimated last month. The economy grew at a 3.1 percent rate in the first quarter of this year. Altogether, it expanded 2.6 percent in the first half of the year.
The brightest spot in the second quarter: Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged at a 4.7 percent rate. That was the fastest since the fourth quarter of 2014 and was a slight upward revision from the 4.3 percent pace estimated last month.
Friday, August 30, 2019
Thursday, August 29, 2019
The Rich Aren't Spending
The rich have cut their spending on everything from homes to jewelry, leading some to wonder if the wealthiest Americans are beginning to fear a recession. From real estate and retail stores to classic cars and art, the weakest segment of the American economy right now is the very top.
Luxury real estate is having its worst year since the financial crisis, with Manhattan seeing six straight quarters of sales declines. According to Redfin, sales of homes priced at $1.5 million or more fell 5 percent in the U.S. in the second quarter.
Retailers to the 1 percent are faring the worst, with Barney’s filing for bankruptcy and Nordstrom posting three consecutive quarterly declines in revenue. At this month’s massive Pebble Beach car auctions, less than half of the cars offered for $1 million or more were able to sell. And in the first half of 2019, art auction sales were down for the first time in years. Sales at Sotheby’s dropped 10 percent, and Christie’s auction sales were down 22 percent from a year ago.
Luxury real estate is having its worst year since the financial crisis, with Manhattan seeing six straight quarters of sales declines. According to Redfin, sales of homes priced at $1.5 million or more fell 5 percent in the U.S. in the second quarter.
Retailers to the 1 percent are faring the worst, with Barney’s filing for bankruptcy and Nordstrom posting three consecutive quarterly declines in revenue. At this month’s massive Pebble Beach car auctions, less than half of the cars offered for $1 million or more were able to sell. And in the first half of 2019, art auction sales were down for the first time in years. Sales at Sotheby’s dropped 10 percent, and Christie’s auction sales were down 22 percent from a year ago.
Tuesday, August 27, 2019
A Lifetime of Jobs
How many jobs have you had in your life? According to a new report out from the Bureau of Labor Statistics, Americans born from 1957 to 1964 held an average of 12.3 jobs from ages 18 to 52. These baby boomers held an average of 5.7 jobs between the ages 18 and 24, or nearly one a year.
The average fell to 4.5 jobs from ages 25 to 34, to 2.9 jobs from ages 35 to 44, and to 1.9 jobs from ages 45 to 52. In other words, the trajectory was that as the worker gets older, he or she holds on to each job for significantly longer.
Although job duration tended to be longer the older a worker was when starting the job, these baby boomers continued to have large numbers of short-duration jobs. Among jobs started by 35- to 44-year-olds, 36 percent ended in less than a year, and 75 percent ended in fewer than five years.
Monday, August 26, 2019
Investors Are Getting Shaky
U.S. investor optimism sunk to the lowest level since the fourth quarter of 2016 following the market volatility seen at the start of this month, according to a new survey from Wells Fargo. Confidence among American investors weakened in the 12-month outlook for the stock market and U.S. employment.
The third quarter Wells Fargo/Gallup Investor and Retirement Optimism Index was down 13 points from 85 in the second quarter and far below the post-recession high of 117 reached in the fourth quarter of 2017. This was the largest quarterly drop for the index in over three years.
Investor optimism dropped this quarter across all four components of the index: investors’ 12-month outlook for the stock market, 12-month outlook for unemployment, optimism about unemployment, and inflation. The percentage of investors who said now was a good time to invest in the market fell to 59 percent this quarter from 65 percent in the prior quarter.
The third quarter Wells Fargo/Gallup Investor and Retirement Optimism Index was down 13 points from 85 in the second quarter and far below the post-recession high of 117 reached in the fourth quarter of 2017. This was the largest quarterly drop for the index in over three years.
Investor optimism dropped this quarter across all four components of the index: investors’ 12-month outlook for the stock market, 12-month outlook for unemployment, optimism about unemployment, and inflation. The percentage of investors who said now was a good time to invest in the market fell to 59 percent this quarter from 65 percent in the prior quarter.
Friday, August 23, 2019
Trouble in the Small Caps
Despite an overall solid year for the markets, the small-cap asset class remains a problem child. The Russell 2000 index, which tracks companies with a median market capitalization of $784 million, remains 13 percent below the record high it set last August.
What's more, companies in the index appear mired in an earnings recession. The small-cap sector's profits fell by double digits in the first quarter and look set to fall by 9 percent in the second, according to an analysis Bank of America.
On top of that, debt levels reached an all-time high for the Russell 2000 in the first quarter of 2019, according to an analysis by RBC. Some experts say that this rising debt is masking even an worse performance among small-cap companies than shown by the anemic 2019 earnings level.
What's more, companies in the index appear mired in an earnings recession. The small-cap sector's profits fell by double digits in the first quarter and look set to fall by 9 percent in the second, according to an analysis Bank of America.
On top of that, debt levels reached an all-time high for the Russell 2000 in the first quarter of 2019, according to an analysis by RBC. Some experts say that this rising debt is masking even an worse performance among small-cap companies than shown by the anemic 2019 earnings level.
Thursday, August 22, 2019
Retirement Millionaires
Here's some strong news from the world of retirement savings. According to Fidelity, the number of 401(k) and IRA millionaires hit a record high at the end of the second quarter.
The number of people with $1 million or more in their 401(k) increased to a record 196,000, up from 180,000 at the end of the first quarter. Meanwhile, the number of IRA millionaires increased to 179,700, also a record high and an increase from 168,100 in the previous quarter.
On top of that, employee savings rates hit a record high, after 32 percent of savers increased their contributions in the second quarter of this year. Now, the average employee contribution rate is 8.8 percent, which is nearly a full percentage point higher than a decade ago.
The number of people with $1 million or more in their 401(k) increased to a record 196,000, up from 180,000 at the end of the first quarter. Meanwhile, the number of IRA millionaires increased to 179,700, also a record high and an increase from 168,100 in the previous quarter.
On top of that, employee savings rates hit a record high, after 32 percent of savers increased their contributions in the second quarter of this year. Now, the average employee contribution rate is 8.8 percent, which is nearly a full percentage point higher than a decade ago.
Wednesday, August 21, 2019
America's Indebtedness Problem
Americans aren't paying off their credit card bills. U.S. credit card balances grew to $868 billion in the second quarter, from $848 billion in the previous three months. That's according to a new report from the Federal Reserve Bank of New York.
Even worse, the proportion of those balances seriously past due is on the rise. Payments on about 5.2 percent of those balances were 90 days overdue in the latest quarter, up from 5.0 percent in the first quarter. The figure has been increasing continuously since 2017.
Credit card debt is the only major area of indebtedness, though, where people are losing ground. Delinquency rates declined for auto loans, home equity lines of credit, mortgages and other debt categories.
Even worse, the proportion of those balances seriously past due is on the rise. Payments on about 5.2 percent of those balances were 90 days overdue in the latest quarter, up from 5.0 percent in the first quarter. The figure has been increasing continuously since 2017.
Credit card debt is the only major area of indebtedness, though, where people are losing ground. Delinquency rates declined for auto loans, home equity lines of credit, mortgages and other debt categories.
Tuesday, August 20, 2019
New Jersey's Dropping Unemployment Rate
Here's some more good news about our state: The Bureau of Labor Statistics reported that New Jersey's unemployment rate dropped by 0.7 percent from July 2018 to July, falling from 4.0 percent to 3.3 percent. That's the largest drop for any of the 50 states over the past year.
New Jersey's current unemployment rate is the lowest for the state since these figures were first compiled, back in 1976. We were also one of only six states that saw the jobless rate decline in July of this year.
All told, there are currently 4.202 million employed persons in New Jersey, according to the BLS. That's up from 4.154 million jobs in the state a year ago.
New Jersey's current unemployment rate is the lowest for the state since these figures were first compiled, back in 1976. We were also one of only six states that saw the jobless rate decline in July of this year.
All told, there are currently 4.202 million employed persons in New Jersey, according to the BLS. That's up from 4.154 million jobs in the state a year ago.
Monday, August 19, 2019
Mortgages Go Negative
The latest news from the world of falling interest rates: A bank in Denmark is offering borrowers mortgages at a negative interest rate. It's effectively paying its customers to borrow money for a house purchase.
Jyske Bank, Denmark's third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of minus 0.5 percent, meaning customers will pay back less than the amount they borrowed. If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.
Financial markets are in a volatile, uncertain spot right now, particularly in Europe. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.
Jyske Bank, Denmark's third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of minus 0.5 percent, meaning customers will pay back less than the amount they borrowed. If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.
Financial markets are in a volatile, uncertain spot right now, particularly in Europe. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.
Thursday, August 15, 2019
A Strong July for Retail
Some good news to offset the fear of the yield curve going inverted: U.S. consumers spent more at retail stores and restaurants in July, the Commerce Department said yesterday. Retail sales rose a healthy 0.7 percent last month, following a 0.3 percent gain in June. Online retailers, grocery stores, clothing retailers and electronics and appliance stores all reported strong gains.
Sales soared 2.8 percent at internet retailers, a gain that may have been tied to Amazon Prime Day and competing sales from rivals. But it wasn’t just internet retailers: Sales also rose sharply at department stores, restaurants and electronics outlets.
Some other risers: Grocery and beverage stores were up 4 percent year-over-year; general merchandise stores were up 2.1 percent; and furniture and home furnishings stores were up 2 percent.
Sales soared 2.8 percent at internet retailers, a gain that may have been tied to Amazon Prime Day and competing sales from rivals. But it wasn’t just internet retailers: Sales also rose sharply at department stores, restaurants and electronics outlets.
Some other risers: Grocery and beverage stores were up 4 percent year-over-year; general merchandise stores were up 2.1 percent; and furniture and home furnishings stores were up 2 percent.
That Scary Yield Curve
The infamous yield curve - the spread between the 2-year Treasury note yield and the 10-year -inverted yesterday morning for the first time in over a decade. This is widely considered a signal of an upcoming economic recession, but that doesn’t have to mean doom and gloom for stock investors.
The Dow had its biggest one-day drop of the year yesterday; it and the S&P 500 both fell by about 3 percent. But over the past few decades, an inversion hasn't always translated to a lasting selloff in equity markets.
On average, since 1978, the S&P 500 has returned 2.5 percent after a yield-curve inversion in the three months afterward. Over the longer term,13.48 percent a year after, 14.73 percent in the following two years, and 16.41 percent three years out, according to Dow Jones Market Data
The Dow had its biggest one-day drop of the year yesterday; it and the S&P 500 both fell by about 3 percent. But over the past few decades, an inversion hasn't always translated to a lasting selloff in equity markets.
On average, since 1978, the S&P 500 has returned 2.5 percent after a yield-curve inversion in the three months afterward. Over the longer term,13.48 percent a year after, 14.73 percent in the following two years, and 16.41 percent three years out, according to Dow Jones Market Data
Wednesday, August 14, 2019
What's Driving Inflation
Inflation continues to creep upward. The Labor Department said yesterday morning that the Consumer Price Index rose 0.3 percent last month, lifted by gains in the cost of energy products and a range of other goods.
In July, energy prices overall increased 1.3 percent after falling 2.3 percent the month before. The biggest driver came at the gas pump, where prices rebounded 2.5 percent after dropping 3.6 percent in June. Nevertheless, gas prices still remain 3.3 percent lower than a year ago.
Other costs contributed to the rise as well. Electricity rose 0.6 percent, while shelter costs increased 0.3 percent. Food prices were unchanged for a second straight month, and food consumed at home slipped 0.1 percent.
In July, energy prices overall increased 1.3 percent after falling 2.3 percent the month before. The biggest driver came at the gas pump, where prices rebounded 2.5 percent after dropping 3.6 percent in June. Nevertheless, gas prices still remain 3.3 percent lower than a year ago.
Other costs contributed to the rise as well. Electricity rose 0.6 percent, while shelter costs increased 0.3 percent. Food prices were unchanged for a second straight month, and food consumed at home slipped 0.1 percent.
Tuesday, August 13, 2019
The Bond Market's Warning
The moves in the bond market today shed some light about the state of the economy. The yield on the 10-year Treasury note fell 9.1 basis points to 1.640 percent. That's its lowest level since October 2016.
Remember, bond yields move inversely to their prices, so when demand for them goes up, the yield that they have to offer goes down. Increasing demand for safe assets like Treasurys could be indicating a flight to safety on the part of investors.
In addition, the spread between 2-year and 10-year Treasury yields narrowed to about only 5 basis points yesterday, near its lowest level since 2007. If the 10-year yield looks falls below the 2-year note yield, an inversion is typically a recession warning.
Remember, bond yields move inversely to their prices, so when demand for them goes up, the yield that they have to offer goes down. Increasing demand for safe assets like Treasurys could be indicating a flight to safety on the part of investors.
In addition, the spread between 2-year and 10-year Treasury yields narrowed to about only 5 basis points yesterday, near its lowest level since 2007. If the 10-year yield looks falls below the 2-year note yield, an inversion is typically a recession warning.
Monday, August 12, 2019
Retirement Confidence vs. Retirement Reality
How much money will you need for a comfortable retirement? On average, Americans believe they need $1.7 million to retire, according to a recent survey from Charles Schwab.
According to another study, this one by the Employee Benefit Research Institute, two-thirds of U.S. workers said they are very or somewhat confident they’ll be able to live comfortably throughout retirement. But confidence doesn't always comport with the reality of the situation.
The good news is that 401(k) balances are near all-time highs, and in the last decade, the average 401(k) retirement plan balance rose by 466 percent. At the same time, that balance is roughly $297,700 - well short of $1.7 million.
According to another study, this one by the Employee Benefit Research Institute, two-thirds of U.S. workers said they are very or somewhat confident they’ll be able to live comfortably throughout retirement. But confidence doesn't always comport with the reality of the situation.
The good news is that 401(k) balances are near all-time highs, and in the last decade, the average 401(k) retirement plan balance rose by 466 percent. At the same time, that balance is roughly $297,700 - well short of $1.7 million.
Friday, August 9, 2019
Boomers Take Care
Here's some comforting family news: Nine in 10 baby boomers who expect to be caregivers say they would be willing to make significant lifestyle changes in order to care for a family member or loved one. That's according to a new study from the Bankers Life Center for a Secure Retirement.
Study participants said they would be willing to do these things to provide care for a loved one:
The study also found that 45 percent of boomers believed they would need long-term care at some point, up from 36 percent in 2013. Sixty-six percent reported that they had had detailed conversations about how they wanted to receive long-term care, and 55 percent had had detailed conversations about how to pay for care.
Study participants said they would be willing to do these things to provide care for a loved one:
- Reduce spending: 66 percent
- Travel less: 41 percent
- Move to a new home: 27 percent
- Work less: 27 percent
- Stop working altogether: 19 percent
The study also found that 45 percent of boomers believed they would need long-term care at some point, up from 36 percent in 2013. Sixty-six percent reported that they had had detailed conversations about how they wanted to receive long-term care, and 55 percent had had detailed conversations about how to pay for care.
Thursday, August 8, 2019
Bankruptcy Takes Its Toll
Here's a sobering economic signal: In the first seven months of the year, U.S.-based companies announced 42,937 job cuts due to bankruptcy, according to a new report from outplacement and business coaching firm Challenger, Gray & Christmas. That's up 40 percent from the same period last year and nearly 20 percent higher than all bankruptcy-related job losses last year.
That is the highest seven-month total since 2009, when 50,258 cuts due to bankruptcy were announced. In fact, it is higher than the annual totals for bankruptcy cuts every year since 2009.
Companies cited bankruptcy as the reason for 11.6 percent of all job cuts announced from January to July. That’s compared to 11.3 percent of all cuts for the same period in 2018. Since 2007, bankruptcy has accounted for approximately 6 percent of all job cuts every year.
That is the highest seven-month total since 2009, when 50,258 cuts due to bankruptcy were announced. In fact, it is higher than the annual totals for bankruptcy cuts every year since 2009.
Companies cited bankruptcy as the reason for 11.6 percent of all job cuts announced from January to July. That’s compared to 11.3 percent of all cuts for the same period in 2018. Since 2007, bankruptcy has accounted for approximately 6 percent of all job cuts every year.
Wednesday, August 7, 2019
Investment Views of the Ultra-Wealthy
Some ultra-wealthy investors have begun trimming their stock positions a bit, according to the latest from TIGER 21. Short for The Investment Group for Enhanced Results in the 21st Century, that's a investment club of about 700 people with at least $10 million to invest.
Members of TIGER 21 reduced their stock allocation to 21 percent from 22 percent during the second quarter, according to the group’s quarterly report. These investors continue to maintain a 12 percent allocation in cash and cash equivalents.
What are they excited about? Real estate. TIGER 21 members have stepped up their investments in real estate for the first time in three quarters, with it now accounting for 28 percent of their holdings, up from 26 percent in the first quarter.
Members of TIGER 21 reduced their stock allocation to 21 percent from 22 percent during the second quarter, according to the group’s quarterly report. These investors continue to maintain a 12 percent allocation in cash and cash equivalents.
What are they excited about? Real estate. TIGER 21 members have stepped up their investments in real estate for the first time in three quarters, with it now accounting for 28 percent of their holdings, up from 26 percent in the first quarter.
Tuesday, August 6, 2019
The S&P's Rout
Worries about a looming trade war with China resulted in the worst day for the markets all year yesterday. The S&P 500 finished down by nearly 3 percent on the day—the biggest one-day drop for the index this year.
All 11 of the S&P's sectors declined, led by a 4.2 percent drop for the tech sector. The S&P 500 is now down 4.6 percent in the last five days, and is off 6 percent from its July 26 high.
The carnage was so thorough that only 11 stocks in the S&P 500 closed higher. Some of the more notable names in that group included Tyson Foods, Abiomed, and Newmont Goldcorp.
All 11 of the S&P's sectors declined, led by a 4.2 percent drop for the tech sector. The S&P 500 is now down 4.6 percent in the last five days, and is off 6 percent from its July 26 high.
The carnage was so thorough that only 11 stocks in the S&P 500 closed higher. Some of the more notable names in that group included Tyson Foods, Abiomed, and Newmont Goldcorp.
Monday, August 5, 2019
The Equifax Fallout
A while back, Equifax – the credit rating agency that was victimized by a data breach in 2017 – announced that everyone affected could get $125 as part of a settlement with the Federal Trade Commission. Let’s hope you didn’t spend that money, because last week, the FTC announced that, due to an overwhelming response, cash payments aren’t going to be anywhere near $125 each.
About 147 million people were affected by the Equifax breach, but only $31 million was set aside for payments as part of the $700 million settlement. For everyone to have gotten $125 from that pot, there would have to be only 248,000 claimants. While the FTC didn’t give a number, they said there were already “an enormous number of claims filed.”
The FTC is now recommending that you instead take four years of free credit monitoring and identity protection. This is available not only from Equifax but from its two fellow major credit bureaus, Experian and TransUnion.
About 147 million people were affected by the Equifax breach, but only $31 million was set aside for payments as part of the $700 million settlement. For everyone to have gotten $125 from that pot, there would have to be only 248,000 claimants. While the FTC didn’t give a number, they said there were already “an enormous number of claims filed.”
The FTC is now recommending that you instead take four years of free credit monitoring and identity protection. This is available not only from Equifax but from its two fellow major credit bureaus, Experian and TransUnion.
Friday, August 2, 2019
July's Jobs Report
The Labor Department reported this morning that the economy added 164,000 jobs during the month of July, which is almost exactly the average monthly gain for the year. The headline unemployment rate remained unchanged at 3.7 percent.
The bad news: Job gains for the two previous months were revised downward by a total of 41,000. Over the past three months, monthly job growth has averaged about 140,000 — down from 233,000 in the final three months of 2018.
On the other hand, an influx of 370,000 new workers to the labor force brought the labor participation rate up to 63 percent, its highest since March. The total labor force of 163.4 million Americans set a new record high.
The bad news: Job gains for the two previous months were revised downward by a total of 41,000. Over the past three months, monthly job growth has averaged about 140,000 — down from 233,000 in the final three months of 2018.
On the other hand, an influx of 370,000 new workers to the labor force brought the labor participation rate up to 63 percent, its highest since March. The total labor force of 163.4 million Americans set a new record high.
Thursday, August 1, 2019
What the Rate Cut Means
As expected, the Federal Reserve yesterday cut its benchmark interest rate by a quarter percentage point. But the stock the market didn't react well, apparently because Fed chair Jerome Powell refrained from suggesting further rate cuts were on the way.
Following the announcement, the Dow Jones Industrial Average closed down 1.2 percent, marking its biggest one-day fall since May 31. The S&P 500 dropped 1.1 percent.
On the other hand, history shows the market usually responds more positively to a rate cut. Since 1990, the S&P 500 has gained on average 0.16 percent on the day of a 25-basis-point cut. One month later, the S&P is an average of 0.57 percent higher.
Following the announcement, the Dow Jones Industrial Average closed down 1.2 percent, marking its biggest one-day fall since May 31. The S&P 500 dropped 1.1 percent.
On the other hand, history shows the market usually responds more positively to a rate cut. Since 1990, the S&P 500 has gained on average 0.16 percent on the day of a 25-basis-point cut. One month later, the S&P is an average of 0.57 percent higher.
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