Taxes in New Jersey

Now that you've made it through Tax Day, here's a sobering fact to keep in mind: Residents of New Jersey pay the fifth-most federal taxes among the 50 states. The average American adult pays $6,151 per year in federal taxes, but filers here in New Jersey pay $8,835.

The average income per capita in the Garden State is $53,534, which means that the average adult has a tax liability of 16.5 percent. It's slightly worse in New York, where the average adult pays $8,850, for an average tax liability of 17.4 percent.

But that's not the worst in the nation. That distinction belongs to the state of Connecticut, with an average payment of $10,861 and an average tax liability of 18 percent.

Companies and Their Cash

American companies are awash in cash: S&P 500 companies, excluding financials, had $2.39 trillion in cash and investments in 2017, according to JPMorgan Chase & Co. researchers. That’s up from $2.2 trillion in 2016 and $1.75 trillion in 2010.

What are they going to do with all that cash? A lot of it could go towards stock buybacks, as companies figure out what to do with their fatter profits and bring back overseas money as a result of the recent tax-code overhaul. That would be good news for a market that has struggled to break even this year.

Based on the amount of buybacks already announced this year by S&P 500 companies, JPMorgan analysts project roughly $800 billion in total buybacks in 2018. That would be up significantly from $530 billion last year.

Retail Bounces Back Strong in March

U.S. retail sales rebounded in March after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items, suggesting consumer spending was heading into the second quarter with some momentum. The Commerce Department said yesterday that retail sales increased 0.6 percent last month after an 0.1 percent dip in February.

The biggest winners: Auto dealers posted their best month since last September, with sales rising 2 percent. Sales fell 0.3 percent at gas stations, but they were up 9.7 percent from March 2017.

Sales also rose at grocery stores, restaurants and bars, and drug stores. They fell at home and garden stores, clothing shops and sporting goods stores.

Tax Day Facts

Some numbers to keep in mind on this Tax Day:

• $1.72 trillion: The amount the IRS expects to collect this year
• $406 billion: The gap between what the IRS estimates people owe and what they collect
• 155 million: The number of returns Americans are expected to file
• 70 percent: The number of filers who get a refund
• $2,925: The average amount of that refund
• 8.1 billion hours: The amount of time Americans spend working on taxes
• 1.1 million: Number of tax returns audited by the IRS each year
• 0.6 percent: The chances that you personally will be audited

Hints of Inflation

At their meeting last month, Federal Reserve policy makers said they’re increasingly confident inflation will rise to their 2 percent target. That's according to the minutes from the March 20-21 meeting that came out this week, which highlight just how much Fed officials’ outlook has changed since last fall, when surprisingly slow inflation raised questions about the need for continued rate increases.

In some senses, we're already there. During the first quarter of this year, consumer prices rose at an annual rate of 2.5 percent, while core prices (which exclude volatile food and energy) climbed at a rate of 2.9 percent.

The Fed’s preferred inflation gauge, the personal consumption expenditure price index, tends to run a little cooler than CPI; it was at 1.8 percent at its least reading in February. But the trend is clear: Underlying inflation is picking up.

Cash Is on Top - for Now

A new study out from Pension Partners LLC points out that the best place for investors to be in the first quarter of this year was cash. Both bonds and stocks declined over the first three months, which means  that three-month Treasury bills outperformed both U.S. equities and long-dated Treasury bonds, returning 0.3 percent.

The fear among investors is that this trend will continue, but historically, it is relatively rare for cash to outperform both bonds and stocks. Pension Partners analyzed annual returns of the S&P 500, 10-year Treasury notes and three-month Treasury bill going back to 1928. Over that stretch, there were only 12 calendar years in which cash was the top performer.

And in longer time frames than a year, there are basically no scenarios in which cash is the optimal investment choice. Pension Partners notes that as investors increased their holding period from 1 year to 30 years, the odds of cash being king declines from 13 percent to 0 percent.

Small Business Sentiment Pulls Back

After hitting multi-decade highs in February, optimism on the part of small businesses pulled back a fair amount in March.  The month-over-month decline of 2.9 points was the largest drop since 2015.

That's the bad news. The good news is that, even with this month’s decline, sentiment on the part of small businesses remains positive and is well above the historical average reading of 96.6. 

Small business owners do report having an increasingly difficult time filling jobs. “Owners complain at record rates of labor quality issues,” the National Federation of Independent Businesses said, “with 89 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions.” Meanwhile, the number of respondents saying they are increasing worker compensation rose to its highest level since 2000.