How Satisfied are Your Clients With the Economy?

Aug 1st 2018
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These are rosier days for many Americans albeit with a few thorns in the mix, according to the AICPA's second quarter Personal Financial Satisfaction Index (PFSi).

How long it’ll last is the question, National Public Radio (NPR) reported last week. Most economists think the pace will be unsustainable but that’s worth watching, according to NPR.

The trade deficit may be getting too much attention but the economy is doing well. But a drop in inventories took away from growth, which will force businesses to catch up in the second half of the year.

“Boosted by a 4-percent jump in consumer spending and a 13.3 percent surge in goods exports in the second quarter, the economy expanded at its fastest pace since the 4.9-percent rate of the third quarter of 2014,” according to NPR’s website article.

“What we’re seeing in the Trump economy is wages going up for the first time in a long time,” Peter Navarro, the top trade advisor to the president, told NPR Friday before the GDP report was released. “We’re seeing unemployment go down to levels we haven’t seen since the 1990s. This is a strong economy. This president’s economic policies are succeeding, and trade is a big part of that.”

However, most economists say such a strong growth rate is unlikely to last.

“Just about all economists say the biggest wildcard is the ongoing trade fight with China and other major trading partners,” NPR reports on its website. “If that escalates and disrupts supply chains and damages exports further, they say all bets are off on whether the economy will be growing at all or sliding toward a recession.”

Still, the AICPA notes that Americans’ financial satisfaction is at an all-time high of 27.7, with job openings and the market index at record highs. That’s tempered, though, by strong concerns about inflation – now considered the leading contributor to financial pain.

See this link for the personal satisfaction results for 2017 and the first two quarters of 2018.

The Pleasure index tmeasures 72.2 and had a 4 percent rise over Q1. Here’s how the AICPA calculates the difference between the pleasure and pain indices. The Personal Financial Satisfaction Index is a measure of both.

The overall PFSi is 27.7. The financial pleasure index is at a record 72.2. The pain index increased a bit from the first quarter to 44.5. So, subtract the two and you get 27.7, an AICPA spokesperson said in a statement.

In May, the most American workers in 17 years quit their jobs, according to the Los Angeles Times. That boost indicated that people apparently were more confident in finding another job elsewhere, perhaps with pay increases, the Times reported.

Though businesses advertised fewer jobs in May than the previous month, the tally of open positions still outnumbered the ranks of the unemployed for the second time in the last two decades, according to information from the Labor Department used in the Times article. According to the AICPA, job openings rose 11 percent over the first quarter, a record high of 76 with almost 6.7 million jobs available in April.

Those job increases were in professional and business services, trade, transportation, warehousing, utilities and several other industries. Pre-retirees, however, should heed caution, says Kelley Long, CPA/PFS, member of the AICPA’s Consumer Financial Education Advocates, in a prepared statement.

“Now is a great time to rebalance your portfolio to ensure you have adequate cash set aside, so that when the market does inevitably take a downturn, your retirement plans aren’t affected,” she states.

Overall, “this positive reading indicates that the average American should be feeling a strong sense of financial well-being,” according to the AICPA.

Still, here are the “pricklies”:

  • Inflation rose to a six-year high, according to the Wall Street Journal
  • higher than the drop in the index’s other “pain factors.” Inflation now is the leading contributor to financial pain for the first time over the prior eight consecutive quarters, the AICPA finds.
  • The second quarter also reflects the impact of the new Tax Cuts and Jobs Act, approved in December 2017. The “pain factor” of taxes dropped less than a percent (0.9 percent) before the law was passed. The AICPA notes that income tax information is gleaned from the Bureau of Labor Statistics information, tax on realized capital gains and on personal property.
  • The PFS750 Market Index (the AICPA’s proprietary stock index comprised of the 750 largest companies trading on the U.S. stock market adjusted for inflation and per capita that the organization considers the leading contributor to the pleasure index and the PFSi overall) is at record highs.
  • In the second quarter, information technology led in performance, followed by consumer discretionary and health care. Real estate and telecom saw losses, according to the AICPA. Small-cap and real estate investment trusts, which see less exposure to global trends and trade risk, got a particular boost, according to Fidelity Investments, which considered the third-quarter results as a “mixed bag.”

“The rising US dollar provided a headwind for non-U.S. assets, and emerging-market (EM) equities suffered the biggest losses,” Fidelity reports. “U.S. interest rates and corporate spreads ticked up modestly, resulting in weak returns across most bond categories. The rising dollar and receding dollar liquidity proved particularly detrimental for the most vulnerable EM countries with large and rising current account deficits and foreign financing needs.”

Overall, the question is sustainability, according to NPR. A surprising drop in inventories detracted from growth but businesses can catch up in the second half of 2018, NPR reported. Still, the market remains “extremely volatile” in the second quarter.

The outlook of CPA executives, meanwhile, indicates that they expect a 3.3 percent drop below the prior quarter. CPAs were the most optimistic in the South but decreased elsewhere. The Northeast posted the largest decline.

The Real Home Equity per Capita Index is still 13.2 percent below its 2006 all-time high just prior to the housing boom that year. That change is credited to an increase in real estate market values exceeding increases in outstanding mortgages, according to the AICPA.

Delinquent mortgages are well below the 11.26 percent in spring 2010, just after the so-called Great Recession ended but above the 2.12 percent delinquencies between 1994 and 2003 in the lead-up to the housing boom.

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