Finances generally appear rosier than ever for Americans, thanks to significant gains in the stock market and a decline in underemployment even as inflation gained, according to the American Institute of CPAs’ latest Personal Financial Satisfaction Index (PFSI).
“Americans should continue to reassess their personal risk tolerance, and work with their financial advisers to determine how best to approach investment decisions in 2018,” said David Cherill, CPA, member of the AICPA Personal Financial Planning Executive Committee, in a prepared statement. “Many of my clients have more confidence than ever in the market, while others are scared to death and have already taken considerable gains off the table. The potential for volatility remains, but this market has thus far been immune to many of the factors that have resulted in large swings in the past.”
The 2017 fourth-quarter results show that Americans’ financial satisfaction is at the highest level since the AICPA’s index launched 24 years ago.
However, there are a few caveats in the index. While the PFS 750 Market Index set a record high for the fourth consecutive quarter, personal taxes have remained the most painful financial issue for seven consecutive quarters. Further, how the new tax law will affect Americans isn’t reflected in the fourth quarter information — and its impact will be a key issue this year.
“The impact of the new tax law on individuals remains to be seen,” said Lisa Featherngill, CPA/PFS, member of the AICPA Personal Financial Planning Executive Committee, in a prepared statement. “Americans should monitor their tax situation closely this year as the withholding tables are changing and could result in underwithholding of taxes.”
According to the AICPA, the fourth quarter index is calculated as the pleasure index minus the pain index, with readings of more than zero an indication of more pleasure than pain. So, the fourth quarter index measured 26.9, a 1.2-point increase from the third quarter. That increase is based on a 1.3-point gain in the pleasure index compared to a 0.1-point rise in the pain index. Note: Some results in the index rely on October and November statistics.
Here’s how the individual components of the index loo, according to the AICPA:
- The Personal Financial Pleasure Index is at 69.2, up 1.3 points from the third quarter.
- The Personal Financial Pain Index is at 42.3, down 12.1 percent from the prior year but 0.2 percent higher than the third quarter. That’s because of a 14.1 percent increase in the Inflation Index overcoming the combined declines of the three other factors that make up the Pain Index, particularly a 8 percent drop in underemployment.
- The PFS 750 Market Index is up 5.2 percent. That coincides with records set by the S&P 500, Nasdaq and Dow indexes. The 750 Market Index is 15.7 percent higher than the fourth quarter of 2016. The strongest sectors in the 2017 fourth quarter were the consumer discretionary sector and technology.
- Job Openings per Capita dropped 3 percent from the third quarter, the first decline since the 2016 fourth quarter index. Growth in food services, construction, and real estate and leasing was outweighed by job decreases in wholesale trade, finance, and insurance and information. Overall, job openings set a third-quarter record at 6.2 million before dropping to 6 million in the fourth quarter.
- Personal taxes rose 1.5 percent in pain from a year earlier and decreased 0.9 percent from the third quarter of 2017. The tax sector is based on information from the Bureau of Labor Statistics on income tax, net capital gains tax and personal property tax.
- The Real Home Equity per Capita Index, though up slightly, is still 15.2 percent below its 2006 all-time high during the real estate market boom prior to the financial crisis of late 2007 to 2009.
- The AICPA CPA Outlook Index, which reflects how CPAs view the year ahead for their practices and the U.S. economy, rose 3.5 percent from the third quarter.
- The inflation ranking, which the AICPA believes is the most volatile factor of the overall index, is 39 — an increase of 14.1 percent from the third quarter but 18.4 percent down from 2016’s fourth quarter.
- Loan delinquencies, at 17.6 percent, are lower than in 2016 and 1.9 percent less than the third quarter. Most of the improvements reflect mortgage delinquencies. According to the AICPA, the current mortgage delinquency rate of 3.62 percent is far less than the peak of 11.26 percent in the spring of 2010 but still higher than the 2.12 percent that was typical from 1994 through 2003.
- Underemployment, at 36 points, is 16.1 percent lower year over year and 8 percent lower than the third quarter. It’s peak was 84.3 in the fourth quarter of 2009 during the so-called Great Recession. Unemployment dropped in almost all industrial sectors in 2017, particularly in mining, quarrying, oil and gas extraction, and agriculture. However, transportation, utilities and information showed increases.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.