- The Republicans in Congress are struggling to find unity. First, the party’s division and very vocal tea party members influenced the Speaker to not only resign, but to leave Congress itself. Although Congress has now passed a bill to keep funding the government until December 11th without an amendment defunding Planned Parenthood, this battle is far from over. In December, Congress will not only have to focus on funding the government, but also will need to address raising the debt ceiling. Do not plan on these issues going away. They will continue to hang over Congress, the election, and the economy.
- While many of the pundits are focusing on China's slowdown, they are at the same time making no mention of the growth in India that could offset China's woes. First, let's keep in mind that China’s growth is slowing, not declining. One can't keep growth expanding at over 7% forever. Common sense dictates that as you get larger it is harder to grow at the same percent. You can continue to grow and even though the percentage isn't as large, the bigger you get the more important any positive/negative growth becomes. India's GDP expanded by 7% in the first quarter and 2016 looks pretty rosy. When one door closes, another opens.
- The Jobs Report for September was much weaker than expected with only 142,000 jobs created versus the 203,000 predicted. On top of that, the August report, which was already weak, was revised downward. On the bright side, however, the unemployment rate held steady at 5.1%. What does all of this mean? First, we need to look at the areas of weakness and it probably comes as no surprise that it was in the energy and manufacturing sectors. These two industries are likely to continue to lag for the remainder of the year, but the manufacturing sector will likely recover ahead of energy. On the other side of the coin, health-related businesses and personal services were very strong and local government added about 24,000 jobs. We anticipate the third quarter GDP number to be weaker than the second quarter, but still positive. The fourth quarter should see a pick up and that will likely spill into 2016, which could be the best year since 2005, especially since the winter is expected to be milder than the last two years given the effects of El Nino.
- Several of the children of our clients are considering marriage but choosing to live together first, perhaps without any sure plans about marriage itself. We make no moral judgements about this type of an arrangement, but we do have a few suggestions from a financial standpoint. They will need to have a clear understanding of just how much each is willing to share with the other about how much they earn, the assets they own, and how much debt they have such as credit cards, student loans, or other obligations. Do they intend to open joint checking and/or savings accounts, buy a home together, open joint credit cards, etc.? How will expenses be shared for day to day living, vacations, nights out with friends, extraordinary expenses when they occur, cars, etc.? Each relationship is unique and there are not set answers. We encourage them to put in the hard work upfront to create a game plan for their new life.
- The Millennial Generation is considered to be those between the ages of 25 and 37. They graduated from college and/or started their career through the Great Recession. Life has been challenging for them during the past eight years and it is having a lingering effect in the form of long-term debt. According to data from the National Financial Capability Study and researched by Annamaria Lusardi, the Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business, 66% of millennials carry at least one long-term debt and 33% carry two or more. This comes in the form of car loans, student loans, or perhaps a mortgage. Further, over 50% carry a balance on their credit cards from month to month and 22% have paid late fees. They are worried about this debt and even those (34%) with incomes of about $75,000 are not sure they will be able to pay off the debts they have accumulated. Approximately 29% have overdrawn their bank account at one time and 22% have either taken a loan or requested a hardship withdrawal from their 401k plan in order to help with the debt. This probably will not come as a surprise to their parents, but it should be sobering for Millennials themselves as they believe they have significant financial literacy, but according to this research only 8% were capable of correctly answering five basic questions about money. All of this has significant implications going forward. For the Millennials, it will not only slow their savings for retirement, but will affect the age at which they marry, buy a home, have children, etc. For the parents, they may be asked to help pay down, or possibly pay off this debt, which could affect their own retirement.
- There is a lot of speculation and commentary concerning the September jobs number. After all, when you are expecting 200,000 new jobs and you only get 142,000 and that was on top of weak numbers in both July and August, there may be at least a caution light ahead. A caution light, yes, but nothing close to a red light. For the final three months of summer the economy averaged 163,000 jobs per month which translates into almost 500,000 people working today that were not working on July 1st. This is good, not bad. Jobless claims the week before last were only 263,000 which is the lowest since July and remains close to the record set in the 70s when there were far less people in the US. Unemployment remains at 5.1% which we think is healthy as a lower number would likely lead to wage inflation. There also may be another element at work. With the entire job gains of the past few years there are obviously less unemployed and therefore with a smaller labor pool, the new jobs number might be smaller than the past. None of these signs indicate a recession.
- For the third time in five years, there will be no Social Security cost-of-living increase in Social Security benefits come next January. The first increases started in 1975 and have averaged 4% per year since that time in spite of recent history. There is definitely a bit of irony in all of this. Many prices, especially health care and health insurance costs have risen significantly this past year, but those increases have been virtually offset by lower energy and gasoline costs. This will affect about 20% of the American population including retirees, those receiving Social Security disability benefits, federal retirees, disabled vets, some children under age 18, and those who get Supplemental Security Income. All of this comes at the same time that Medicare costs are rising at both the premium and deductible levels, in addition to costs of the prescription drug program.
- Have you been to our new website yet? It is all new and we continue to add content. One of the services that we provide through the website is ClientView. Once you have opened your personal portal you can view your quarterly reports for the prior rolling year. You also can ask us to store tax and/or legal documents such as 1099s, trusts, wills, passports, health care forms, etc. on the website so they can be viewed at anytime from anywhere. Please contact us if you would like to receive your personal login ID and temporary password to access the site. If you would like to stop receiving paper copies of your quarterly report and just view them via the secure website, we will be glad to assist you.
- You can follow us on twitter by going to twitter.com and follow us at @pro_vise. We will use twitter to supplement the Bullets as the news warrants. We look forward to providing this valuable service.
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 29 years.
RAY, ERIC, KIM, BRUCE, LOU, NANCY, TINA, JON, STEVE, DOROTHY and PAUL
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