Category Archives: News

What Will 3D Printers Mean to Investing and Business?

In the first book of the Bible in Genesis we read a full account of God creating heavens and earth, all out of nothing (Genesis 1:1). From the first substances, God created everything else (Genesis 1:2-31). God created man and women in his image, and endowed them with amazing creative abilities. Technology has helped us expand our creativity, with 3D printers coming on the scene, the time from conception of an idea to the creation of an object, is now quicker than ever. This technology evolution will change they way we think, live, and invest, and will affect the business world in rapid ways. Change always brings challenges and opportunities.

Taking a reflective walk down memory lane about 3D printers, I find that it’s a short walk from my dentist to my laptop.  Several years, ago I had a cap glued onto a molar. It was created from several pictures relayed to a 3D laser that cast a duplicate of the missing top of my tooth from a raw piece of ceramic. This year I had it done again. With increasing frequency I’ve read articles about 3D printers and the amazing things they can do.

What really caught my eye lately is what Jay Leno is up to. No, not the fact that he was retiring from the Tonight Show, but what he was doing with car parts. This is boring to most people but not to me since I’m a car guy. Jay has several pieces of equipment, including a 3D part printer, a 3D scanner, and various computers, so that he can create parts right in his garage from raw blocks of material. I stumbled across the Popular Mechanics article. If you don’t know already, Jay has an amazing collection of cars; some are very rare, such as several steam-powered machines. Finding parts can be hard and it can take forever and cost a lot; even if you find them, they don’t always arrive in great condition. Jay solved this problem by being able to create them from scratch.

A few months ago the Wall Street Journal had an article about printers that could print candy, and Hershey’s was looking into them. I tweeted that the day will arrive in many of our lifetimes when we own food replicators in our home, much as we have Keurig coffee machines today. Previously they were science fantasy first seen on Star Trek’s Next Generation series in 1987.

Last month I walked into my local computer store, MicroCenter, and they had three 3D printers buzzing away creating trinkets and toys from blocks of plastic. For about $1,000 you can buy one and take it home.  You can design something on your computer, such as your invention for a better mouse-trap, or a gift for your children, and before you know it you are watching it being created in front of your eyes. It is quite interesting to view the machine work through the clear plastic printer case.

In the coming years, 3D printers could be as huge and common as personal computers, cell phones, home printers and microwave ovens are today. What this will mean to manufacturing, to the company you work for, and to your investment portfolio, no one knows. But I predict that it will be huge–big in terms of profits, shifting wealth, unemployment, individual investment growth (and losses), and entrepreneurship. Hold on to your rocket Boy Elroy; we will be in for quite a ride when this technology hits main stream. If you are interested to know more, check out the video at Motley Fool titled “The End of ‘Made-in-China’ Era. It is a little bit of hype but well done. Caution–be careful if you are thinking of investing in this industry; picking winners and losers is difficult, just as it was when the dot.com world was white-hot.

Weekending Financial Scorecard

Here’s the most important financial data that you need to know to be fairly well informed. Each week I post the weekending scorecard of data for 8 financial markets and 10 economic indicators. As of 4/26/2013:

The week stocks, crude oil futures, and gold came up a little, while interest rates slid some. US Recession Watch*  We are enjoying a sluggish recovery, led by low jobs and income growth. There are several things to be positive about, such as slightly good manufacturing output, a little uptick in consumer spending vs last year, and better sales in real estate and automotive. On the negative side GDP increased only 0.1% last quarter and we still have a high Federal deficit and debt and unproductive Federal government to pass a balanced budget.

  • Mortgage Rates  DECREASE: 30-year last/this week: 3.51%/3.47%, 15-year 2.74%/2.71%
  • Dow Jones Industrial Average INCREASE from 14,547 to 14,712
  • S&P 500 INCREASE from 1555 to 1582
  • US Treasury’s DECREASE: 2-Year Note from .234% to .233%, 10-Year Note from 1.720% to 1.668%
  • Crude Oil Futures INCREASE from $88.70 to $92.78
  • Gold prices INCREASE from $1435 to $1,462 (High $1,895 9/6/11) per ounce
  • Euro DECREASE from 1.3048 to 1.3028 (all time 1.59 7/2008)
  • US Dollar Index DECREASE from $82.78 to $82.47

RECESSION WATCH SCORECARD: *

FINANCIALS:* 4 NEGATIVE vs 3 POSITIVE 🙁

  • Gross Domestic Product (GDP) – Negative, real GDP had a small increase of  0.1% in the fourth quarter of 2012. The economy grew 2.2% in 2012 up from 1.8% in 2012. We really need to see GDP in the 4% – 6% range to fuel an economic recovery. From 1947 – 2012 it has averaged 3.23.
  • Manufacturing output – Positive, for the first time since the first part of last year, we are starting to see some positive change in US manufacturing output. This is a good indication of how industry is doing; it was modestly increasing a year ago, leading to some guarded optimism, but for the balance of 2012 it decreased.
  • US Consumer Spending – Positive, is currently at 88 compared to 72 one year ago. Generally overall the past 12 months has not been strong, holiday spending was down; however, this year we are definitely seeing an uptrend. Economists watch consumers’ spending trends to try to track their confidence in the economy. The more confidence consumers have, the more willing they are to spend money.
  • US Household Debt Service – Positive, as a percentage of people’s disposable income is at 10.69% (June) and has been steadily decreasing from its 10 year high of about 14% in the 3rd quarter of 2008. We are keeping a watchful eye on this number, since early indicators are showing an uptick in consumer debt.
  • The Federal Deficit – Negative, is projected by the Congressional Budget Office to be $1.1 trillion for 2013; this will make 5 years in a row it has exceeded $1 trillion, and this doesn’t include all the money our Federal government borrows.
  • The US National debt – Negative, exceeds $16.7 trillion.
  • Consumer Price Index – Negative, U.S. consumer prices jumped by 0.7 percent in February, the largest increase since June 2009 due to the increase in gasoline costs last month. Annualized growth rate through December for the CPI in 2012 was 1.70%, compared to 3.0% in 2011. The long-term average annualized rate of 3.63%. The CPI is the most common indicator of inflation.

JOBS: 1 POSITIVE, 1 NEGATIVE 😐

  • Monthly change in non-farm payrolls – Negative: Just 88,000 jobs were added in March, compared to 236,000 added in February, 157,000 in January, and 155,000 added in December.
  • Unemployment – Positive: Marches rate of 7.6% is a four year low, compared to February’s rate of 7.7%, and December’s 7.9%. This is better than some months in 2012 of over 8% – showing a little improvement. However, keep in mind this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.
  • Initial Jobless Claims for Unemployment Insurance – Neutral: The four week average was hovering around 340,000 but is now back in the 350,000’s. Looking back 52 weeks it averaged about 370,000,  we are seeing a slight improvement in this number. This number is much better than it was in 2009 when it peaked at over 650,000, better than 2010 when it went from nearly 500,000 to the the low 400,000′s and for 2011 when claims were in the low to mid 400,000′s. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

*For an overview of GDP, Unemployment and Recession indicators, see previous article A primer on recession indicators, Gross Domestic Product and Unemployment.

Weekly Financial Scorecard

Here’s the most important financial data that you need to know to be fairly well informed. Each week I post the weekending scorecard of data for 8 financial markets and 10 economic indicators. As of 4/19/2013:

The week was bumpy in stocks, crude oil futures came down quite a bit, as did gold and other metals, as fears of inflation eased, and lower estimates of economic growth in China. US Recession Watch*  We are enjoying a sluggish recovery, led by low jobs and income growth. There are several things to be positive about, such as slightly good manufacturing output, a little uptick in consumer spending vs last year, and better sales in real estate and automotive. On the negative side GDP increased only 0.1% last quarter and we still have a high Federal deficit and debt and unproductive Federal government to put forth a balanced budget.

  • Mortgage Rates DECREASE: 30-year last/this week: 3.54%/3.51%, 15-year 2.78%/2.74%
  • Dow Jones Industrial Average DECREASE from 14,865 to 14,547
  • S&P 500 DECREASE from 1588 to 1555
  • US Treasury’s MIXED: 2-Year Note from .266% to .234%, 10-Year Note from 1.697% to .,720%
  • Crude Oil Futures DECREASE from $90.95 to 88.70
  • Gold prices DECREASE from $1485 to $1435 (High $1,895 9/6/11) per ounce
  • Euro DECREASE from 1.3115 to 1.3048 (all time 1.59 7/2008)
  • US Dollar Index INCREASE from $82.29 to $82.78

RECESSION WATCH SCORECARD: *

FINANCIALS:* 4 NEGATIVE vs 3 POSITIVE 🙁

  • Gross Domestic Product (GDP) – Negative, real GDP had a small increase of  0.1% in the fourth quarter of 2012. The economy grew 2.2% in 2012 up from 1.8% in 2012. We really need to see GDP in the 4% – 6% range to fuel an economic recovery. From 1947 – 2012 it has averaged 3.23.
  • Manufacturing output – Positive, for the first time since the first part of last year, we are starting to see some positive change in US manufacturing output. This is a good indication of how industry is doing; it was modestly increasing a year ago, leading to some guarded optimism, but for the balance of 2012 it decreased.
  • US Consumer Spending – Positive, is currently at 79 compared to 76 one year ago. Generally overall the past 12 months has not been strong, holiday spending was down; however, this year we are definitely seeing an uptrend. Economists watch consumers’ spending trends to try to track their confidence in the economy. The more confidence consumers have, the more willing they are to spend money.
  • US Household Debt Service – Positive, as a percentage of people’s disposable income is at 10.69% (June) and has been steadily decreasing from its 10 year high of about 14% in the 3rd quarter of 2008. We are keeping a watchful eye on this number, since early indicators are showing an uptick in consumer debt.
  • The Federal Deficit – Negative, is projected by the Congressional Budget Office to be $1.1 trillion for 2013; this will make 5 years in a row it has exceeded $1 trillion, and this doesn’t include all the money our Federal government borrows.
  • The US National debt – Negative, exceeds $16.7 trillion.
  • Consumer Price Index – Negative, U.S. consumer prices jumped by 0.7 percent in February, the largest increase since June 2009 due to the increase in gasoline costs last month. Annualized growth rate through December for the CPI in 2012 was 1.70%, compared to 3.0% in 2011. The long-term average annualized rate of 3.63%. The CPI is the most common indicator of inflation.

JOBS: 1 POSITIVE, 1 NEGATIVE 😐

  • Monthly change in non-farm payrolls – Negative: Just 88,000 jobs were added in March, compared to 236,000 added in February, 157,000 in January, and 155,000 added in December.
  • Unemployment – Positive: Marches rate of 7.6% is a four year low, compared to February’s rate of 7.7%, and December’s 7.9%. This is better than some months in 2012 of over 8% – showing a little improvement. However, keep in mind this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.
  • Initial Jobless Claims for Unemployment Insurance – Neutral: The four week average was hovering around 340,000 but is now back in the 350,000’s. Looking back 52 weeks it averaged about 370,000,  we are seeing a slight improvement in this number. This number is much better than it was in 2009 when it peaked at over 650,000, better than 2010 when it went from nearly 500,000 to the the low 400,000′s and for 2011 when claims were in the low to mid 400,000′s. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

*For an overview of GDP, Unemployment and Recession indicators, see previous article A primer on recession indicators, Gross Domestic Product and Unemployment.

Unemployment Numbers Update, December

Unemployment, New Jobs, and Jobless Claims Statistics*

  • Monthly change in non-farm payrolls – Flat: 155,000 new jobs were added in December, compared to 146,000 added in November, and 171,000 in October.
  • Unemployment – Flat: December’s rate of 7.8 matched the revised November rate of 7.8% (previously estimated to be 7.7% – which would have been the lowest since December 2008). This is better than some 2012 months over 8% – showing very little improvement. However, keep in mind this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.
  • Initial Jobless Claims for Unemployment Insurance – Positive: The four week rolling average, remained the same at 360,000 as last week. Looking back 52 weeks, the four week rolling average, averaged about 374,750, so we are seeing slight improvement. This number is much better than it was in 2009 when it peaked at over 650,000, better than 2010 when it went from nearly 500,000 to the the low 400,000′s and for 2011 when claims were in the low to mid 400,000′s. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

*Unemployment statistics are an important indicator of how our economy is doing; more people employed points to stronger business growth and to fewer people receiving government entitlements. However, this is a little difficult to track, since the government doesn’t really publish a combined statistic that truly indicates what is happening. Most people who study this issue follow these three indicators: percentage of people unemployed, monthly change in non-farm payrolls, and jobless claims for unemployment insurance. The most discussed statistic is the unemployment rate; reading the explanation above illustrates how this number falls short.

The Fiscal Cliff Deal, Winners and Losers & What It Means To Your Personal Finances

The showdown in Washington over Federal taxes and spending ended with an agreement signed into law this week. Here are the losers and winners that we can see at this point. Further analysis is forthcoming of H.R.8 – American Taxpayer Relief Act of 2012, and will be reported to you later this month.

Winners

  1. Overall Taxes: Joint filers with incomes below $450,00, individuals with incomes below $400,000 and heads-of-households with incomes below $425,000 WILL CONTINUE to enjoy tax reductions put in place by George W. Bush.
  2. Alternative Minimum Tax: Tax payers with incomes below $50,600 (individuals) and $78,750 (married couples filing jointly) respectively, WILL NOT be faced with the Alternative Minimum Tax (AMT). It was set to go to $33,750 (individuals) and $45,000 (married couples filing jointly). This will be indexed for inflation.
  3. Unemployment Benefit Recipients WILL have benefits EXTENDED this year.
  4. Entitlement Recipients of things like Social Security, Medicare and Medicaid WILL NOT face reductions, however expect battles over this one in the coming year, and changes affected by Obama Care, as the economy continues to struggle and deficits increase.
  5. Investors owning stocks that pay dividends, or the long-term sales of stock WILL NOT face increased tax on dividends and capital gains if their income is below the above amount.
  6. Itemizers: Tax filers with incomes below $250,000, heads of households below $275,000 or married joint filers below $300,000, WILL CONTINUE to enjoy the same itemized tax deductions for things like home mortgage interest and contributions to charities.
  7. Politicians benefit by not having to reduce spending for entitlements or cut back on special deals made to specific industries, thus enabling them to continue to receive political support from those groups and entities – in the short run.
  8. Pork Recipients: About $70 billion worth of special tax breaks were written into the bill.

Losers

  • Employees: Anyone paying federal payroll taxes will see an INCREASE in the amount withheld from their paychecks from 4.2%  to 6.2%. If you make $50,000 expect your pay to decrease by 2% or approximately $1,000 for the year, or about $83 per month. This restoration of a tax holiday was inevitable to pay for current and future Social Security and Medicare benefits.
  • Self-employed people will see an INCREASE in their payroll tax from 8.4% to 12.4%, or an increase of about $2,000 if making $50,000.
  • High Incomes Earners with incomes above $450,000 will see an INCREASE in their top tax rate to 39.60% from 35% (individuals with incomes above $400,000 and heads-of-households with incomes above $425,000).
  • High Income Investors owning stocks that pay dividends, or those that sell stock (held long-term), will face INCREASED tax on dividends and capital gains to 20% from 15%, if their incomes exceed the levels described above.
  • Large Estates: Individuals dying with estates in excess of $5 million will see the tax on their estates INCREASE from 35% to 40%.
  • Alternative Minimum Tax (AMT) Payers: Tax payers with incomes above $50,600 (individuals) and $78,750 (married couples filing jointly) respectively, will CONTINUE to be faced with the Alternative Minimum Tax (AMT). Many have hoped to see the AMT go away completely, or income minimums increased substantially.
  • High Income Itemizers: Provisions of the Bill will REDUCE itemized deductions such as mortgage interest and charitable contributions to those with incomes $250,000 and above, $275,000 for heads-of-households or married joint filers above $300,000.
  • Those served by charities: Anyone who benefits from not-for profit enterprises that rely on charitable contributions, may see less benefits being provided to them, or increased costs.  This is due to some limits now being placed on tax deductions given for contributions made to these institutions, from higher income people. Charities and non-profits may be faced with shrinking budgets due to lower contributions.
  • Charities MAY LOSE income due to the reduction of itemized tax deductions for high income donors.
  • Politicians on the right may LOSE political clout, since they relinquished some of their goals for reduced spending. Politicians on the left may LOSE political clout in the long-term, if the the economy fails to recover or we go through another recession. Most US citizens overall opinion of all political leaders continues to decline amidst poor leadership.
  • All US Citizens and succeeding generations will suffer from poor federal leadership when it comes to current economic policy of run-away spending and lack of balanced budgets.

Summary observations from a Christian perspective

I covered this in the article linked in the next paragraph some, but I wanted to add an observation from a friend and top stewardship leader. While we were discussing various issues such as increases in taxes and entitlements… and church giving. He recalled that if every Christian who receives an income tithed 10%, that the revenue would exceed the annual cost to provide Social Security, Medicare, Medicaid and Federal unemployment benefits. I don’t recall where he got this number, or if this is true, but I’d bet it would be close when you consider the payroll tax rate. Also Barna reports that a small percentage of Christians of all denominations tithe 10%. Imagine the resources the church would have to care for the poor, infirm, widows and orphans if all Christians tithed. My friend commented that when the church fails to give and provide, then the government is put into the position to tax and provide. Not saying that is the best solution, but doesn’t it seem like this is what has happened?

This battle took so long to remedy, due to major philosophical differences, that I wrote about earlier this week, “Do you want to know what the fiscal fight is really about.” Expect the battle to rage on in the coming year. This information should not be relied upon for your individual tax situation: consult your tax, legal and financial advisers.

Do you want to know what the fiscal fight is really about?

This is a non-partisan article about what the fiscal cliff fight is really about. It is a philosophical battle, but if you read the newspapers and watch TV news, you will not get this story. Believe you me, I have watched and read many commentaries and opinions about this, but no one has yet to boil it down to one article–so I will take a shot at it. In addition, since this is a financial blog, I will try to render a non-political opinion about what this means to your personal finances. Since readers from both sides of the political spectrum read this, I will try not to take sides.

First of all, we have an economic crisis in the United States of America.  Real unemployment is about 15%, not the less than 10% that you read about. Secondly, government spending both today and into the future exceeds income or revenue (mainly taxes). The budget deficit exceeds $1 trillion per year, and the total federal deficit is almost $16.5 trillion.  Manufacturing is down, growth of our gross domestic product is lack-luster, and we are headed to long term double- and, who knows, maybe triple-dip recession. Yes, housing is gaining strength, some industries are doing quite well, and there are other reasons to be optimistic, but a strong argument can be made that we are headed to economic disaster because our federal balance sheet is a disaster.

Coming through a recession, we have a lot of people with their hands out wanting financial help. With high unemployment we have people on unemployment benefits. With an aging population we have a large, increasing number of people on Social Security, Medicare, and Medicaid. With low incomes coming out of the recession we have a large percentage of people not paying Federal income tax. We have have a large number of people without health insurance or under-insured (who should be provided for). We have a large percentage of people on food assistance, income assistance either in the form of weekly benefit or an annual bonus check called the Earned Income Tax Credit.  These are a lot of open hands, some very well justified that need help, I agree, but none-the-less, at the end of the day a lot of open hands with no long term plan to pay for helping them.

Even if we aren’t paying Federal income tax, we pay a lot of our income out to sales tax, payroll tax (Social Security, Unemployment Insurance, Medicare and Medicaid), gas tax, real estate tax, toll roads, corporate tax that we pay in increased cost of goods, to mention a few. So the poor and low income do pay tax; the point here is that government–federal, state, city and local–has high revenues.

The Left’s Viewpoint: To meet the financial needs of our country, such as entitlement programs, the tax plan that President Obama wants congress to pass would increase income or revenue through increase in taxes on the rich and modest cutbacks in spending but not on entitlement programs, and in some instances Obama wants to increase expenditures, for example  by extending unemployment benefits.  Class warfare seems to be used as a motivator: “The rich and big business caused the economic crisis, therefore we want to take from them to help everyone out and fix our economy.” A few of them definitely did contribute to the recession, but really, can we tax our way of this mess?

The Right’s Viewpoint:  To meet the financial needs of the country, reduce spending (including entitlements) and move towards a balanced budget, keep taxes low for everyone and leave more wealth in the hands of the wealthy and businesses, who create jobs and expand the economy. Really, can we not increase taxes some with spending so high. Okay they say, but reduce spending first.

The 113th Congress of 201 Democrats and 234 Republicans in the House of Representatives don’t want to budge on these issues because it is coming down to these philosophical differences. If the House can pass something agreeable, then the Senate’s 54 Democrats and  45 Republicans will approve it and send it to Obama for his signature.

The philosophy on the left says: We want to be more like a European style social democracy, with high taxes and a high level of social programs. It puts faith in the government to care for the people in a fair and just way. Society weilds power from 3 entities: government, people, and business. Therefore this style of government seeks a shift to have more power than people and business. The hope here seems to be that government will maintain the freedom and welfare of the majority of people. Government is self seeking, so those in power don’t always care for people well. I am not saying if you are on the left you totally believe all of this, but this is seems to be what they are saying.

The philosophy on the right says, we want to maintain more freedom for business and people, and the answer to economic problems is better financial management and business growth (which will in turn generate more taxes). The hope is that business and capitalism, hard work and self determinism, good personal financial management (spending saving and investing) will, in the long run, pay for entitlement needs, not taxes and government programs- it doesn’t always do that well, but that’s its hope. The right believes in entitlement programs, but seeks a balance. The people on the right are not heartless, since well researched analysis validates that conservatives give much more money to non-profit entities benefiting the poor than those on the left.  I am not saying if you are on the right you totally believe all of this, but this is what seems to be they are saying.

What is the Christian viewpoint, since I am writing this in a Christian personal finance blog? Evangelicals, protestants and Catholics are in both camps, so I don’t think it would be fair or possible for me to make the final determination on that one. But what I do believe is that perhaps one side doesn’t exclusively have the only answer–both can actually be right and wrong in part. Compromise doesn’t mean giving up one’s philosophy, but agreeing to work together on a balanced approach with some give and take. I think the Christian way is a balanced approach that takes care of needy, preserves freedom by not shifting too much power to government and business, has modest taxes, AND something that neither party seems to be mentioning much, encourages new business startups and growth. A rising economy alleviates many of the financial problems struggling economies face.

A good president and majority and minority leaders are ones that support compromise, work together, and bring both sides together. This battle is frustrating, but actually it makes good political theater. Will one philosophy win out here, or will we end up with a good compromise and the best part of both parties will help everyone, not just those on the right and left?

Conclusion: The longer we take to answer questions of budgets, taxes and deficits, the longer our economy will languish. The more it languishes the greater the toll to average people’s personal finances. A government that manages money well, taxes fairly, takes care of the poor, secures freedom and encourages business growth by working together will be one that leads us to prosperity.

 

A Primer on Recession Indicators: Gross Domestic Product and Unemployment

Unemployment statistics are an important indicator of how our economy is doing; more people employed points to stronger business growth and to fewer people receiving government entitlements. However, this is a little difficult to track, since the government doesn’t really publish a combined statistic that truly indicates what is happening. Most people who study this issue follow these three indicators: 1- percentage of people unemployed, 2- monthly change in non-farm payrolls, and 3- jobless claims for unemployment insurance. The most discussed statistic is the unemployment rate; reading the explanation above illustrates how this number falls short.

Gross Domestic Product, GDP tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison with the previous quarter. For 2012 GDP slumped to 2% in the first quarter, and 1.3% for the second, so the announcement of 2.7% for the third quarter is good news. Is this a great indication? Well any increase is good; however, this would only add up to 2.1% for 2012. Looking back at the most recent recessions, from a presidential term perspective, provides some challenging information. During the economic recovery under Ronald Reagan, GDP averaged 4.4% from 1995 – 2000, assuming you take out his first two years in office, where there was negative GDP, as it took some time for his policies to take affect. Bill Clinton took office in weak economic times, but not nearly as bad as what Reagan faced when he took office. Under Clinton, GDP averaged a decent rate of 3.1% from 1994 – 2000. This assumes you don’t take into consideration his 1st year in office, when there was negative GDP. Under President Barack Obama it has averaged 2.1% if you don’t include his first year with negative GDP. How does this compare to those other Administration’s first few years in office? In Reagan’s first 3 good years GDP averaged 5.3%, and for Clinton it averaged 3.4% for his first 3 good years in office.

Technically a recession occurs when business cycles retract, evidenced by down consecutive quarters of GDP, or a 12-month 1.5% or more rise in unemployment.

The US Economy Grows (GDP) at Good Rate, Is It Enough?

The Commerce Department announced Thursday that the Nation’s Gross Domestic Product (GDP) increased at an annual rate of 2.7%, for the third quarter. Is it time to celebrate that the economic recovery has arrived?

GDP tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison with the previous quarter. For 2012 GDP slumped to 2% in the first quarter, and 1.3% for the second, so the announcement of 2.7% for the third quarter is good news.

Is this a great indication you might ask? Well any increase is good, however this would only add up to 2.1% for 2012. Looking back at the most recent recessions, from a presidential term perspective, provides some challenging information.

  • Economic recovery under Ronald Reagan, GDP averaged 4.4% from 1995 – 2000, assuming you take out his first two years in office, where there was negative GDP, as it took some time for his policies to take affect.
  • Bill Clinton took office in weak economic times, but not nearly as bad as Reagan. Under Clinton, GDP averaged a decent rate of 3.1% from 1994 – 2000. This assumes you don’t take into consideration his 1st year in office, when there was negative GDP.
  • Under President Barack Obama it has averaged 2.1% if you don’t include his first year with negative GDP. How does this compare to those other Administration’s first few years in office? In Reagan’s first 3 good years GDP averaged 5.3%, and for Clinton it averaged 3.4% for his first 3 good years in office.

In conclusion: The economy is growing at a much slower rate that it needs to in order for it to lift unemployment, prevent more middle-class people from sliding into poverty, and to help those stuck there. Fiscal Cliff, Federal Debt, unemployment, and global economic crisis will continue to weigh down progress.

Tax Planning: In Uncertain “Fiscal Cliff” Times & Year End

With the completion of the presidential elections there has been much discussion focused on the so-called “fiscal cliff”. Many economic forecasts have stated that President Obama and Congress need to reach some agreement to avoid the fiscal cliff if the nation is to avoid another recession.  As you probably know, the Bush tax cuts are set to expire at the end of 2012 and there are many other tax changes set to take place in 2013, such as the implementation of the taxes from the Obamacare health care plan. Given the disagreements between the President and Congress, it is difficult to predict what will happen to all of the tax cuts that are set to expire at year-end and what the outcome will be.  Year-end tax planning is always a challenge, but many long-time tax practitioners have noted that this could be the most challenging environment they have faced.

Whatever the outcome of the any agreements between Congress and the President, it is likely that at least some taxes will be increasing and it is almost certain that dividend and capital gains tax rates will not be going down in 2013.  Maximum long-term capital gains rates are set to increase, generally, from the current rate of 15% to 20%. Dividends will be taxed at ordinary income rates instead of the current capital gains rate of 15% in most cases.  The top marginal rate will increase from 35% to the “pre Bush rate” of 39.6% and the rates for other income brackets would increase as well. Regardless of the outcome of any agreements reached between the President and Congress regarding the expiring Bush tax rates, taxes on investment income will rise next year because of the funding provisions in the President’s health care plan by at least 3.8 percent on taxpayers with higher investment income . Beginning in 2013, an additional Medicare hospital insurance tax will apply to wages or self-employment of married individuals with earnings exceeding $250,000 or single individuals with earnings greater than $200.000.  There will also be a new 3.8% net investment income tax for individuals exceeding these same income thresholds.  If Congress and the President do not make changes, the combined effect could result in an average tax hike of approximately $3,500 per household for up to 90% of Americans, and in a much higher rate for upper-income taxpayers.

It is reasonably likely that rates will be going up for investors, small business owners, and high income individuals. Traditional tax planning strategies to defer revenue and taxes may not be applicable this year.  Taxpayers should consider an approach that involves addressing many of the possible changes directly while also making use of all options for deductions, credits, and other tax-advantaged opportunities to lower their taxable income. Planning for these changes should begin now, since it may involve significant modifications in your tax strategy.

Since most advisors are confident that capital gains rates and rates on investment income will be higher next year, taxpayers may want to consider some of the following strategies concerning the potential for higher rates in 2013:

If your portfolio includes significant long-term capital gains, you should take advantage of the lower rates in 2012.  For upper-income taxpayers who will be facing rates of 20% (barring any changes) on capital gains and the additional 3.8% health care tax on investment income, their top rate will rise to 23.8% versus the current capital gains rate of 15%.  It may pay to take advantage of the lower rates in 2012 by selling investments with potentially big profits.

While advisors often recommend that taxpayers offset their capital gains by selling investments with capital losses, it may be beneficial to hold off incurring losses to offset against potential gains in the following year that will be taxed at higher rates.

Consider various strategies to accelerate ordinary income into 2012. If you have flexibility on when you can receive payments of income before year end, consider that the income may be subject to lower taxes this year than in 2013. Again, this is counter to tax strategies that are often employed to defer taxable income. Similarly, taxpayers would normally look to increase deductions before year end; it could be beneficial to defer expenses such as charitable deductions until the following year when tax rates will likely be higher.

Another option may be to convert a traditional IRA to a Roth IRA this year, if a conversion otherwise makes sense.

You may want to move dividend paying equity investments into tax deferred or federally non-taxable investments such as municipal bonds.

Many taxpayers are accelerating gifts under the current $5 million ceiling on lifetime giving. Not only is there a good chance that estate tax rates will rise (the scheduled Sunset provision is for rates to revert to 55%) but the exclusion amount for estates and gifts will revert to $1 million.

Some other acceleration strategies include exercising stock options, taking bonuses, foregoing 1031 elections, and electing out of installment sales.

The alternative minimum tax (AMT) will apply to 2012 income for many more Americans if not indexed for inflation. At the end of 2011, the AMT exemption was $74,450 for married taxpayers and $48,450 for singles. In 2012, the AMT exemption is $45,000 for joint filers and $33,750 for single filers. In making their estimated payments, taxpayers will need to consider that for 2012 they could be exposed to a higher AMT tax if Congress does not revise the exemption amount.  Additional care will need to be taken to help avoid potential AMT taxes.

Business owners will want to look at accelerating taxable income, but they will also need to evaluate the fact that the Section 179 deduction can be significantly reduced in 2013.  Under Section 179 of the tax code, small businesses can deduct the total cost of some qualifying property in the year it is placed in service, within certain limits, rather than depreciating it over time. The limit on the cost of property (including real property) that can be expensed is now $139,000, but it will drop to $25,000 if no changes are made. The total value of the equipment purchased cannot be higher than $560,000. In 2010 and 2011, businesses were allowed to expense as much as $500,000 in equipment and property on one year’s tax return. Additionally, bonus depreciation which was 100% in 2010 and 50% in 2012 is set to expire in 2013.

Business owners need to evaluate the potential for immediate write-offs and 50% bonus depreciation for capital purchases made in 2012 versus being stuck with the longer term depreciation MACRS depreciation schedules for purchases made in 2013. It may pay to make planned purchases of equipment in the current year. On the other hand, faced with higher tax rates, businesses may not want to elect Section 179 or bonus depreciation treatment to preserve more deductions for future years when the rates are scheduled to be higher at least for individual owners operating as Schedule C or as pass-through entities.

Like so much in life, we can only plan ahead, confidently, based on what we know to be fact.  Today, we know that tax laws will change back to “pre-Bush tax cuts” on January 1, 2013.  Of course, Congress and the President can intervene, before year end, or even afterwards (and make new rules retroactive.)  This unprecedented level of uncertainty makes good decision making difficult. Consequently, seek tax advice about your specific circumstances.  If you have large, pending transactions, the timing of which you can control easily, then this is a good year to engage your advisors soon in order to harvest sizable benefits.

*Kevin Koval, CPA, ABV, CFP and Roger C. Nagel, CPA, CMA of Nagel, CPAs. They can be reached at 505-898-2558 or email pchadwick@nagelcpa.us. They are located at 2240 Grande Blvd SE Suite 103, Rio Rancho, NM 87124.

October Unemployment Numbers Announced

Unemployment, New Jobs, and Jobless Claims Statistics:*

Negative: Unemployment INCREASED in October to 7.9% from 7.8% in September: September’s was the lowest rate since January 2009 and was good improvement over August’s 8.1%, so this shows things are really remaining about the same. However, keep in mind this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.

Positive: Monthly change in non-farm payrolls INCREASED: 171,000 new jobs were added in October, compared to 114,000 new jobs in September.

Positive: Initial Jobless Claims for Unemployment Insurance DECREASED: To 367,000 4 week rolling average, from 368,750. Looking back 12 weeks, the average was 364,500; 6 weeks ago it was 375,000, so we will need more weeks of decreases to reverse the year’s increasing trend. This number is much better than it was in 2009 when it peaked at over 650,000. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000′s. In 2011 the claims were in the low to mid 400,000′s, but since October of 2011 they have been below 400,000. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

*Unemployment statistics are an important indicator of how our economy is doing; more people employed points to stronger business growth and to fewer people receiving government entitlements. However, this is a little difficult to track, since the government doesn’t really publish a combined statistic that truly indicates what is happening. Most people who study this issue follow these three indicators: percentage of people unemployed, monthly change in non-farm payrolls, and jobless claims for unemployment insurance. The most discussed statistic is the unemployment rate; reading the explanation above illustrates how this number falls short.

What is GDP, and What is it Trending in the 3rd Quarter?

You probably hear about GDP on the evening business news all the time, but do you wonder what it means and what it indicates about our current economy?

GDP stands for gross domestic product; it represents the output of goods and services produced by labor and property in the United States, and is used to indicate if our economy is shrinking or expanding. GDP tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison with the previous quarter.

What has GDP been historically?

Since the recession officially ended June 2009 our economy has been expanding, but at different rates. GDP growth was at 4.1% about 9 months ago; this year it slumped to 2% in the first quarter, and to 1.3% for the second quarter. The Bureau of Economic Analysis early estimate is that for the 3rd quarter of 2012 it increased at an annual rate of 2.0 percent.

Are We Headed for a Double Dip Recession in 2013?

Do you think we are headed for a double-dip recession in 2013?  Technically a recession occurs when business cycles retract, evidenced by down consecutive quarters of GDP, or a 12-month 1.5% or more rise in unemployment. The most recent recession officially started December 2007 and ended June of 2009. I blogged about this topic about a month ago, but in light of the coming election and some new financial statistics I wanted to cover it again.

This past week it has been reported that home sales continue to increase; that is a good sign. However, the fact that America’s largest companies are getting ready to report lower quarterly sales is of great concern. Manufacturing output is a good indication of how industry is doing, and it was modestly increasing this past winter, leading to some guarded optimism, but for almost the last 6 months it has decreased to Spring 2009 levels. So this new estimate is really bad news. Gross Domestic Product (GDP) tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison with the previous quarter. GDP growth was at 4.1% about 9 months ago, this year slumping to 2% in the first quarter, and to 1.3% for the second quarter. There are a couple of good indications: US Consumer Spending is currently at 84.00 compared to 64.00 a year ago, a 31.25% increase. For 2012 we have seen a general increase, peaking at 96 in March, then it was erratic with a sharp drop in July. Since then we have seen a gradual increase. Economists watch consumer spending trends to try to track their confidence in the economy. The more confidence consumers have, the more willing they are to spend money. US Household Debt Service as a percentage of people’s disposable income is at 10.69% (June); it has been steadily decreasing from its 10-year high of about 14% in the 3rd quarter of 2008.

It seems as if American consumers are borrowing less and saving more. However, the Federal Government doesn’t seem to be catching on to reality yet: if the Federal Deficit reaches the $1.1 trillion projected by the Congressional Budget Office to be $1.1 trillion for 2013, this will be 5 years in a row that it has exceeded $1 trillion, and this doesn’t include all the money our Federal government borrows, adding to the US National debt which now exceeds $16 trillion. The outcome of the presidential election is being closely watched since both candidates have different approaches to solving these recession financial issues.

From last Friday’s article about unemployment, these mixed numbers don’t bode well for the economy either:

  • Positive: Unemployment DECREASED in September to 7.8% from 8.1% in August: Is this a good indication of improvement? Any indication of positive change is good, and this is lowest rate since January 2009. However, this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.
  • Positive: Monthly change in non-farm payrolls INCREASED: 114,000  jobs were added in September, compared to 96,000 new jobs in August, and 141,000 in July.
  • Negative: Initial Jobless Claims for Unemployment Insurance INCREASED: 365,500 4 week rolling average from 364,750. Looking back 12 weeks, the average was 366,250; 6 weeks ago it was 375,750. This number is much better than it was in 2009 when it peaked at over 650,000. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000′s. In 2011 the claims were in the low to mid 400,000′s, but since October of 2011 they have been below 400,000. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

In conclusion, I remain optimistic about our overall economy in the long run, based on what I read and hear, yet in the short-term, we may have some economic setbacks. What do you think? Please give us your feedback by commenting below.

Unemployment Numbers Released

Unemployment, New Jobs, and Jobless Claims Statistics:*

Positive: Unemployment DECREASED in September to 7.8% from 8.1% in August: Is this a good indication of improvement? Any indication of positive change is good, and this is lowest rate since January 2009. However, this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.

Positive: Monthly change in non-farm payrolls INCREASED: 114,000  jobs were added in September, compared to 96,000 new jobs in August, and 141,000 in July.

Negative: Initial Jobless Claims for Unemployment Insurance UNCHANGED: AT 375,000 4 week rolling average. Looking back 12 weeks, the average was 376,000; 6 weeks ago it was 371,000, so we will need more weeks of decreases to reverse the year’s increasing trend. This number is much better than it was in 2009 when it peaked at over 650,000. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000′s. In 2011 the claims were in the low to mid 400,000′s, but since October of 2011 they have been below 400,000. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

*Unemployment statistics are an important indicator of how our economy is doing; more people employed points to stronger business growth and to fewer people receiving government entitlements. However, this is a little difficult to track, since the government doesn’t really publish a combined statistic that truly indicates what is happening. Most people who study this issue follow these three indicators: percentage of people unemployed, monthly change in non-farm payrolls, and jobless claims for unemployment insurance. The most discussed statistic is the unemployment rate; reading the explanation above illustrates how this number falls short.

Are we headed into another recession in 2013?

What is a recession?

Technically a recession occurs when business cycles retract, evidenced by down consecutive quarters of GDP, or a 12 month 1.5% or more rise in unemployment.

When did the US recession end?

The most recent recession officially started December 2007 and ended June of 2009.

Did the US recession really end yet, what about a global recession?

The affects of that recession are still being felt, because it impacted so many people, and it is taking them a lot longer to get on their feet. Within the past year some European countries experienced recession, or a double dip recession. When you consider that we really have a global economy, you could say we are in reality in 4 year global recession that started in 2008.

Are we headed for another recession in 2013?

This concerns economists and watchers like myself, when we look at several months of stagnating employment numbers, decreasing GDP and manufacturing output:

  • The Official Unemployment rate that tracks only those who are without jobs and have actively sought work within the past 4 weeks, shows stagnating numbers, although we are far from the peak of 10.10% we saw in October 2010, for 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of improvement.
  • Initial Jobless Claims for Unemployment Insurance is another number to watch to see trends. We are far away from the bad days of 2009 when it peaked at over 650,000 for the average claims for unemployment benefits. In 2011 the claims were in the low to mid 400,000′s, and since October of 2011 they have been below 400,000. This number is important to keep an eye on, because it indicates how many people who got laid off and are seeking benefits. This year we aren’t getting any worse or better, just stagnating a little under 400,000
  • Manufacturing output is a good indication of how industry is doing, and was modestly increasing this past winter, leading to some guarded optimism, but for almost the last 6 months it has decreased to Spring 2009 levels.
  • Gross Domestic Product (GDP) tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison to the previous quarter. GDP growth was at 4.1% about 9 months ago, this year slumping to 2% in the first quarter, and 1.3% for the second quarter of 2012.

In conclusion:

These things, and other factors seem to indicate to me that it is quite possible we are heading into another recession in 2013. Are there any optimistic economic indicators? Housing seems to rebounding and could provide some of the seed for a recovery. Home values in some areas are increasing and new construction is on the rise, if this increases at a high rate, it might help fuel a recovery. Lastly, some people may believe a presidential candidate offers compelling story for an economic turnaround. However at the end of the day, we have some control over our personal economy (our careers and finances), and we can rest assured that when we are in God’s economy we don’t have to be as worried as most people.

Options for the Unbanked

Several media sources report that 1 in 12 households or 10% of Americans today do not use bank checking accounts, but use cash for everything. Most people have had checking accounts at some point.  Some have had to close them because they never learned to manage them well. Others closed accounts after life’s circumstances put them in a bind, resulting in bounced checks and accumulated fees and making it too difficult for them to try opening another account. Many banks don’t want to deal with people who have had bad checking account and credit history.

Not having a checking or other bank account makes it difficult for people to establish credit, which is often a barrier to home ownership or buying a car to get to work. Thus people remain economically depressed because of their failure or refusal to deal with banks. Many people with modest incomes, or those who have gone through terrible financial circumstances, as well as those in poverty, don’t have traditional bank accounts these days.  Bankless or under-banked people can wall themselves off to financial advancement by not learning good financial management and the knowledge required to manage bank accounts. This seems to be another consequence of our bad economy. The best thing these folks can do is to take a financial class, often held by non-profits in their community, or at a Dave Ramsey Financial Peace University course.

For those that continue to go the non-bank route, they might be victims to high charges for the only options that are available to them:

  1. Check-cashing stores are the first option many choose when they have problems with bouncing checks. These unscrupulous enterprises provide a payday advance {loan} until the paycheck arrives, charging high fees and interest, sometimes several hundred percent. They provide a handy service to the person who gets stuck and needs quick cash, yet they charge exorbitant amounts of interest. Many people get stuck, unable to catch up, and have a hard time breaking the pay-day loan, cash advance, check-cashing store cycle. I recommend that people avoid all these if at all possible.
  2. Some people cash their paychecks and then buy everything with cash. If they need to send a bill, they pay for utilities at a local bill-paying place such as some grocery stores offer, or they buy money-orders. Money orders aren’t cheap if you calculate the cost throughout the year, and having cash can make security an issue and budgeting a challenge. I recommend that people who do this use the envelope system until they can get re-established with a bank checking account.
  3. Pre-paid credit cards are another option that people may use. Companies like RushCard provide a nice way for people to pay bills easily, as their paychecks are automtically deposited and they can use these debit-like cards to pay bills. Some of these services have high fees that really add up. Some of them have an annual fee, monthly fees, and per-transaction (bill paying and ATM) fees. Searching these companies on Google, I found numerous complaints, often concerning the quality of service, money not being deposited on time, and mis-used account numbers (theft of account numbers). Some users of pre-paid cards hope to establish good credit by using them, but I am not sure they accomplish that. What I do like about the RushCard is the budgeting tools and bill managing capability. This feature might teach some to get back on their feet and to practice and learn good personal finances, thereby helping them build a bridge back to financial health.

Those with modest incomes and those who are in or near poverty are a vast population under-served by most mainline large financial institutions. It would be welcome news if just one of these institutions made it corporate policy to design a plan to serve this population. They could start by offering new creative services and education and customer support especially designed for the under-served population, all with an affordable cost structure.

How Does Inflation Affect Savings?

People are aware of inflation, since it is talked about all the time on the news and they see gasoline prices increasing astronomically and erratically. You may have heard someone talk about loss of purchasing power, but what does that mean?

As a quick review, when you invest or save money, and you pull it out later, it should be worth more. This is because it either pays interest (e.g., bank pass-book savings, money market account, certificate of deposit [CD], bond), or earns dividends (e.g., stocks), or appreciates in value (e.g., stock, real estate).

If you invested in a savings account, CD or money market account, you are typically going to earn 0 – 1.5% annually.

Inflation (increase in the cost of goods), on the other hand, averages about 3.5% over time. If the money you deposit in an interest earning account earns less than the rate of inflation, you won’t be able to buy the same amount of goods when you take your money out to buy something as you could have bought before you invested the money. You have lost what is called purchasing power.

If you buried the money in a coffee can in the back yard or hid it in your mattress, it would not appreciate in value at all. Each year you left it in the ground or in your mattress, it would actually go down in value an average of 3.5% per year, since you can’t buy the same amount of goods with it when you take it out as you could have bought with it when you buried it or hid it.

Some people are very risk averse, meaning they are afraid stocks or bonds may lose value. However, as you can now see, even by taking no risk, your money can go down in value if not invested wisely.

 

August Unemployment Payroll and Jobless Claims Results and Explanations

Unemployment statistics are an important indicator of how our economy is doing; more people employed points to stronger business growth and to fewer people receiving government entitlements. However, this is a little difficult to track, since the government doesn’t really publish a combined statistic that truly indicates what is happening. Most people who study this issue follow these three indicators: percentage of people unemployed, monthly change in non-farm payrolls, and jobless claims for unemployment insurance. The most discussed statistic is the unemployment rate; reading the explanation below illustrates how this number falls short.
Positive: Unemployment DECREASED in August to 8.1% from 8.3% in July
Is this a good indication of improvement?  Any indication of positive change is good. However, this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.
Negative: Monthly change in non-farm payrolls DECREASED: only 96,000 new jobs were added in August, compared to 141,000 new jobs added in July (originally reported as 163,000).
Negative: Jobless Claims for Unemployment Insurance INCREASED: from 371,000 to 371,250 4 week rolling average. Looking back 12 weeks, the average was 387,500; 6 weeks ago it was 366,250 , so we are seeing this figure continuing to trend up slightly, which is not good. This number is much better than it was in 2009 when it peaked at over 650,000. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000′s. In 2011 the claims were in the low to mid 400,000′s, but since October of 2011 they have been below 400,000. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

Obama Versus Romney Tax Rates

The presidential race tax debate faces Romney’s lowering them 20% for all, versus Obama’s increasing them for those in middle to higher incomes. For quite a while the tax burden has continued to shift to higher income people, and those on the opposite end pay less and less taxes, per the Wall Street Journal. If you want taxes lowered for all bracket, it seems as if your candidate is Romney lowering them and if lowered just for the upper income earners, then you may favor Obama, per Bank Rate.

According to the Wall Street Journal, the following chart outlines the tax policy for Obama and Romney.

 

Mixed Unemployment, Hiring, and Jobless Claims for July

  • Unemployment INCREASED in July to 8.3% from June 8.2%
    • This tracks those who are without jobs, and have actively sought work within the past 4 weeks. The Great Recession’s unemployment peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%. This statistic does not track all people who are not working, but are not too young or old, some websites report that the real unemployment rate is about 16%, which is probably more realistic. During the Great Depression it peaked at about 25% in 1933.
  • Monthly change in non-farm payrolls: 163,000 new jobs for July an INCREASE from when in June we saw new jobs 64,000 added.
  • Jobless Claims for Unemployment Insurance: DECREASE from 367,750 to 365,500 4 week rolling average. July 28th they were 365,000, an INCREASE from the prior week of 357,000.
    • Historical numbers: Peaked at over 650,000 in 2009. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000′s, in 2011 the claims were in the low to mid 400,000′s but since October of 2011 they have been below 400,000. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until S0cial Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

The Price of Inequality, Trickle Up Economics?

Nobel prize-winning author and economist Joseph E. E. Stiglitz argues in his new book The Price of Inequality, economies suffer when societies lack opportunity for upward mobility, education and health care. He also cites evidence that the United States has less opportunity today than most other industrialized countries.

Capitalists and conservatives argue against entitlements, which I usually agree, since this results in a shift of services and power to government. Many fear this as a slide to socialism. On the other hand Stiglitz says most of the financial growth has not been to those in the middle or poverty, whose incomes and net worth have either decreased or stagnated over the last 15 years, but the very wealthy continue to grow.

Trickle down economics seems to have had mediocre results, so arguments of trickle up economics whereby we increase opportunity to upward mobility to raise financial markets for all, may enter the national discussion as countries continue wallow in stagnating economies.

I’m not sure I agree with the conclusions reached in this book, but this provides some interesting reading.