Bob’s Journal for 4/11
Why the Economy is Harder to Read
It’s no surprise that many economists, analysts and investors misread the economy the last few years, as did the Federal Reserve.
There are good reasons for this. One problem that’s becoming worse is data collection.
A good portion of the economic data released each month comes from surveys of businesses and consumers. As with political polling, the results are less reliable than in the past because fewer and fewer people are participating.
The reduced number of telephone landlines is one factor. Many people have only cellphones now and use caller ID to avoid answering calls from unfamiliar or unknown numbers. Others hang up when they realize a call involves a survey.
Also, fewer people respond to paper and email surveys. The various government agencies have indicated that response rates to surveys are much lower than in the past. Businesses remain more likely than consumers to participate in government surveys.
That’s one reason in the monthly employment reports there are discrepancies between the results from the surveys of households and surveys of businesses. There also are discrepancies between the national data and a lot of the state level data.
All of this means it’s likely that the data isn’t as accurate as in the past. Another reason people are misreading the economy is that perceptions differ from the data.
The data show that inflation is lower. This means prices are increasing at a lower rate than in 2021 and 2022.
But surveys of consumers indicate that many people believe “inflation is lower,” meaning that prices are lower.
In fact, prices still are much higher than they were in 2020. Food is taking a much higher portion of monthly spending than it has in many years. And prices are increasing at a faster rate than they were before 2021.
So, many people don’t believe that inflation is lower.
People’s perceptions affect their economic behavior. When most of the population misinterprets what’s happening in the economy, that affects how they invest and spend.
Of course, there are long-term issues with the data, such as the way housing inflation is computed in the Consumer Price Index and the Personal Consumption Expenditures Price Index.
The data are harder to interpret and rely on than in the past. That’s making life difficult for investors and businesses that try to anticipate or respond to the latest economic reports.
More Americans Are Moving in Retirement
Americans were more likely to move in retirement in 2022 than in 2021, according to HireAHelper’s survey of movers and moving data.
Four percent more Americans moved in retirement in 2022 than in 2021. Moves in 2021 were constrained by the pandemic.
The number of retirement-related moves rose steadily from 2014 through 2020 and, after the 2022 increase, still hasn’t returned to the 2020 level.
The most-named reason to move in retirement in 2022 was for cheaper housing, the first time that motivation exceeded the desire for new or better housing.
The top retirement destinations were Florida, North Carolina, Michigan, Arizona and Georgia. Florida returned to the top of the list after being second in the previous survey.
The states most likely to lose retirees were Oregon, Maryland, Idaho, Texas and Virginia.
The states chosen by retirees were a bit different than those where pre-retirees moved.
Among all age groups, the states with the biggest net gains (more people moving in than moving out) were Vermont, Maine, South Carolina, Delaware and Arkansas.
The states with the most net losses were New Jersey, California, Illinois, Minnesota and Connecticut.
More than 18,000 Americans moved to Mexico in 2022, the highest number in almost a decade, and 52% of them were retirees.
Is a Deal Forming to Extend the 2017 Tax Law?
Large portions of the 2017 tax law are scheduled to expire after 2025, and the fate of those provisions is a major concern of many taxpayers and businesses.
Of course, much will depend on the outcome of the 2024 elections for President and Congress.
But recently, Treasury Secretary Janet Yellen hinted at the outlines of a potential deal.
Secretary Yellen said President Biden takes seriously his promise that income taxes would not be increased on taxpayers with incomes below $400,000. She indicated that would be the starting point for negotiations over an extension of the 2017 law.
If that’s the case and Congress remains closely divided, then President Biden, if re-elected, would favor extending large portions of the 2017 income tax cuts for individuals.
That doesn’t cover the business tax cuts, but members of both the House of Representatives and the Senate are trying to negotiate an extension of major business tax breaks before the election.
The current estate tax exemption still is up in the air. Two long-time estate planners said at a recent American Law Institute Continuing Legal Education webinar that they expect the exemption to be reduced below current levels, though they didn’t speculate on the level, according to Tax Notes Today.
Of course, all that assumes that after the 2024 election Congress is functional and can put together a deal with whoever is the president. If not, then the 2017 tax law would expire automatically at the end of 2025.
The Data
Optimism of small business owners dropped in March, according to the National Federation of Independent Business (NFIB) Small Business Optimism Index.
The index declined for the third consecutive month, dipping to 88.5 in March from 89.4 in February. The March number is the lowest since December 2012 and the 27th consecutive month the index was below its 50-year average of 98.
Inflation edged ahead of “hiring qualified workers” as the top problem facing small business owners.
The Consumer Price Index (CPI) increased 0.4% in March, the same as in February. Over 12 months, the CPI increased 3.5% through March and 3.2% through February.
Excluding food and energy, the core CPI increased 0.4% in both March and February. Over 12 months, the core CPI increased 3.8% through both March and February.
The number of jobs increased by 303,000 in March according to last week’s Employment Situation reports. In February, there were 270,000 new jobs.
The unemployment rate declined to 3.8% in March from 3.9% in February.
Average hourly earnings increased by 0.3% in March after rising 0.2% in February. Over 12 months, earnings increased 4.1% through March and 4.3% through February.
Total consumer credit outstanding increased at an annual rate of 3.4% in February. Revolving credit (mostly credit cards) increased at a 10.2% rate, while nonrevolving credit (mostly vehicle and student loans) increased at a 0.9% rate.
New unemployment claims increased by 9,000 to 221,000 in the latest week.
Continuing claims, which lag a week behind new claims, decreased to 1.791 million from 1.810 million.
The Markets
The S&P 500 rose 0.09% for the week ended with Tuesday’s close. The Dow Jones Industrial Average declined 0.71%. The Russell 2000 increased 0.92%. The All-Country World Index (excluding U.S. stocks) added 0.77%. Emerging market equities advanced 1.26%.
Long-term treasuries rose 0.21% for the week. Investment-grade bonds increased 0.24%. Treasury Inflation-Protected Securities (TIPS) added 0.18%. High-yield bonds gained 0.35%.
On the currency front, the U.S. dollar declined 0.53%.
Energy-based commodities increased 1.11%. Broader-based commodities rose 2.63%. Gold gained 3.20%.
Bob’s News & Updates
My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here.
My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.
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A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”
If you’re interested in my books, check my amazon.com author’s page.
I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.
