Bob’s Journal 5/8

Key Corporate Earnings Give First Clues to Economy’s Health

Data issued by the government and some private sources receive the most attention.

Economists, analysts, the media, and individual investors pore over the employment reports, gross domestic product data, Consumer Price Index, and more. They also dive into surveys of consumers and businesses.

All that data is backward-looking. Collecting and processing it takes time. The economy can change before the reports are published.

Surveys of consumers and businesses usually are timely, but they also must be used cautiously. There can be disparities between what people say in surveys and what they do with their money.

It’s also not unusual for people to be in good financial shape but say the economy is in bad straits because they heard negative news reports or pessimistic comments from a few other people.

One good way to supplement the usual economic data is to look at what consumers really are doing with their money in real time. Examining the actions of low- and moderate-income consumers is especially helpful, because they are likely to feel the first effects of a shift in the economy.

One way to do that is through the quarterly reports from Placer.ai, which tracks cellphone location data to measure visits to restaurants. The first-quarter report showed that overall visits to quick-service restaurants declined by 1.6% from a year earlier.

Earnings reports from companies that cater to that demographic also are helpful. Those businesses are starting to issue their latest earnings reports or announce changes in their forecasts.

This week, McDonald’s, a bellwether of moderate-income consumers, reported a 3% decline in first-quarter revenue because of lower activity in the United States. Same-store U.S. sales were down 3.6%, the sharpest quarterly decline since 2020 and the second consecutive quarterly decline.

The company said frequent customers are reducing the frequency of trips to its restaurants.

In the call accompanying the earnings report, the company’s CEO said the entire fast-food sector is having similar problems. Only higher-income customers continued the same level of activity as in previous quarters.

Many other restaurants also stated their U.S. businesses are slowing. Restaurants that had special promotions or deals to maintain customer traffic were the few exceptions.

Some restaurants with higher-income customer bases, such as Starbucks (NASDAQ: SBUX) and Chipotle (NYSE: CMG), also reported fewer customer visits.

The restaurant chains aren’t indicating there’s a recession or a severe downturn. But they report business is down because customers are uncertain and worried about the economy. Customers are saving some money and being more cautious about their spending.

An Overlooked Key to Choosing the Right Medicare Coverage

The Medicare coverage you choose determines how much money you pay out of pocket for medical care during retirement, which providers can give you fully covered care, and other results.

Choosing Medicare coverage can be a daunting process.

First, you decide whether to enroll in a Medicare Advantage plan or stay with original Medicare and add a Medicare supplement policy and a Part D prescription drug policy.

Then, you choose from among the plans or policies available to you. In many areas of the country, a dozen or more options are available.

That’s why I recommend that most people seek the help of an insurance agent who’s familiar with the Medicare coverage in your area.

A report from The Commonwealth Fund last year and other recent information show that the choice of insurance agent is important.

You need an agent who isn’t biased for or against Medicare Advantage plans and is willing to design coverage that meets your goals and needs.

To develop its report, The Commonwealth Fund conducted focus groups with brokers and agents specializing in Medicare.

The study found that the commissions the brokers and agents received vary greatly between the different options. Medicare Advantage plans paid higher commissions, sometimes much higher, than the Medicare supplement and Part D policies.

Most of the focus group participants said they would choose original Medicare with Medicare supplement and Part D policies for themselves, because they believed the combination offered better coverage and choices.

The participants said they tended to sell that package of policies to higher income clients while selling Medicare Advantage plans to other clients.

Within the Medicare supplement plans, most clients took the Plan G policies, which offer the most comprehensive coverage and also have the highest premiums to the buyers and highest commissions to the agents.

But some agents said if they were eligible for Medicare, they might opt for Plan L. It offers the same comprehensive coverage as Plan G, but requires the policyholder to pay a high deductible before the comprehensive coverage kicks in. The higher deductible results in lower premiums to the buyer and lower commissions to the agent.

In response to this situation, last week the Department of Justice filed a suit against major Medicare insurers.

The suit alleges the insurers paid brokers and agents substantial amounts to steer their clients into Medicare Advantage plans instead of other options.

Medicare beneficiaries need help selecting the best coverage for them. But they need to be sure the help is relatively free from bias caused by financial incentives offered by plan sponsors.

Brokers and agents should disclose if they are able to sell a client any plan available in the area or if they work with only a subset of insurers and plan types. Be sure to ask an agent about biases and incentives before accepting advice.

An alternative to a broker or agent is the free counseling service provided through most state health agencies known as SHIP, or State Health Insurance Assistance Programs. Trained, volunteer counselors offer help to any Medicare-eligible person who asks.

IRS Makes Change in QCDs

Qualified charitable distributions (QCDs) from traditional IRAs are perhaps the best way for people over age 70½ to make charitable gifts.

The IRS recently announced a change that could make it easier for taxpayers to receive full credit for their QCDs.

You can read details about what QCDs are and how to use them in the January 2025 issue of Retirement Watch.

Basically, anyone age 70½ or older can have money transferred directly from a traditional IRA to a charity. Up to a dollar limit that’s adjusted annually, the distribution won’t be included in the IRA owner’s gross income, but it will count toward any required minimum distribution the account owner is obligated to make for the year.

A problem for many taxpayers has been that the Form 1099-R received from the IRA custodian each year lists the total distributions for the year but doesn’t separate QCDs from regular distributions.

The result is that many people paid taxes on QCDs either because they forgot how much of their distributions were QCDs or didn’t remember to tell their tax return preparers about the QCDs.

That could change next year.

In the new version of Form 1099-R (the IRS recently released a draft), the IRS will allow custodians to designate the amount of QCDs by putting “Code Y” in box 7 of the form next to the amount of the QCDs.

It’s not clear how many custodians will be able to track the QCDs IRA owners are making and have an accurate amount on the 1099-R. Also, since 2025 already has begun, it might be too late for custodians to have their systems set up to issue 1099-Rs that accurately identify the QCDs for the year.

It is important to realize that the custodians aren’t in charge of ensuring IRA owners comply with the QCD requirements. Having an amount designated as a QCD on the 1099-R doesn’t mean the IRA owner is entitled to report that amount as a QCD.

The IRA owner is responsible for ensuring that all the tax code requirements are satisfied, including that the QCD limit for the year isn’t exceeded.

Having the QCD does remind the taxpayer that QCDs were taken during the year and that the amount should be verified before completing the tax return or turning the data over to a tax preparer.

The Data

Factory orders increased 4.3% in March following a 0.3% increase in February.

But most of the increase was in transportation orders. After excluding transportation, factory orders declined 0.2% in March after increasing 0.3% in February.

The ISM Manufacturing Index declined for the fourth straight month in April to 48.7 from 49.0 in March. April is the second consecutive month the index was below 50.0, which indicates the sector is contracting.

The ISM Services Index rose to 51.6 in April from 50.8 in March, which was a nine-month low.

The PMI Services Index dropped to 50.8 in April, its lowest level in 17 months, from 54.4 in March.

The PMI Manufacturing Index was unchanged in April at 50.2.

The PMI Composite Index declined to 50.6 in April from 53.5 in March. April’s level is the lowest since September 2023.

There were 177,000 new jobs created in April, according to last week’s Employment Situation reports, which compares to 185,000 jobs created in March.

But original reports of the number of jobs created in February and March were revised lower by a total of 58,000.

Average hourly earnings increased by 0.2% in April after rising 0.3% in March. Over 12 months, average hourly earnings increased 3.8% through both April and March.

New unemployment claims increased by 18,000 to 241,000, the highest level since February, in the latest week.

Continuing claims, which lag a week behind new claims, rose to 1.916 million, the highest level since November 2021, from 1.833 million.

The Markets

The S&P 500 rose 0.81% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.75%. The Russell 2000 increased 0.35%. The All-Country World Index (excluding U.S. stocks) added 2.07%. Emerging market equities advanced 3.46%.

Long-term treasuries lost 2.60% for the week. Investment-grade bonds fell 1.00%. Treasury Inflation-Protected Securities (TIPS) dropped 0.54%. High-yield bonds decreased 0.21%.

In the currency arena, the U.S. dollar was unchanged for the week.

Energy-based commodities lost 0.47%. Broader-based commodities fell 0.47%. Gold gained 3.08%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com, and regnery.com.

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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.