Bob’s Journal 6/12

The Labor Market Weakens

Most investors and analysts were optimistic about the economy after last week’s Employment Situation reports were released. But the details of the reports reveal the labor market is weakening.

The reports said 139,000 new jobs were created in May. That beat consensus forecasts of 126,000 new jobs. But the numbers initially reported for March and April were revised downward. The revisions mean 95,000 fewer new jobs were created this year than first reported.

The sectors in which new jobs are being created also shouldn’t inspire optimism. Most of the new jobs are from the relatively stable, non-cyclical sectors of health care and education.

Cyclical sectors of the economy aren’t doing as well, including those that are most exposed to tariffs. Manufacturing lost jobs in recent months. Job growth slowed in transportation and retail, among other sectors. There also were fewer government jobs.

The unemployment rate hasn’t increased, but that’s largely because there’s a smaller labor force. Immigration is down, and Baby Boomers continue to retire. Labor force growth slowed in the last year, and the labor force participation rate contracted in May.

Businesses are worried about the effects of tariffs. Many businesses report that they’re already paying higher prices because tariffs are being passed through to them. That’s causing them to conserve cash and reduce hiring. Plus, it cuts into profits.

Other signs of less demand for workers include rising initial and continuing unemployment claims and slower growth in compensation. Also, the number of job openings steadily decreased over the last year, and the gap between job openings and unemployed workers has closed.

These factors and other data reveal that economic growth is steadily declining and should continue to slow. I don’t expect a recession this year. But slower growth should result in lower earnings growth for businesses and is likely to affect stock prices.

Why People Leave Medicare Advantage Plans

Over half of Medicare beneficiaries opted for Medicare Advantage plans in 2024, and the percentage is expected to climb to 60% by 2030, according to the Kaiser Family Foundation.

But about half of beneficiaries left their Advantage plans within five years, according to data from 2011-2020 published in the JAMA Health Forum. Some opt for a new Advantage plan while others go to original Medicare.

Before deciding to sign up for a Medicare Advantage plan, it’s a good idea to know why people leave their Advantage plans.

Some analysts believe the high turnover among Advantage plan members can influence how the plans are operated. If an Advantage plan’s managers know most enrollees won’t stick around for the long term, the plan might have less incentive to address long-term or chronic conditions of beneficiaries.

The quality of an Advantage plan seems to have a significant effect on turnover. Plans that had five-star ratings lost only 23% of members after five years. While plans with four-star ratings lost over 41% of members after five years, and lower-rated plans had even higher turnover rates.

Another study concluded cost wasn’t a major factor in decisions to leave an Advantage plan.

Beneficiaries were more likely to be concerned about difficulties in accessing and receiving high-quality medical care. Limits on the medical providers included in a plan’s network as well as required approvals for treatments and care cause dissatisfaction among beneficiaries.

The study found that beneficiaries in poor health were more likely to switch plans because of dissatisfaction about those factors.

That finding is consistent with anecdotal reports I’ve heard from Medicare insurance agents over the years.

They find that in the early years of retirement when people are relatively healthy, they’re happy with Medicare Advantage plans. The plans cost them less, and they don’t need to visit doctors often.

But when serious health conditions arise later in retirement, people are likely to want to switch from an Advantage plan to original Medicare, which doesn’t limit access to medical providers or require approval of most care and treatments.

The Greatest American

Benjamin Franklin continues to fascinate and enchant many Americans. Other founding fathers fall in and out of favor over time, but Franklin seems to endure.

Franklin is so enduring that modern financial firms were named after him, though he had no relationship with the businesses.

Readers who admire Franklin, as I do, would enjoy and benefit from reading the new book, The Greatest American, from my friend and fellow Eagle Financial Publications editor Mark Skousen.

One reason Franklin fascinates is that he had many avocations and careers during his lifetime. Skousen identified 22 careers and delves into each of them.

The book’s an easy read and divides Franklin’s life into many bite-sized chapters. The focus is on Franklin’s thoughts, advice and explanations regarding the various phases of his life.

Skousen also reports on Franklin’s views on issues of his time, many of which still are relevant, such as trade, inflation, debt, war, and others.

There’s also Franklin trivia. Franklin never sought a patent for any of his inventions. George Washington was a fan of Franklin, while John Adams was a bitter opponent. Franklin was estranged from his oldest son to the point the son was all but disinherited.

You can buy an autographed copy of the book at a discount through Skousen’s website. It’s also available through amazon.com and other booksellers.

The Data

The Small Business Optimism Index from the National Federation of Independent Businesses reached 98.8 in May, the highest level in three months, from 95.8 in April.

May is only the fifth month since December 2021 the index was above the 51-year average of 98.0. Business owners reported in May that their top problem was taxes, the first time taxes topped the list since December 2020.

The Consumer Price Index (CPI) increased 0.1% in May after rising 0.2% in April. The 12-month increase in the CPI was 2.4% through May and 2.3% through April.

The core CPI, which excludes food and energy prices, also rose 0.1% in May and 0.2% in April. Over 12 months, the core CPI increased 2.8% through both May and April.

Consumer credit outstanding increased at an annualized rate of 4.3% in April.

Revolving credit, which is mostly credit cards, rose 7.0%. Nonrevolving credit, which is mostly vehicle and student loans, was 3.3% higher.

Productivity declined 1.5% in the first quarter, according to the final estimate. The initial estimate was for a decline of only 0.8%. Productivity rose 1.7% in the fourth quarter of 2024.

There was a 6.6% increase in unit labor costs in the first quarter, because hours worked rose while output decreased. The initial estimate for the quarter was that unit labor costs increased 5.7%. Costs increased only 2.0% in the fourth quarter of 2024.

There were 139,000 new jobs created in May, down from 147,000 in April.

Average hourly earnings increased 0.4% in May, up from 0.2% in April. The 12-month increase in average hourly earnings was 3.9% through both May and April.

In the latest week, new unemployment claims increased by 8,000 to 247,000, the highest level since October 2024.

Continuing claims, which lag a week behind new claims, decreased to 1.904 million from 1.907 million.

The Markets

The S&P 500 rose 1.17% for the week that ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.85%. The Russell 2000 increased 2.62%. The All-Country World Index (excluding U.S. stocks) added 1.65%. Emerging market equities advanced 3.55%.

Long-term treasuries gained 1.02% for the week. Investment-grade bonds increased 0.35%. Treasury Inflation-Protected Securities (TIPS) lost 0.26%. High-yield bonds rose 0.25%.

In the currency sector, the U.S. dollar declined 0.15%.

Energy-based commodities increased 1.29%. Broader-based commodities rose 0.49%. Gold lost 0.73%.

Bob’s News & Updates

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