Bob’s Journal for 8/4/22

How Inflation Rate Varies by Age Group

The Department of Labor publishes the Consumer Price Index (CPI) as a measure of inflation nationwide, but the inflation rate for each of us is likely to be different.

To compute the CPI, the Labor Department surveys the economy to determine the change in prices of various goods and services. Then, it plugs those price changes into a basket of goods and services it already determined is a good representation of how a typical household spends it money.

Your spending, and therefore your inflation rate, probably is different.

The website USAFACTS merged the CPI data with the Department of Labor’s Consumer Expenditure Survey to see how inflation varies by age group, because the survey showed that spending patterns vary by age. USAFACTS found that over the 12 months ending in June 2022, the youngest households faced the highest inflation rates. Those households spend a higher percentage of their income on gasoline, which had the biggest percentage price increase during that time.

Inflation also varies by where you live. Inflation was 6.7% in New York City but 12.3% in Phoenix over the same 12 months. The difference was due largely to differences in the housing markets.

The Labor Department’s website also has some interesting features on the CPI, such as interactive charts that show different details and perspectives.

Americans Continue to Retire Later

A few million Americans retired earlier than expected during the pandemic, which became known as the Great Resignation. But a longer-term trend is for people to delay retirement, and that trend remains in place.

Each year, Gallup surveys Americans on a series of personal financial issues, including when they plan to retire or, if retired, when they retired.

In 1991, the average retirement age was 57, and in 2022 it is 61. In addition, the age at which people expected to retire was 60 in 1995, and in the latest survey was 66. It peaked at 67 in 2012 in the wake of the financial crisis but held steady between 65 and 66 since then, except for a drop to 64 in 2021.

Analyzing 21 years of data, Gallup found there has been a significant, steady increase in the age at which people retired. When people 55 and older are divided into five-year age groups, the data showed the percentage of retired people in each age group declined by five to nine percentage points. The most significant decline was in those ages 60-64. In 2002-2007, 41% of that group was retired. In 2016-2002, only 32% of the group was retired.

Social Security is a likely reason for the delay in retiring. New retirees must wait past age 66 to claim the full retirement benefit. A related possible explanation is that more and more people understand why it makes sense to delay Social Security benefits until full retirement age or later.

It is also possible that fewer people believe they have the financial resources to retire comfortably at the earlier ages. They’re working longer to increase their financial security.

Over the years of the survey, there has been a meaningful gap between the ages at which people retire and the ages at which they initially thought they would retire. Many people retire years earlier than they expected.

In 2002, on average people retired at 59 when they initially thought they would retire at 63. The gap has been consistently large over the years. Its peak was seven years in 2012. On average, people thought they would retire at 67 but retired at 60.

Sometimes people retire early because they achieved financial independence faster than expected. But many times, earlier retirement isn’t voluntary. Sometimes a personal or family health issue cause one to stop working. Other times, a person loses a job and can’t find a desirable replacement, so they retire.

Whatever the reasons, it’s important for both pre-retirees and retirees to remember that a retirement plan shouldn’t be considered locked in. The plan needs to have flexibility. Circumstances will be different from expectations and assumptions. The plan needs to be adapted to those changing circumstances.

Another Step is Taken Toward Electronic Estate Planning

Estate planning usually seems to be the last area of the law to join the modern world, but progress is occurring.

In July, the Uniform Electronic Estate Planning Documents Act was approved by the Uniform Law Commissioners (ULC). The ULC is a group of law professors and other experts who draft model laws for the states to consider. Often, most states enact some version of laws recommended by ULC.

Estate planning is one of the last areas of the law to still require that, in most cases, wills and other documents be on paper and be signed in pen, known as wet signatures. Electronic documents with electronic signatures are allowed in most other areas of law.

The first move toward electronic estate planning was the ULC’s recommendation of the Uniform Electronic Wills Act in 2019. Versions of that law have been enacted by 10 states, and more are considering it. That law allows electronic versions of wills, codicils and testamentary trusts.

The Uniform Estate Planning Documents Act recommended in July extends the recognition of electronic documents to all other estate planning documents, such as powers of attorney and trusts. All the other requirements for these documents, such as the number of witnesses or notarization, would not be changed.

The law was only recommended in July, so no state has enacted it yet. But we can look forward to that happening in the next few years.

It is a long, slow road. But in time, you’ll be able to execute your estate planning documents electronically just as you’re able to do with almost every other transaction.

Make a Change in the True Diversification Portfolio

Followers of the Retirement Watch True Diversification portfolio need to make a change. The William Blair Macro Allocation (WMCNX) fund no longer is available. Replace the fund with the exchange-traded fund (ETF) Cambria Trinity (TRTY).

The Data

Personal income increased 0.6% in June, unchanged from a 0.6% increase in May.

But personal consumption expenditures (PCE) jumped even more, by 1.1% in June. That follows a PCE increase of 0.3% in May.

The Fed’s preferred measure of inflation, the PCE Price Index, increased 1.0% in June and 6.8% over 12 months. Both numbers were higher than in May, and the 12-month increase is the highest since January 1982.

The core PCE Price Index, which excludes food and energy, increased 0.6% in June and 4.8% over 12 months.

Employee compensation continued to increase. The Employment Cost Index rose 1.3% in the second quarter after rising 1.4% in the first quarter. Over 12 months, the ECI rose 5.1% as of June, that’s up from 4.5% at the end of May.

Factory orders increased by 2.0% in June, and May’s increase was revised higher to 1.8% from the 1.6% that was initially reported.

The U.S. economy contracted in July for the first time since June 2020, according to the PMI Composite Index. The index declined to 47.7 in July from 52.3 in June. Output in the private sector decreased at the fastest rate since May 2020. July also was the fourth consecutive month of declines in the index.

But the ISM Services Index for July reported a higher level of growth in the sector. The index increased to 56.7 in July from 55.3 in June.

Manufacturing growth held steady in July, according to the ISM Manufacturing Index. The index was reported at 52.8, compared to 53.0 in June.

Likewise, the PMI Manufacturing Index was 52.2 in July, down from 52.3 in June.

The Kansas City Fed Manufacturing Index for July didn’t change much. It was reported at 13, compared to 12 for June.

GDP contracted for the second quarter in a row. In the second quarter, GDP declined at an annual rate of 0.9%, according to the first estimate. In the first quarter, GDP fell at an annual rate of 1.6%.

Personal consumption expenditures (PCE) increased only 1.0%, down from 1.8% in the first quarter.

As in the first quarter, the GDP number was distorted by changes in business inventories. Because of the way GDP is computed, businesses rebuilding their inventories results in lower GDP and makes it appear that economic output was lower than it really was.

The Chicago PMI for July was 52.1, down from 56.0 in June. The reading is above 50.0, so it indicates manufacturing in the Chicago area still is expanding but at a lower rate than in June.

The Consumer Sentiment Index from the University of Michigan for the end of July was 51.5, slightly higher than the 51.1 recorded at mid-month. The index was only 50.0 at the end of June, which was a historic low.

The one-year economic outlook among consumers was at its lowest level since 2009, and inflationary expectations over the next year remain high.

The labor market recently began to weaken a bit.

The JOLTS (Job Openings and Labor Turnover Survey) report showed that job openings in June declined to 10.7 million from 11.3 million in May. The June level showed the lowest number of job openings since November 2021.

The number of job openings still is well above the 5.9 million people who were reported as unemployed and looking for work in June.

Also, the number of both hires and workers quitting jobs declined a little in June from May.

New unemployment claims technically declined by 5,000 to 256,000. But the previous week’s number was revised higher to 261,000 from the 251,000 that was reported initially. The revised number for the previous week was the highest level since November 2021.

Continuing claims declined by 25,000 to 1.36 million.

The Markets

The S&P 500 rose 4.39% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.05%. The Russell 2000 increased 4.28%. The All-Country World Index (excluding U.S. stocks) added 2.00%. Emerging market equities grew 0.46%.

Long-term treasuries rose 0.19% for the week. Investment-grade bonds increased 0.69%. Treasury Inflation-Protected Securities (TIPS) added 1.02%. High-yield bonds gained 1.99%.

On the currency front, the U.S. dollar declined 1.05%.

Energy-based commodities lost 1.25%. Broader-based commodities fell 1.64% but gold rose 2.48%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells 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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