The Wealth Gap is Shrinking – Federal Reserve Survey of Consumer Finances
The wealth gap is shrinking despite what some in the media have been saying. The Federal Reserve survey of consumer finances was recently published as it has done so every three years. There were many surprises in the report that conflict with what some are saying today. Real median income from 2016 to 2019 grew 9% for Americans who haven’t completed high school and 6.3% for those with a high school diploma. For those that have a college degree they experienced a decline of 2.3% in their income. Younger people under the age of 35 saw a 13.4% increase in their income from 2016 to 2019 more than double the increase they experienced 2010 to 2016. It was also noted in the report that lower income Americans saw their net worth increase 32.5% among the lowest income quintile and 30.7% in the second lowest. Minorities such as African-Americans saw an increase in their net worth of 32.1% from 2016 to 2019 and Hispanics saw their net worth skyrocket 63.6% compared to white Americans experiencing an increase in net worth of only 4% over the same timeframe. This could be attributed to growth in business equity among African Americans which was up 138%, Hispanics was up 63%. I also noticed Americans without a high school diploma had an increase of 104%. Reasons for the large increase could have been the gig economy and online platforms along with the deregulation and the 2017 tax reform.
Headline Jobs Report
Although the headline jobs number of 661,000 missed the estimate of 800,000, I would say the overall report was good especially considering we are still dealing with the coronavirus. The big number here is the unemployment rate dipped to 7.9% which beat the estimate of 8.2% and compared against August’s level of 8.4%. Also on the positive side, July’s report was revised up to 1.76 million which was a gain of 27,000 and August was revised upwards by 118,000 to 1.49 million. Add those positive revisions to this month’s report and we are right around the estimate for this month. The biggest draw on this report came from government jobs which actually saw a decline of 216,000. This was likely due in large part to at home instruction as many schools remained closed for in person learning. Positives came from leisure and hospitality as that group added 318,000 and retail was also very strong with 142,000 additions. The temporary layoff numbers still look strong even after falling 1.5 million this month as there are still 4.6 million that hope to return to their place of work soon. Is this the best jobs report ever? No, but look at how far we’ve come and think back to March and April when it felt like there was no sense of hope. Since the shutdown in March that saw approximately 22 million layoffs, we have recovered 12 million jobs and the unemployment rate has fallen from near 15% to 7.9%. We’ve made great progress and that progress will continue.
· Leisure and hospitality led job gains with 318,000 while retail added 142,000 and health care and social assistance increased by 108,000.
· As expected, government was the biggest drag on the month, losing 216,000 due to a drop in local and state government education as many schools maintained at-home instruction due to the virus. A reduction in Census workers also pulled 34,000 from the total.
· In other sectors, health care and social assistance gained 108,000, professional and business services contributed 89,000 and the transportation and warehousing sector was up 74,000. Manufacturing grew by 66,000, financial activities added 37,000 and the other services category rose by 36,000.
Consumer Confidence
I was blown away by the consumer confidence number this morning. The index showed a reading of 101.8 which was well above both the expectation of 90.1 and last month’s reading of 86.3. This is very important as we head into the holiday shopping season as confident consumers are likely to spend more money. I do believe the holiday season will be longer this year as people try to take care of shopping early to avoid crowds. This may hurt the comparison to last year for the typical holiday season, but overall if you add in sales for an elongated period, I believe it will be very strong.
Do you still use cash?
Do you still use cash? The pandemic appears to have progressed the digitalization of our currency. In 2019 cash payments by US consumers represented just 26% of all transactions which compared to 31% in 2016. Now with the pandemic ATM withdrawals were down at least another 12% in Q2 of this year. Many places now have the digital option for payment, but I wonder how tip reliant jobs like valet will adjust. Will they start to accept Venmo?
Home Sales Report – Real Estate Market
The pending home sales report shows that this real estate boom is likely to continue for at least a few more months. The report showed pending home sales rose 8.8% in August compared to July and that they were 24.2% higher than last August. Unlike the existing home sales report that looks at closings, pending home sales looks at signed contracts for existing homes so it is a good indicator of what is likely to come for the existing home sales. In a separate report that is also forward-looking mortgage applications to purchase a home were 22% higher than last year. While the real estate market is currently on fire, my estimation is that it will slow after next spring’s busy season.
Disneyland Likely to Remain Closed
Does governor Newsom hate Mickey Mouse? Disney announced yesterday they will be laying off 28,000 at the theme parks. Most of the layoffs are from Disneyland because the state of California has told Disneyland it would likely have to remain closed for the foreseeable future. I think anyone, especially a business person knows it is hard to run a business with unknown information. Disneyland in California is the only theme park not open. Disney has opened the theme parks in Florida, Japan, France, and China. All customers of the parks are required to submit to temperature checks and must wear face coverings unless eating or drinking. 2/3 of the 28,000 employees are part time workers and have been on furlough collecting health benefits. Now moving to a layoff situation, they will probably lose their health benefits. The theme park being closed has affected nearly 80,000 local jobs that depend on the theme park. Come on Governor Newsom, let’s re-open the park!
KUSI NEWS: Should we be worried about the falling value of the US dollar?
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Fox 5 San Diego: Preparing For a Financially Strong Relationship
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This newsletter is for informational purposes only and should not be used as investment advice. If you would like to discuss more in detail your investment needs or have other investment questions, feel free to call me at 858-546-4306 or visit our website at Smartinvesting2000.com.