It May be Over By the Time Any Recession Becomes “Official”
Let me share with you what's going on in the economy. The economy contracted almost 1% in the second quarter. That's the second consecutive decline, two quarters in a row of economic decline. That's the most common definition of a recession. And that's the big question, isn't it? Are we in a recession? Well, the official arbiter is the National Bureau of Economic Research. And we're not in a recession until they say we're in a recession. Of course, they're not going to make a determination until long after the fact because they want to take a look at the data and they're not going to get the data for months.
So by the time the National Bureau of Economic Research says we're in a recession, the recession will probably be over. So let me just answer it for you, because this is the debate you're constantly seeing in the media. It drives me crazy over whether or not we are or are not in a recession.
Here's the answer. If your personal financial status is worse than it was, you're in a recession. Maybe you're out of work. You've lost your job. You've lost your income. Maybe your bills have become much higher than they were. And you're struggling to pay those bills. Maybe your investment portfolio has fallen dramatically in value. If you are personally experiencing a reversal of your progress, you are in a recession. I don't care what the economists have to say. On the other hand, maybe you just got a new job with a big pay increase. Maybe you've chosen investments that have in fact been doing really quite well. Maybe things are doing fine despite the fact you're hearing doom and gloom elsewhere. Well, then you are not in a recession.
Look, you know the joke. A recession is when your neighbor loses his job, and a depression is when you lose yours. At the end of the day, all economics is personal, so don't make too much of the fact that everybody's arguing about whether or not we're in a recession. Worry instead, about what you need to be doing to protect yourself and your family from what may yet come, That's the real key. And if you're not sure if you're doing things correct, well, now's the time to talk to a financial advisor. The folks at Edelman Financial Engines would be a good place to start.
Inflation Is Still a Driving Factor
Well, part of the reason that the economy has fallen 9/10 of a percent in the last three months is because inflation rose 9% in the month of June, the highest level in four decades. We didn't see an increase from June to July. We're going to have to wait and see when we get the final numbers in August.
Meantime, The Wall Street Journal has created an inflation tracker covering 100,000 data points and here's what they've discovered. The price of dairy products is up 14% in the past year. Butter is up 21%. Poultry, 17% increase. Eggs up 33%. Lettuce is up 11%. Bananas up 7%. Sugar is up 10%. But not everything is up in price. Smartphones are 20% cheaper. Televisions are cheaper, too. Technologies are making things cheaper.
But technology hasn't yet been able to figure out how to make food very much cheaper. Chicken and flour are each up 20% in the past year. Margarine is up 34%. The only thing quizzical about that is why is anybody eating margarine instead of butter? General Mills is predicting 14% inflation in food prices over the next 12 months. It says its cost for fertilizer has doubled. At Unilever, Coca Cola, McDonald's, Wal-Mart - they're all raising prices. Hershey says it might not be able to meet demand this Halloween. Ugh. Kit Kats, Twizzlers, Reese's Peanut Butter Cups. Candy sales are up 11% over last year. They were up 15% the year before that. But Hershey now says they can't get enough raw materials. The eight weeks surrounding Halloween provides Hershey with 12% of their annual sales: twice the normal volume. So the fact that they can't get enough candy for Halloween, you might want to start stocking up and do your best to not raid the candy jar.
Meanwhile, overall food spending fell five and a half percent between January and May. That's the largest four month drop since 1973. Prices have gone up; incomes have gone down. People are buying less food. We're also seeing similar reductions in construction projects down 1.1% in June. Economists had expected an increase, which shows that you can never believe an economist.
In addition, monthly car payments are now rivaling mortgages. The Tesla Model Y is $1500 a month on a 48-month loan. That's the same as a 30-year mortgage for a house that costs $300,000. That's assuming 5.7% interest and 15% down payment. I mean, this is unbelievable.
Houses and cars costing the same. No wonder 40% of Americans now say they're struggling to pay their bills – some 91 million households, the highest ever reading. Moody's says that the typical household has to spend $500 a month more to buy the same goods and services they bought last year. And so what do Americans do in the face of this? You guessed it, they're turning to credit cards and it's getting harder because we're starting to see layoffs across the country. Ford just announced 4000 white collar job cuts. That's 10% of its salaried workers in North America. And more workers today have two full time jobs than at any time. We've been tracking the data since 1994. Half a million Americans have two full time jobs.
The Impact of “The Great Resignation”
Meanwhile, 20 million Americans quit their jobs in the first five months of the year. I don't get it. Some people have two jobs. Others have none. 'The great resignation' is what it's called. A survey of 15,000 of the people who quit their jobs this year - one out of four regret it. The new job isn't as good as they'd hoped. Having no job means they've lost their social connections. Guess who is least likely to feel they made a mistake by quitting? Healthcare workers. 86% of them are glad they quit. And that is a sad and scary commentary for America's society and our healthcare system. You add it all up. Bottom line is this: US households are going to need $7 trillion more in retirement than they have. So what should you do about it? Get married.
In 2010, the median net worth of married couples in their 20s and 30s was four times more than single people. Now it's nine times more. So if you want to improve your finances, marry or as my mother would say, live together first. And in the face of all of this, of needing to work, getting a job, maybe two jobs, pooling resources by cohabitating, what are financial advisors doing personally about this? Well, a new survey by Ameriprise found that 30% of the financial advisors they asked say they are accelerating their plans to retire. Meaning at the very moment you need a financial advisor; you're going to find it harder to find one.