Tuesday, November 19, 2019

Just for Fun: Most Popular Grocery Stores

There are some 36,000 grocery stores in the United States. (Thanks to free market capitalism). While some are smaller, independent stores or specialty outlets that focus on groceries from a certain area, Americans tend to buy the bulk of their food at large regional or national chains. Regional chains like Hy-Vee, Albertsons, or Publix may be a staple in some parts of the country, but they are completely unknown in others.

I live in Texas, so I wasn't surprised that H-E-B was listed by WallStreet 24/7 as the most popular. H-E-B started around the turn of the 20th century and is based out of San Antonio. I would probably vote for Albertsons, but they are a tad more expensive.

On my recent trip to Michigan, I did shop at a Meijers, which is supposedly the most popular grocer in that state. Meijers is like a WalMart supercenter. I found it interesting that when checking out, the person ringing up your groceries also had to bag them. I made the comment that she didn't have any help, since I would expect it based on my experience in Texas. At this particular store, they never have an extra person bag groceries, she said. As you would expect, it takes longer to get out of a Meijers than our local H-E-B, which normally has a checker.

You can view the most popular for all 50 states here.

New Retirement Legislation Stuck in the Senate

A sweeping new retirement bill is working its way through Congress that is aimed at helping the country overcome its retirement savings crisis. That’s what many lawmakers in Washington envision with the Setting Every Community Up for Retirement Enhancement Act of 2019 – better known as the “SECURE Act.” The far-reaching bill includes 29 provisions aimed at increasing access to tax-advantaged retirement accounts and preventing older Americans from outliving their assets.

The SECURE Act includes numerous new retirement account benefits including making it easier for small businesses to set up retirement plans such as 401(k)s that will be less expensive and easier to administer. Many part-time workers would be eligible to participate in employer retirement plans under the bill. And the SECURE Act would also push back the age at which retirement plan participants must take “required minimum distributions” (RMDs) from 70½ to 72. These are just a few of the new benefits included in the SECURE Act.

The sweeping new legislation passed overwhelmingly in the House of Representatives in May but has since been bogged down in the Senate for reasons I will share below. While most of the new retirement provisions in the SECURE Act are welcome additions, unfortunately not all of them are. One provision, for example, would require retirement account heirs to pay taxes on their inheritance in 10 years instead of over their remaining lifetimes as is the case now.

While the SECURE Act, if passed into law, would be the most sweeping retirement legislation in decades, most Americans apparently know little or nothing about it.

The Retirement Savings Crisis in America

The fact that there’s trouble brewing in the US retirement system, which requires most workers to supplement Social Security with personal savings, has been widely acknowledged. According to data from the US Bureau of Labor Statistics published in 2018, only 55% of the adult population participate in a workplace retirement plan of any kind. And even those who do are often woefully behind when it comes to investing part of their paychecks.

The wealth management giant Vanguard, for instance, revealed early in 2019 that the median 401(k) balance for those ages 65 and older is just $58,035. That is a fraction of the savings needed to fund a retirement which could last 20-30 years! The SECURE Act aims to encourage employers who have previously shied away from these company-sponsored retirement plans, which can be expensive and difficult to administer, to start offering them.

The SECURE Act would tweak a number of rules related to tax-advantaged retirement accounts. Here are the major provisions of the Act, assuming it is passed by the Senate:
  • Make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
  • Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
  • Enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
  • Encourage plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.
  • Push back the age at which retirement plan participants must take “required minimum distributions” (RMDs), from 70½ to 72.
  • Allow the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).
“With passage of this bill, the House made significant progress in fixing our nation’s retirement crisis and helping workers of all ages save for their futures,” Rep. Richard Neal (D-MA) said in a statement after the bill sailed through the House in May.

Most financial planners support the SECURE Act and consider it a step in the right direction toward solving the nation’s retirement saving crisis. Most favor raising the age for taking required minimum distributions from 70½ to 72, thus giving people a little more time to save for retirement.

Likewise, most agree that reducing the number of hours that employees are required to work in order to sign up for 401(k)s, including part-time workers if they qualify, is a good idea. Most also favor adding flexibility to 529 accounts, which could be used to repay some student loans under the bill. That’s a good option for parents who may have funds remaining in an educational savings account and want to help a child who has already graduated.

One Potentially Serious Knock on the SECURE Act

Let’s say you have an IRA or a retirement plan that you want to leave to your children in a tax efficient manner after you are gone. If so, you need to be concerned about one new provision in the fine print of the SECURE Act that could cost them dearly.

Non-spouse beneficiaries of IRAs and retirement plans are required to eventually withdraw all the money from its tax-sheltered status, but the current law allows them to minimize the amount of their required minimum distributions by “stretching” them over their own lifetimes. This is called a “Stretch IRA.”

Distributions from a Traditional Inherited IRA are taxable, so the longer your beneficiaries can postpone or defer them (and hence the tax), the better off they will be. The bad news is that the government wants its tax money, and it wants it sooner rather than later.

The big change buried in the SECURE Act is a small provision that changes the rules that currently allow your beneficiaries to take distributions and pay the taxes on them over their lifetimes. Under the SECURE Act, your non-spouse beneficiaries must withdraw all of the assets and pay taxes on them within 10 years.

You might be thinking this is not a really big deal because you expect your heirs will withdraw the money within 10 years anyway – and in many cases that may be true. But let’s say your heirs don’t need or want to take the money so quickly, and instead want to delay the distributions – and the taxes – as long as possible.

In addition to delaying the taxes, keep in mind that this money is presumably invested wisely and is compounding annually – tax-deferred. Let’s say your kids inherit your IRA or other retirement plan when they are in their 50s, and they only take the required minimum distributions; the remainder of the money could increase significantly if they let it compound and don’t take it until they need it – under current law.

Note: the discussion above is purposely oversimplified, so be sure to discuss this with your retirement planner, CPA and/or legal counsel before acting upon it.

The SECURE Act is Currently Tangled Up in the Senate

Despite the SECURE Act’s overwhelming support in the House, it may take time before the Senate even gets to vote on the bill. In early July, PlanAdviser, a retirement benefits consultant, reported that two Republican Senators – including Ted Cruz (R-TX) – were holding it up. According to a Washington, DC source, Cruz was trying to tweak the section on 529 accounts so that parents can use them for home-schooling expenses as well.

In October, PLANSPONSOR, another benefits consultant, said the bill has been sitting "in something like legislative limbo." Along with Cruz, two other Senators – Mike Lee (R-UT) and Pat Toomey (R-PA) – had reservations about some technical points. Yet the consultant remains optimistic that the bill could still get unanimous consent in the Senate, or get through by being attached to a broader bill with bipartisan support.

Even with only a few Senators standing in the way, passage of the bill could take a lot longer. Without unanimous consent, the bill would have to go through the committee process, followed by floor debates and subsequent votes. And if Senators succeed in changing some of the bill’s language, the House would have to vote on the newer version as well. It remains unclear how long all that might take.

The question is whether the SECURE Act will get passed this year or next? Congress only has a couple of weeks left in the current session and according to Majority Leader McConnell, there is a long list of priorities that needs to be passed this session. A spokesman for McConnell reportedly said last week that the SECURE Act might well be delayed until next year.

The bottom line: While it’s still possible that the SECURE Act may go through some minor changes, the bipartisan support behind the legislation means it’s likely to end up passing in the Senate, too – either just ahead or in early 2020.

While the SECURE Act is not a panacea for our retirement saving crisis, it is widely agreed it’s a step in the right direction, with the one exception discussed earlier. While the SECURE Act may be a step in the right direction, it will not solve our retirement savings crisis. That will only be solved if Americans start saving more, period, with or without the new legislation.

Sunday, November 17, 2019

Economic Perspectives Update

Retail sales increase modestly

Retail sales increased 0.3% in October, nearly reversing a similar drop in the prior month, and above the consensus of 0.2%. Individual categories were mixed. Vehicle and gas station sales increased 0.5% and 1.1%, respectively. Excluding these two categories, sales were up a modest 0.1%. While online sales continued to advance, up 0.9%, apparel dropped 1.0% and restaurant sales fell 0.3%, down for the first time this year. The two home-related categories (building materials and furniture) also pulled back, suggesting some potential weakness in housing demand.

On a y/y trend basis, retail sales were up 3.8%, which is weaker than where they were in mid-2018, but better than earlier this year. Our measure of discretionary retail sales and its core increased 4.9% y/y and 5.5% y/y, respectively, also stronger than earlier this year. This suggests that the pullback in consumer comfort over the past several weeks has not impacted consumer demand. The trends in retail sales, which account for about 1/3 of consumer spending, support a continued moderate pace of economic growth.

GM strike weighs on industrial production

Industrial production dropped 0.8% in October, down in three of the past four months, and by the most since May 2018. This was worse than the consensus of -0.5%. Due to the GM strike, vehicles output sank 7.1%, the most since January. Industrial production ex-vehicles was down 0.5%, as output growth across most sub-sectors weakened. Manufacturing ex-vehicles was down 0.1%, led by durable goods. Utilities output fell 2.6%, while mining fell 0.7%. Core industrial production, which excludes vehicles, energy, and high-tech, fell 0.2%, led by materials.

On a y/y basis, industrial production fell 1.1%, the most since October 2016. Manufacturing output shrank 1.5% y/y, down for the fourth straight month and by the most since May 2016. Utilities contracted 4.2% y/y. Mining output eked out 2.7% y/y growth, a fraction of the double-digit pace in 2018 and early-2019.

With the GM strike idling capacity, the utilization rate fell 0.8 ppt, the most since March 2009, to 76.7%, its lowest level in more than two years, and worse than the consensus of 77.0%. It was 3.1 ppt below the 1972-2018 average, indicating excess capacity which tends to be disinflationary. Separately, our Inflation Timing Model picked up six points to -2 last month, a level that is historically consistent with moderate disinflation.

Import prices decline 

Import prices fell 0.5% in October, a steeper decline than the consensus of -0.2%. It was led by a 2.9% slide in fuel prices, mostly petroleum. But nonfuel import prices also fell, down 0.2%, led by nonfuel industrial supplies and materials (mostly unfinished metals). On a y/y basis, import prices sank 3.0%, the most since July 2016. Prices from most trading regions declined, reflecting the strength of the U.S. dollar.

Source: Ned Davis Research

Laughter Is the Best Medicine

Dan Mitchell, from his blog International Liberty, pointed me to Babylon Bee, a site for political satire.
Laying their cards on the table with the midterms approaching, the nation’s Democrats have united to send a clear message: socialism is America’s only hope of ending the current nightmare of economic prosperity. 
“We’re living in a hellscape—but there is an escape,” 2020 presidential hopeful Joe Biden said... "democratic socialism is what’s going to free us from our horrific, flourishing, present conditions. You do the math.” ...“Kill anyone who disagrees!” Maxine Waters bellowed from the background.
OK. That's funny. And the site spares no one, poking fun at Libertarians:
The U.S. government announced Monday it will be adopting more libertarian policies going forward, including lower taxes, greater support for civil liberties, and a drastically decentralized federal government, “if all the libertarians will agree to just shut up and stop complaining for like one freaking second.” 
The announcement was issued in the form of a joint statement by the executive, legislative, and judicial branches of the federal government, and is contingent upon libertarians “chilling out a bit” and immediately ceasing from posting memes stating “Taxation is Theft” and “End the Fed” every single second they’re on the internet. …At publishing time, libertarians from across the country had refused to dial down the rhetoric even a little bit, calling the compromise “the greatest travesty since the British raised taxes on tea.”
As well as the news media:
Airports around the world are reporting record revenues after introducing a long-awaited feature: the ability to turn off CNN on television sets in their terminals.
For just one quarter, you can turn off CNN for a full fifteen minutes while you're waiting for your flight, leaving you with the "far superior" experience of just staring at a blank screen. 
"At long last," said one man waiting for his flight at LaGuardia as he dropped a few dollars' worth of quarters into the "Turn CNN Off" slot. "Honestly, I might fly more now." He's not alone: airports expect a 426% uptick in traveling over the holidays as flyers no longer have to worry about having the droning words of CNN hosts pounded into their heads for hours on a layover.
We need some humor. Laughing at ourselves in this time of really stupid political rhetoric is just what the doctor ordered.

Friday, November 15, 2019

Economic Perspectives Update

PPI annual inflation continues to moderate 

The Producer Price Index (PPI) for final demand rebounded 0.4% in October, the most in six months, and above the consensus of 0.3%. It was led by a 0.7% rise in goods PPI, the most since March, as energy prices spiked 2.8%, while food prices advanced 1.3%. Services PPI rose a more modest 0.3%, led by trade margins. PPI for final demand ex-food and energy increased 0.3%, also above the consensus of 0.2%.

Despite the notable monthly increase, annual inflation pressures weakened. On a y/y basis, the PPI for final demand slipped to 1.1%, the slowest pace in more than three years, while PPI ex-food and energy eased to 1.5%, the least since February 2017. Both peaked in 2H 2018 and have been on a downward trend since then. Moreover, intermediate producer prices were lower than a year ago across most stages of the production flow. Falling pipeline pressures suggest continued low PPI inflation in the near-term.

Jobless claims up, consumer comfort down 

Initial claims for unemployment insurance spiked 14,000 last week, the most since April, to 225,000, a five-month high. The consensus was for a 4,000 increase to 215,000. The four-week average of claims picked up 1,750 to 217,000, a four-month high. This is still a very low level compared to history, and indicates that labor markets remain tight. But we are watching this trend closely for early signs of changes in labor demand.

The weekly spike in claims likely weighed on consumer attitudes, with the Bloomberg Consumer Comfort Index falling 1.1 points, down for the fourth straight week, to 58.0, its lowest level since February. The four-week cumulative decline was the biggest since May 2012. All three index components fell, led by worsening views on the state of the economy. The longer-term trend of comfort, as measured by the 52-week average, has also leveled off, following a steady ascent over the past three years. This could weigh on retail sales growth in the upcoming holiday shopping season.

Budget deficit on a widening path 

The federal government posted a budget deficit of $134.5 billion in October, up 33.8% from a year ago. The Office of Management and Budget projects the deficit will reach $1.045 trillion in fiscal year 2020. Indeed, on a 12-month total basis, the deficit is already at $1.018 trillion, representing 4.8% of GDP, the biggest gap since May 2013.

The 12-month total federal outlays increased 7.5% y/y, while receipts picked up a more moderate 3.3% y/y. Notably, health expenditures rose 6.6% on a smoothed y/y basis, the most since March 2017, which was separate from the 6.2% y/y increase in Medicare outlays. Net interest spending growth was still in the double-digits at 14.5%, while its share of total outlays was 8.3%, near its highest level since September 2008. Corporate income tax receipts rose 5.3% on a smoothed y/y basis, up for the first time since December 2017, as the impact of tax cuts wears off.

Source: Ned Davis Research

How Much Do You Pay In Cell Phone Taxes?

A typical American household with four wireless phones paying $100 per month for taxable wireless service can expect to pay about $260 per year in taxes, fees, and surcharges–up from $229 in 2018.

Nationally, these impositions make up about 21.7 percent of the average customer’s bill–the highest rate ever. Illinois has the highest wireless taxes in the country at 31.2 percent, followed by Washington at 28.8 percent, Nebraska at 28.1 percent, New York at 27.7 percent, and Utah at 25.6 percent.

Since 2008, average monthly wireless service bills per subscriber have dropped from just under $50 per line per month to $37.85 per month–a 24 percent reduction. However, wireless taxes have increased from 15.1 percent to 21.7 percent of the average bill–a 44 percent increase.

Taxes, fees, and government surcharges on wireless consumers increased from 19.1 percent to 21.7 
percent between 2018 and 2019–a 14 percent increase in the tax rate. The disparity between taxes on wireless voice services and general sales and use taxes grew between 2018 and 2019 as the increase in taxes on wireless voice services outpace the increase in general sales and use taxes, which only increased 1.2 percent.

Most of the increase in the wireless tax burden is due to a very large (36 percent) increase in the Federal Universal Service Fund “contribution rate.” Wireless carriers are required to pay this surcharge on all charges for interstate telephone service.

At the end of 2018, more than 67 percent of low-income adults had only wireless for their phone service, and 57 percent of all adults were wireless only. Excessive taxes and fees, especially the very high per-line charges like those imposed in Chicago and Baltimore, impose a disproportionate burden on low-income consumers. In Chicago, taxes on a family with four lines of taxable wireless service paying $100 per month are more than $500 per year–about 43 percent of the bill.

Wednesday, November 13, 2019

The Best Run States

Wall Street 24/7 concluded its most recent study on which states are the best and worst run, from a fiscal perspective.

You can view the entire list here. I will highlight Texas and California, because those two states get compared quite frequently, as well as having amusing stories appear, such as California Governor Newsom Gavin's claim that most of California's homeless came from Texas.

As you'll see, there isn't that much difference between the two largest states (in population): Texas at 29.2 million and California at 39.8 million.

9. Texas
> 2018 unemployment: 3.9% (25th highest)
> Pension funded ratio: 76.1% (22nd highest)
> 1 yr. GDP growth: 4.0% (5th highest)
> Poverty rate: 14.9% (11th highest)
> Moody’s credit rating and outlook: Aaa/Stable
Texas has one of the fastest growing economies in the United States. In the last year, the GDP of Texas expanded by 4.0%, well above the comparable 2.9% national growth. Texas also has the equivalent of 19.7% of its annual budget saved in a rainy day fund, more than all but two other states. Fiscally well managed, Texas is one of only 15 states with a perfect triple A rating and a stable outlook from Moody’s.
Compared to other states, those that are fiscally well managed and otherwise, the Lone Star State does not saddle its residents with a heavy tax burden. The state government collects the equivalent of $1,893 per resident annually in taxes, the third smallest tax revenue per capita among states and well below the $2,900 national average.
14. California
> 2018 unemployment: 4.2% (14th highest)
> Pension funded ratio: 68.9% (24th lowest)
> 1 yr. GDP growth: 4.3% (2nd highest)
> Poverty rate: 12.8% (25th highest)
> Moody’s credit rating and outlook: Aa2/Stable
California has the equivalent of 17.5% of its annual expenditures saved in a rainy day fund, a larger share than all but three other states and more than double the 8.3% average across all states. California also has one of the fastest growing economies in the United States. Between 2017 and 2018, California’s GDP grew by 4.3%, the second largest economic expansion among states, trailing only Washington state. Over the same period, the U.S. economy grew by 2.9%.
Despite the rapid GDP growth, California’s 4.2% jobless rate is slightly higher than the 3.9% national average. Still, by some measures, California is able to aid more of its unemployed residents. Of the more than 741,000 unemployed state residents, 45.6% receive UI benefits, well above the 27.4% national average.

Just for Fun: Most Popular Grocery Stores

There are some 36,000 grocery stores in the United States. (Thanks to free market capitalism). While some are smaller, independent stores or...