CPI, Jobs, Optimism (or not), China's CPI, The Big Picture, 401ks and a Fire Update
This Week, Economically
Lots of stuff, folks, so let’s pick out a few things.
Normally, the biggest news was the CPI report – that’s the Consumer Price Index, the cousin of the Personal Consumption Expenditures Index – the PCE. Both are measurements of inflation.
Year over year, the CPI dropped from 3.0% to 2.8%.
The core CPI, the measurement without food or fuel, went from 3.3% to 3.1%.
From an inflation perspective, this is all very good news and in a normal week, might have goosed the stock market.
Yeah, it wasn’t a normal week. In fact, it will be a month or two before we see a normal week. And by that time, it will all seem normal.
Of course, what is demanding headlines and noise are the tariffs. However, since they are not economic indicators, I’ll discuss those in another section. Wall Street certainly seems to think they are economic indicators, though. Moving on…
Jobless claims didn’t change much: 220,000 in the latest week, vs. 222,000 the week before and below expectations of 225,000. All OK there.
Interestingly, job openings rose to 7,700,000 in January, up from 7,500,000.
Some economists estimate federal job losses as high as 500,000. Ouch.
When your expenses exceed your revenue by 38%, and a new CEO comes in, everyone is on pins and needles.
Business optimism isn’t looking as good as it was, but it’s still above the average of 98. It came in at 100.7, down from 102.8.
Only 37% of small business owners surveyed expect the economy to improve.
Not surprisingly, labor quality and inflation are the top two concerns.
I have heard, however, that it is getting slightly easier to find employees who can do what you have advertised.
Consumer Prices Hit
Consumer prices dropped in February, highlighting deflationary issues. Where, you ask? China.
You know how the CPI in the USA – see above – was 2.8%? In China, it was a negative 0.7%.
Yes, prices dropped.
Now that’s a problem. It may not seem like one, but ask Japan what they think about it.
They had deflation from 1993 to 2023. It’s brutal. No one spends any more than they have to, so there isn’t much in the way of a growing economy.
It’s a general economic malaise because there is no growth. Why would you buy a TV today if it would be cheaper tomorrow? That’s the problem.
It's interesting times in China. Pretty soon, they won’t be reporting anything other than how mighty their military is.
The Economy – Big Picture
The economy and, by default, the stock market, aka Wall Street, depend on the results of three things: Jobs, Spending, and Production.
If jobs are strong, that leads to spending, which leads to production, which may lead to more jobs, leading to more spending, leading to more jobs, leading to – well, you get the picture.
When interest rates are raised, it becomes more expensive for businesses to operate, so they cut employees. This leads to less spending, which leads to less production, which leads to more job cuts, which… may lead to a recession.
The US has avoided that so far.
So, it’s a delicate balance, and the Fed's only tool is interest rates. Consequently, they keep a sharp eye on jobs. If hiring decreases, unemployment goes up, then spending goes down, and production goes down etc., so they drop interest rates to make it cheaper for businesses to borrow and stimulate the economy.
Jobs have held steady, showing the economy is still doing fine, and as long as that keeps going, rates will not go down because the economy does not need to be stimulated.
While the impact of tariffs has yet to be felt, they have certainly generated a lot of noise. Uncertainty is the trend at this time. And the market does NOT like that.
Stay tuned. We’ll look at the numbers in May.
401k Accounts
Vanguard manages 401k accounts for 5,000,000 people, so they have a sense of what is trending.
Last year, 4.8% of account holders took early withdrawals to prevent foreclosure or pay medical bills.
This is up from 3.6% in 2023 and 2% pre-pandemic.
The good news is that most employees are now automatically enrolled in 401k or similar retirement plans, much more than would have been historically.
This has given employees a ‘forced savings’ account in the form of a 401k. Consequently, they have something to draw from if they need to.
And that’s good news.
The bad news is that drawing down for reasons not allowed by the IRS results in a 10% tax penalty. But at least you have the cash.
Fire Update
A few Reports back, I discussed a colleague whose house was destroyed in the Alta Dena fire. Here is an update.
They were able to secure an apartment in Pasadena.
Two months in, the first and second phases of debris removal are done on their block.
Phase 1 was the removal of all hazardous materials.
Phase 2 was removing the foundation and scraping the lot.
It seems to be moving pretty quickly, at least for the block the house was on.
All insurance funds from their California FAIR plan have been dispersed, albeit with dual payees: Wells Fargo and the borrower. The borrower endorsed the check and sent it to Wells. Of the $800,000 total, Wells disbursed $133,000 to the borrower to get started with construction costs and has retained the balance, to be disbursed as construction progresses. The homeowner also received a check for $200,000 for personal property loss.
A design-build contractor was recommended to the homeowner and has been selected. Estimated costs are $1,000,000 for the design and build of a new residence.
The homeowner has signed on with a law firm as part of a mass tort case against Edison.
A loan application has been put in with the SBA – Small Business Administration. Progress is pending but it is expected to make up the difference between the insurance payout from the FAIR plan and the actual cost.
Eight homeowners on the block are sharing best practices but all have been scattered around southern California, depending on where family is.
Tips from my colleague:
If you are replacing furniture and other items at large retail stores, ask for a fire discount. Some are still providing them with up to 25% off.
Research your legal counsel and go with a firm that has done this before.
Write down all personal property before you forget what you had.
When working with the insurance company, don’t take no for an answer; push back.
You have until March 30 to apply for an SBA Disaster Assistance Loan.
Folks, tariffs are the wild card here. Small business owners are worried, not because there are tariffs, but because the tariffs keep changing like a shapeshifter in Star Trek; it makes it hard to pin them down. I think by May, we will have a much better idea of where things are going in terms of foreign trade and, by association, the general economy. As I said last week, focus on what you can control. A corollary in a book I am reading during the year 1853, where the main character is on a wagon train going from Missouri to California, states, “Put your energy into rising above the things you can’t change… keep your mind right. And everything will work out for the best.” Believe me, no matter how bad things may look for your job and/or your business, it’s a lot better than being on a wagon train in 1853.
Let’s wrap up the quarter strong!
