Nonfarm payroll growth blows past estimates … Biden and Trump differ on their views of the economy … strong on the macro, weak on the micro … the deteriorating shape of retirement
Job creation in March blew away expectations.
This morning, we learned that nonfarm payrolls increased by 303,000 last month. That was a whopping 50% higher than the Dow Jones estimate of 200,000.
The rest of the report was mostly in-line with expectations. The unemployment rate edged lower to 3.8% as had been forecasted. Meanwhile, wages rose 0.3% for the month and 4.1% from one year ago, both also matching Wall Street estimates.
Based in this report, there’s one bottom line takeaway: This is not an economy in dire need of interest rate cuts.
This conclusion supports President Biden’s statement on Monday that “America has the best economy in the world.” It also seems to contradict former President Trump’s comment from last month: “We are a nation whose economy is collapsing into a cesspool of ruin…”
But this isn’t a black-and-white issue.
While this morning’s jobs data do paint the picture of a strong economy, if we zero in on the financial condition of the typical American, the term “cesspool” has greater relevance, as I’ll detail for you momentarily.
So, how can the broad economy be strong while the financial condition of the typical American skews weak?
Well, inflation.
Specifically, inflation that’s already been baked into the cake at this point, resulting in nosebleed prices that are weighing on family budgets and jeopardizing retirement goals.
Even if inflation drops to zero, prices have now settled at such elevated levels that they’re squeezing Americans on all sorts of financial fronts.
So, while the economy can be strong, the typical American can still be struggling.
Let’s provide some color on this.
Are you about to retire?
If so, do you have $1.46 million?
If not, then a “comfortable” retirement isn’t in the cards for you.
That’s the takeaway from a recent Northwestern Mutual survey. Here’s more from The Wall Street Journal:
It would take $1.46 million to retire comfortably, according to a recent survey of 4,588 adults released Tuesday by financial-services company Northwestern Mutual.
That is up from $1.27 million a year ago. And over $1 million more than the average survey participant’s nest egg.
If this doesn’t describes you, you’re hardly alone.
The individuals polled by Northwestern reported they had saved an average of $88,400. Now, we don’t know how many years these people have until retirement, but we do know that $88K is one heck of a long way from $1.46 million.
Meanwhile, other surveys provide clues that the typical American does not have nearly enough saved to retire.
For example, Bankrate recently published the results of its own survey finding that only 44% of Americans could pay off a $1,000 emergency expense with cash savings. The remaining 56% would have to use a credit card, borrow from family, or take out a loan.
Speaking of credit cards, Bankrate also finds that 49% of Americans can’t pay off their monthly credit card debt, so they’re carrying a balance…at an average annual percentage rate of 20.74%.
Not good.
Now, you might be scratching your head because you’ve seen different, more encouraging statistics
For example, according to Fidelity, the average 401(K) balance of their customers who are in their 50s is $199,500.
While not $1.5 million, that’s far better, right?
Yes, but let’s remember the important distinction between “average” and “median.”
Averages add up all the individual values and divide the total by the number of observations. However, the median takes the “middle” value so that half of the observations are larger and the other half are smaller.
Clearly, an average is prone to distortions caused by a handful of individuals with an incredibly high net worth. That makes the median a much more accurate reflection of how the typical individual is doing.
So, if we look at the median 401(K) balance of Fidelity’s customers who are in their 50s, what do we find?
Not a balance of $199,500, but of just $60,900.
As you can see below, the numbers are even worse for younger generations. The average number is green on the left; the median figure is in purple on the right.
The bottom line is that there’s a brewing retirement crisis
Despite our relatively strong economy, the typical American doesn’t have nearly enough savings to ride out retirement.
Is there any significant help from pensions?
Nope.
Back in the mid-1980s, nearly half of all private sector workers were covered by corporate defined-benefits plans. By 2022, that number had plummeted to just 15%.
Okay, but what about Social Security?
Well, when do you plan to retire?
As it stands today, without a major change in policy, Social Security will be depleted by the mid-2030s. This means only a portion of retirees’ expected benefits will be paid out.
Translation – on the current trajectory, the younger you are, the less you’re going to get back from Social Security relative to what you’ll pay in. Not exactly a sound investment.
But let’s circle back to the condition I just referenced: “without a major change in policy.”
What are the odds that our politicians will pass wise, financially responsible legislation that remedies this situation?
About zero.
Neither President Biden nor former President Trump is willing to speak about the elephant in the room, which is the coming shortfall of funds available to pay out promised Social Security benefits.
Of course, both are happy to pay lip service to not cutting those benefits.
For example, last month, after Trump made a reference to cutting certain entitlement programs, Democrats went on the offensive, resulting in Trump backtracking, saying, “I will never do anything that will jeopardize or hurt Social Security or Medicare.”
Meanwhile, also in March, President Biden released his budget proposal. It states: “The President opposes policies that cut benefits, as well as proposals to privatize Social Security.”
Now, I must ask…
Why would privatizing Social Security be so bad?
Older investors may recall President George W. Bush making Social Security reform his top domestic priority back in 2004. Bush wanted to give Americans the option to invest part of their Social Security contributions in private accounts.
From his 2004 State of the Union address:
Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account.
We should make the Social Security system a source of ownership for the American people.
Of course, political gridlock killed the plan. And what was the ensuing opportunity cost to you and me?
Well, had Bush’s reform passed, rather than pouring money into a broken Social Security system that may not even be able to pay us back our investment dollar-for-dollar, we could have put our money into the S&P and nearly 4X’d it by now.
And yet privatizing Social Security is off the table?
Even if you have above-average savings today and don’t need Social Security, consider the challenge of making your dollars stretch as you age
The cost of senior living facilities hasn’t been immune to inflation.
Last month, Genworth released its latest “Cost of Care Survey.” It found that the national annual median cost of a semi-private room in a skilled nursing facility came in at a whopping $104,000. That represents at 4.4% increase from 2022.
Meanwhile, the cost of a private room jumped nearly 5%, clocking in at almost $117,000 a year.
Based on the median 401(K) balances we looked at earlier, this means the typical American could afford about six months in a private room at a skilled nursing facility.
The report concluded that inflation was the leading contributor to overall cost increases for assisted living facilities.
Unfortunately, these rising costs don’t equal rising levels of quality care.
Here’s Kiplinger:
…The cost of renting in a senior living facility continues to rise. Just because the price has risen, doesn’t always mean the value rises along with it…
These costs are a significant strain on the budget for most families so of course family decision makers want to see added value paired with increased price…
However, the overall satisfaction levels for the category “price paid for services received” declined from the previous year. On a scale of 1000, satisfaction with value ranked at just 604 points – a 15-point decrease from 2022.
Not enough money for retirement, and subpar care even if you have the money, isn’t a winning combo for enjoyable golden years.
Circling back to Biden and Trump, as we look ahead to November, inflation and its impact on retirement goals will be a significant factor for voters
From The Brookings Institution:
As the 2024 general election begins in earnest, voters’ assessment of the economy and of the candidates’ ability to manage it will, as usual, have a strong impact on the outcome of the race…
Inflation and high prices remain the electorate’s top concern and dominate voters’ assessment of the economy.
In a just-released Economist/YouGov survey, 22% of voters identify inflation/prices as their most important issue, compared to only seven percent who cite jobs and the economy.
So, returning to the top of today’s Digest…
The latest broad economic data do show a strong economy. Period.
However, the latest data on the individual American consumer shows a far shakier reality.
As it looks today, frustrated, cash-strapped Americans could be deciding the 2024 presidential election.
You can be sure Biden and Trump are aware of this. So, how will they position themselves on inflation, the economy, Social Security, and Wall Street in the months to come? And is there a “right” way to invest today relative to that positioning?
Plus, if you’re facing your own retirement shortfall today, is there a way to use the coming months as an opportunity to play catch-up in your portfolio?
Legendary investor Louis Navellier will be discussing these topics with a special guest next Wednesday, April 10th in a live event called “Election Shock Summit.” They’ll be discussing the potential for market volatility this year resulting from our tense political climate. But also, how investors can use this to their advantage.
To reserve your seat for this free event, just click here.
Circling back to this morning’s payroll data, we’re seeing a strong economy. The question is how financially strong the individual American is, and how that will impact their vote for president.
We’ll find out on November 5th.
Have a good evening,
Jeff Remsburg
