Wednesday, April 16, 2014

Retail Sales Fueling Stronger Growth

We often hear that consumer spending constitutes 70 percent of the American economy, so any rise in retail sales ought to be considered good news indeed. The Commerce Department announced on Monday that retail spending increased by 1.1 percent in March - the biggest such monthly increase in a year and a half.

On top of that, Commerce also revised February's retail figures upward. Add all that up, and economists now think the U.S. economy will grow at around 3 percent in the second quarter of 2014 in a survey conducted by the Wall Street Journal. That would be double the 1.5 percent we had in the first quarter,

Over the course of the recovery, now about five years old, GDP growth has averaged of 2.5 percent per quarter, so this quarter has the potential to exceed that. The same economists also predicted that 3 percent growth rate to prevail through the second half of 2014.

Tuesday, April 15, 2014

A Little Good News for Tax Day

Did you send your tax return in today? There might be less reason to be nervous about it than there has been in recent years. Because of budget cuts, the IRS says it has the capacity to conduct the fewest audits than at any time since the 1980s.

The number of audits being conducted was already pretty low. The IRS says it audited less than 1 percent of all returns it received last year. That was the lowest audit rate since 2005.

But don't think that gives you carte blanche to put whatever you want on your 1040. If you report much less income on your personal return than your employer has reported to the bureau, the IRS's computers will pick that up - without any personal intervention from an auditor.

Monday, April 14, 2014

Small Caps Fall Short

The turmoil in the market at the end of last week has now driven the S&P 500 down for the year, with a year-to-date loss of 1.77 percent. Oddly enough, it's small-cap stocks that have been suffering the most.  Through last Thursday, the Russell 2000 small-cap index was down 2.8 percent on the year, while the Russell 1000 large-cap index was nearly even, dropping by just 0.2 percent.

Last year, the large-cap index returned an astonishing 33.1 percent. But the small caps were even more impressive, returning 38.8 percent for the year.

That's the norm for these things. The small-cap index has outperformed the large-cap index in 10 of the past 16 years. And over the long haul, small cap stocks have returned slightly more than the large caps, although with much greater volatility.

Friday, April 11, 2014

Baby Boomers Get Nervous

We've heard reports of 401(k) balances reaching new record highs, but that hasn't translated into optimism on the part of upcoming retirees. According to a new survey from the Insured Retirement Institute, just 35 percent of Baby Boomers said they felt confident about their retirement. That's down from 44 percent in 2011.

Just 65 percent of those Boomers said that they were economically satisfied. That number is down from 77 percent who felt satisfied in the same survey a year ago, despite the fact that the stock market has been roaring over that stretch.

What's the issue here? It may simply be that more and more Baby Boomers are actually retiring - 10,000 of them turn 65 every day. Crossing that threshold may be enough to turn a once-confident worker into a nervous retiree.

Thursday, April 10, 2014

The Markets Love the Fed

Investors really liked the minutes the Federal Reserve released yesterday about its latest meeting. How much did they like them? Enough that the stock market doubled its gains for the day after the minutes were released late in the afternoon. The Dow Jones industrial average was up 76 points on the day before the minutes were released - and then jumped another 153 points.

What got everyone all excited? It turns out the Fed had discussed the prospect of raising interest rates, particularly in light of the fact that inflation has been running below the Fed's target rate of 2 percent. No matter what other effects inflation has on the rest of the economy, it is generally good for stock prices.

The late-afternoon jump was remarkable also because of the way the markets have reacted to previous releases of Fed minutes. According to research from Bespoke Investment Group, on the last ten days in which the Fed has released minutes, the S&P 500 has dropped on eight of those days.

Wednesday, April 9, 2014

Greece Is Back in the Bond Market

A sign that Europe is lifting out of its lengthy economic doldrums: Greece has announced it plans to sell long-term government bonds, for the first time since the European Union bailed the country out two years ago. The fact that Greece expects there to be a market for its debt is a very good signal for the health of its economy.

The country is likely to have to pay a high interest rate on those bonds, though. Existing ten-year Greek debt is currently paying about 6 percent. A more stable economy, like Germany, is paying closer to 1.5 percent. Here in America, the ten-year Treasury bond is currently yielding 2.69 percent.

Those rates are a long way from where Greece was just a few years ago, though. As recently as 2012, ten-year Greek bonds were paying more than 30 percent, and they didn't slip under 10 percent for good until late last year.

Tuesday, April 8, 2014

Inflation and the Poor

Has inflation had much of an impact on your purchasing power recently? Probably not, since it's been running at a fairly muted 1.1 percent over the past 12 months. But a fascinating new study by the Web site FiveThirtyEight shows that the impact of inflation also varies by where you stand on the socioeconomic scale.

Items that the poor spend a higher proportion of their money on have had some of the highest inflation rates in the past year. The cost of electricity is up 4.7 percent; the cost of cigarettes is up 5.8 percent. Meanwhile, things we think of as primarily the province of the affluent haven't risen nearly as much. The cost of a new vehicle is up by just 1.5 percent; the cost of airfare has actually dropped in the past year, by 0.3 percent.

Add it all up, and the poorest fifth of American households have experienced an inflation rate that is 0.2 percent higher than that experienced by the rest of us. That's not a huge difference, but it's a few bucks a month for families that can't really afford it.