No Technical Recession: In 2022, when initial GDP data was released showing the U.S. economy shrank for two straight quarters, many wondered why the U.S. was not considered to be in a recession. U.S. recessions are typically pronounced months after a panel of academics at the National Bureau of Economic Research (NBER) review other economic factors beyond real-time GDP data. The patience of these economists to postpone a recession call paid off this time when revisions to U.S. GDP for the second quarter of 2022 grew at a 0.3% rate vs. an initial estimate of shrinking at 0.6%, revealing initial estimates off by nearly 1%. 2022's Revised GDP Data | axios.com Gross Domestic Product | U.S. Bureau of Economic Analysis (BEA)
As difficult as it is to interpret and evaluate real-time data, a harder job for economists is to forecast correct data. A recent survey of 66 economists by the WSJ showed economists are upbeat about the U.S. economy, with the labor market and inflation both cooling, leading to lower interest rates and support to the economy: What Experts Say About Where the Economy is Headed, in Charts | WSJ.
U.S. Inflation & Social Security COLA: The Bureau of Labor Statistics released their September CPI report last week and inflation data came in higher than consensus estimates. Core inflation (excluding food and energy) rose 0.3% for the month vs. expectations of 0.1%. Most of the rise in inflation came from shelter price increases and the annual core inflation rate is 3.3%. CPI September at 2.4% | cnbc.com. While this recent inflation report was slightly higher than expected, inflation is coming down. The Social Security Administration announced the cost-of-living adjustment for 2025 will be 2.5%, less than the 3.2% rise in 2024 when inflation was higher. Social Security COLA | usatoday.com
Extreme Weather and Housing: With the seemingly relentless stories of rarer and stronger weather events over the past few years from California wildfires to Florida hurricanes and northeast flooding, researchers have begun to look at the impact this may have on real estate values. Research by two economists, looking at the sales of more than a million residential transactions in Florida, reveals homes are likely to be bought and sold differently based on climate risk with higher-risk homes priced lower than low-risk homes. The Washington Post reviewed Florida real estate data beginning in 2022 which revealed that riskier home values rose 2%, while homes on safer ground rose 7%. Historically, home prices rebound after natural disasters, but Superstorm Sandy altered that pattern in New York, where homes in flood zones were selling for less than similar homes on higher ground. The same goes for western states impacted by wildfires, with the wildfire risk reducing home prices by 3.9%. While climate risk may be one reason real estate prices are impacted, the costs of homeowners insurance also may impact the value of homes where for every $1,000 rise in insurance premiums, a home's value will fall by more than $20,000. Climate Change Poses Risk to Homeowners | Washington Post
RSWA Donations: At the end of every year, RSWA donates to local charities in the communities we serve. Due to the severity of damage caused by hurricanes Helene and Milton, we are making some changes this year. For one, we will be donating to the Asheville, NC, and Sarasota, FL relief efforts. Though we serve more clients in New England than in the Southeast, we feel those areas need outsized help this year. Secondly, we will make the donations now as opposed to waiting until year-end so the funds can be put to good use while conditions are more urgent. We wish everyone in the affected areas a speedy recovery and a return to normalcy.
Hurricane Helene | United Way of Asheville and Buncombe County Community Foundation of Sarasota County
Financial Planning/Investment Strategy Corner:
The Rise in Levered ETFs:
The advent of exchange-traded funds (ETFs) has benefited investors with the investment vehicle providing an inexpensive, diversified, and tax-efficient vehicle. When any investment vehicle exhibits success and gains market share, new players will enter the market, and investors will need to be more careful about the ETFs they use. One rise in the ETF market is the increase in leveraged and inverse ETFs, with 200 levered products now, managing $100 billion in assets. These products are designed to enhance a stock’s return, delivering 2 or 3 times an investment return, if the investment increases. By utilizing leverage, negative returns on an investment can also lead to 2 or 3 times in losses. Over the long run the volatility of the underlying investment going up and down erodes the returns of these ETFs. In one example, MicroStrategy stock was up over 100% in 2024, however, the product providing 3 times leverage was down more than 80%. These levered ETFs may also carry a higher expense ratio than cheaper, index-based ETFs.
As for successful investor approaches, Morningstar points to the record number of 401k millionaires on Fidelity’s platform. Morningstar points to this being the primary way for investors to succeed: a patient and consistent approach: The Number One Way Americans are Becoming Millionaires | Morningstar
Quick Hits:
- Is this why our cats insist on knocking over our water glasses? Cats’ Liquid Behavior | sciencenews.org
- I tend to be an over-checker and open the oven when baking or cooking: 7 bad habits to break with your oven | goodhousekeeping.com
- Hospitals in Nepal reduce burning of medical waste: Hospital Waste Crackdown in Nepal | bbc.com
- With daylight ending earlier, I am missing my evening walks: Go for a Walk After Dinner. There are Several Benefits. | slate.com
- Philanthropist Mackenzie Scott donates to Maine nonprofit: CEI Receives Donation of $15 Million | ceimaine.org
What makes someone a good manager? Not the person who wants to be one. A study found that teams run by managers who really wanted to be managers performed worse than reluctant managers assigned by chance. Just promoting someone based on their performance in a job may not be a good way either, with researchers looking at the promotion of thousands of sales workers, where higher performance increases the likelihood of promotion. However, once promoted their new subordinates suffered worse performance. The reason it matters is because competent management results in about twice as much impact on a team’s performance. We’ve all had bad managers who can’t keep employees motivated or morale high. So how should managers be selected? Researchers at Harvard point to individuals with certain skills, particularly those who perform well on an economic IQ test called the Assignment Game: Skills Lab Assessments & Games. Considering it a ‘game’ is a loose term, when I ‘played’, I found it stressful. Spot the Boss | economist.com
Quote: “We are what we pretend to be, so we must be careful about what we pretend to be.” – Kurt Vonnegut
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