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07.12.2024 by Gerrit Petersons

Weak U.S. Jobs Report: Unemployment at Highest Level Since 2021

U.S. Jobs: June’s jobs report showed a slowing U.S. labor force.  While the headline data showed a growth of 206,000, revisions to April and May data showed 111,000 fewer jobs created than previously estimated.  The unemployment rate increased to 4.1% from 4.0%, caused in part by 277,000 people joining the labor force.  U.S. Labor Market Losing Steam| Reuters 

Earlier this week Federal Reserve Chair Jerome Powell, in testimony to Congress, acknowledged that ‘elevated inflation’ is now not the only risk to the U.S. economy, with a cooling U.S. labor market. With softening economic data investors are eyeing a September rate cut. Powell Flags Rising Risks to Jobs | Bloomberg 

Commercial Real Estate: Office vacancy rates hit a record high of 20.1% in the second quarter, the highest since the index began in 1979, with the trend expected to continue into 2026.  Almost $1 trillion in commercial real estate debt will mature this year in the U.S., and defaults are expected to rise.  Commercial real estate has come under pressure in the face of higher interest rates and what is looking to be a structural shift in office use, with the increase in the number of employees working from home or hybrid schedules, reducing the need for office space in some instances.  Typically, an increase in vacancies is tied to recessions, however, with the shift to remote working, that may not be the case now.  Some investors are seeing opportunities and buying discounted, distressed commercial real estate. This may not be a good sign for growth and lending going forward as properties pile up on regional bank balance sheets and the number of non-performing loans increases. A non-performing loan would be the result of owners or lenders of commercial real estate refusing to accept discounted offers to sell the property and keeping the property on the balance sheet with lower occupancy rates and receiving lower rents.  This could lead to capital being spent on the higher costs of maintaining the non-performing loans. Office Vacancy | axios.com US Commercial Property Crash Is Set to Deepen the Pain Elsewhere | yahoo.com 

Play Ball! Join RSWA at a Sea Dogs Game!  Invites were sent for the event RSWA is hosting at Hadlock Field to watch the Portland Sea Dogs take on the Altoona Curve on August 7th. First pitch is at 6 pm.  Feel free to contact your Advisor team if you did not receive an invite. 

Financial Planning/Investment Strategy Corner: 

The Multiple Bucket Approach: Merely saving for retirement can seem like a daunting task but the added complexities of the different types of retirement savings vehicles can be overwhelming for some.  Recent changes to tax and inheritance laws make it important also to consider the right type of account or “bucket” in which you are accumulating retirement savings.  The Right Retirement Account Mix | cnbc.com 

401k or Traditional IRA Bucket (tax-deferred or pretax):  Workers who have access to a 401k plan or traditional IRA should know that while you receive a tax deduction on your contribution, any dollar taken out of the account is taxed as income, at federal (and possibly state) income tax rates.  At a future age (this year it is 73 for most individuals, but increasing to age 75 in 2033), you will also be required by the federal government to take a withdrawal from the account annually (known as a required minimum distribution).  These required minimum distributions may impact your tax bracket and your Medicare premiums.  Workers may receive a dollar-for-dollar company match for contributions they make to a 401k plan, which should also be considered.   

ROTH 401k or IRA Bucket (after-tax): Unlike a traditional 401k or IRA contributions to a ROTH IRA do not receive an immediate tax deduction, however, under current tax laws, the accounts grow tax-free and any withdrawals during retirement will not be taxed at income tax rates.  Retirees are also not required to take any withdrawals from ROTH assets during retirement.  If you are in a higher tax bracket now versus during retirement, it may make less sense to utilize a ROTH vehicle. 

Taxable Brokerage Bucket: Utilizing a taxable brokerage account may mean you give up the tax deduction or tax-free growth, however, gains in taxable accounts are taxed at capital gains rates, which are typically lower than income tax rates.  While taxes are owed on income generated in the account and on any realized gains, there are no penalties for distributions taken before 59 ½, unlike Traditional and ROTH IRAs.  If an investor realizes a loss in an investment, the loss can be used against other realized capital gains and even carried forward. 

While there are benefits and potential drawbacks to each “bucket”, a mix of the strategies lends to a more flexible approach to potential changes to tax or inheritance laws.  Each individual investor’s timeline, tax situation, and risk tolerance should be evaluated in conjunction with this flexible “bucket” approach. 

Quick Hits:  

The Cult of the 5 am Club: Do you ever wake up in the morning and realize you are in a cult?  My wife shared with me that I was in a cult based on an article she read: The Cult of 5am | The Guardian.  She does not share my penchant and eagerness for the early morning life and languishes (my description) in bed until 8 am and sometimes even 9 am.  I am naturally an early riser, typically in bed by 9 or 10 pm and up to witness the happenings in my neighborhood at 5 or 6 am.  I find the alone time relaxing.  With the house quiet, I typically collect my thoughts for the day, listen to a podcast or the news, and exercise.  On weekends I may go for a hike. The issue between our different approaches is mainly because she stays up later than me, so her circadian rhythm is different than mine.  The 5 am club is not for everyone and likely not necessarily something you can force yourself to do, based on our body clocks.  I now wake with a ‘little’ less judgment towards late sleepers. 

Quote: “Always remember you are absolutely unique – Just like everyone else.” — Margaret Mead 

Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!

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