Tag Archives: Consumer prices

Business

The steep plunge in used car prices — what it means, and what’s ahead

Leave a comment


New York
CNN
 — 

Tracking used car prices is enough to give anyone whiplash.

Since the start of the pandemic and the resulting disruptions to new car supply chains first sent prices soaring, used car prices posted their largest annual increase on record – up 45% in the 12 months ending in June 2021, according to the Consumer Price Index – before swinging to a 12-month drop of 8.8% in the most recent reading for December.

That was the biggest 12-month plunge in prices for used cars since June 2009, when General Motors and Chrysler were both in bankruptcy proceedings and the economy was hemorrhaging a half-million jobs a month.

“It was a completely wild ride,” said Ivan Drury, director of insights at Edmunds.com Inc., an online resources for inventory and information on cars.

Data from Edmunds shows the average price of a used car purchase in December at $29,533, down nearly $1,600 from the record high of $31,095 reached in April 2022. Today’s average used car price is about the same as the average new car price as recently as 2010.

While the prices of late model used cars are down only 5% off their peak according according to Edmunds, the price of older used cars, those five years or older, have fallen 15% or more from their peaks early in 2022.

Experts say reasons for the decline include higher interest rates that make it more expensive to finance a car purchase, limiting demand. CarMax

(KMX), the nation’s largest pure used car dealer, has warned that the combination of high prices and high interest rates is creating an affordability problem for many buyers, hurting overall demand.

But the leading reason for the drop in used car prices is the increased supply of new cars.

It was the lack of new car inventory that drove up prices. Parts shortages, especially for computer chips, had choked off production of new cars in much of 2022, causing the lowest level of full-year US new car sales since 2011.

The low supply of new cars caused an even bigger jump in the average price of used cars, as buyers who would otherwise buy new vehicles turned to the used car market.

“At one point it seemed that everyone who was going to buy new ended up buying used,” said Greg Markus, executive vice president of AutoLenders, parent company of New Jersey’s largest used car dealership chain.

That included rental car companies, which before the pandemic normally bought about 10% or more new cars per year. With limited inventory of cars to sell, automakers essentially stopped making lower-priced fleet sales, and even rental car companies were forced to turn to the used car market.

All that has started to change in recent months. Automakers are reporting more supplies of the chips they need, and are producing and selling more cars, including a return of fleet sales. Overall, sales were up 9% in the fourth quarter compared to a year ago, and nearly 6% higher than in the third quarter, according to Cox Automotive. And with more buyers finding the new cars they want, that means lower demand for used cars.

Experts say part of the decline in used car prices is that the price increases were not sustainable and were partly driven by buyers at used car auctions overpaying for the limited supply of used vehicles.

“There was nowhere for these prices to go but down,” said Markus.

There could be more declines in used car prices in the months ahead, as new car inventories continue to build. One thing that could put a floor under the used car prices: late model used cars will likely be in short supply given the reduced new car production over the last three years.

“The supply issue is still grim,” said Markus. Because of that, “I don’t think we’re getting down to 2019 levels,” he added.

The run-up in used car prices was a major driver in the nation’s overall inflation rate, adding about a full percentage point to the overall increase in consumer prices from April of 2021 through May of 2022. Now it’s a factor helping to bring down the pace of inflation, shaving more than a third of a point off the overall rate in December.

This is obviously good news for those wanting or needing to buy a used car, though it can have a negative effect on car buyers by reducing the value of vehicle they hope to trade in. Edmunds shows the average trade-in value in December down nearly $3,000, or 11%, to $22,605, from the record high hit in June of 2022.

That drop in the value of trade-ins could also be a headwind on car prices by reducing what buyers are able to pay.

Read original article here

Business

PCE, the Fed’s preferred inflation gauge, shows prices cooling

Leave a comment


Minneapolis
CNN
 — 

The trend is clear: Inflation is cooling off in America.

The Federal Reserve’s preferred measurement of inflation showed price increases continued to moderate in November, providing yet another welcome indication that the period of painfully high prices has peaked.

The Personal Consumption Expenditures price index, or PCE, rose 5.5% in November from a year earlier, the Commerce Department reported Friday. That’s lower than in October, when prices rose 6.1% annually.

In November alone, prices rose just 0.1% from October.

Core PCE, which excludes the volatile food and energy categories, was up 4.7% annually and 0.2% on a monthly basis, matching expectations of economists polled by Refinitiv.

The annual increases for both PCE inflation indexes hit their lowest levels since October 2021 and follows continued declines in other inflation gauges, such as the Consumer Price Index and Producer Price Index.

PCE, specifically the core measurement, is the Fed’s favored inflation gauge, since it provides a more complete picture of costs for consumers.

Friday’s report also showed that spending continued to rise in November, but at a much slower pace than in previous months. Spending was up 0.1% in November as compared to 0.8% the month before. Personal income increased by 0.4% in November, down from 0.7% in October.

The November PCE report, the last major inflation gauge released in 2022, provided a snapshot of an economy in transition. Tasked with reining in the highest inflation since the early 1980s, the Fed has undertaken a series of blockbuster interest rate hikes to squelch demand.

In its seven meetings starting in March, the central bank’s policymaking arm raised its benchmark interest rate by a cumulative 4.25 percentage points. The sharp hike in rates has started to filter through the economy, its effects showing up first in areas such as real estate, where mortgage rates were 6.27% this week, more than double the rate seen last year at this time, according to Freddie Mac data.

“The economy is moving in the right direction from the Federal Reserve’s perspective at the end of 2022, but not quickly enough,” Gus Faucher, chief economist for PNC Financial Services, said in a statement. “Higher interest rates are weighing on consumer spending, particularly for durable goods, and inflation is slowing.”

Inflation has moderated in recent months, especially on items like goods as supply chain bottlenecks have eased and consumers focused more spending in areas like leisure and hospitality.

However, inflation within the services sector has been a little “sticky,” and not abating as quickly. Friday’s PCE report showed the services index posted a monthly increase of 0.4% – unchanged from October’s rate – and a year-over-year increase of more than 11%, Faucher noted.

While much of the services inflation is due to housing costs, which are rapidly reversing, the Fed is concerned that strong wage growth could fuel persistent increases in services prices and overall inflation, he added.

“The Federal Open Market Committee will continue to increase the fed funds rate in early 2023 until it becomes more apparent that the job market is cooling, and wage growth and services inflation are slowing to more sustainable paces,” he added.

The Fed’s latest economic projections that were released last week showed that board members were expecting inflation to remain slightly higher for longer than previously forecast. Fed board members now expect PCE inflation to end 2023 at 3.1% and core PCE to finish next year at 3.5%, above the central bank’s target rate of 2%.

A separate Commerce Department report released Friday showed that new orders for manufactured goods tumbled 2.1% in November, the biggest monthly drop since the onset of the pandemic.

Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. Excluding transportation, new orders increase 0.2%.

Shipments increased 0.2% in November, which followed a 0.4% increase in October.

“Core durable goods orders slowed but did not contract, reflecting growing unease about the economy,” Diane Swonk, chief economist for KPMG, tweeted Friday after the report’s release. “Manufacturing activity has begun to contract and prelim reading for December suggests it will contract further at year end. A cold winter expected for the manufacturing sector.

Inflation’s slow march downward has been welcome news to consumers as well, helping to perk up their economic sentiments during December, according to new data released Friday by the University of Michigan.

The final December reading for the index of consumer sentiment came in at 59.7 in December, up slightly from a preliminary measurement of 59.1 and November’s final reading of 56.8, according to data from the university’s Surveys of Consumers.

“Consumers clearly welcomed the recent easing of inflation,” Joanne Hsu, director of the Surveys of Consumers, said in a statement. “While sentiment appears to have turned a corner from its all-time low from June, consumers have reserved judgment about whether the trends will continue.”

She added: “Their outlook for the economy may have improved, but it remains relatively weak. The sustainability of robust consumer spending is contingent on continued strength in incomes and labor markets in the quarters ahead.”

The report showed the biggest improvement in sentiment about business conditions, while inflation expectations also improved by falling to 4.4% in December, the lowest reading in 18 months, according to the university. This is a key data point for the Federal Reserve. If consumers believe prices will remain high, that could factor into increased wage demands, which could cause businesses to raise prices.

Earlier this week, the Conference Board’s consumer confidence index – another measure of how consumers are feeling about the economy – landed at its highest measurement since April 2022.



Read original article here

Business

Key inflation measure shows price pressures cooled off in November, but remain high

Leave a comment


New York
CNN
 — 

Another key inflation measure shows price pressures cooled off but remained stubbornly high in November, despite the Federal Reserve’s monthslong efforts to fight inflation through higher interest rates.

The Producer Price Index, which measures prices paid for goods and services by businesses before they reach consumers, rose 7.4% in November compared to a year earlier, the Bureau of Labor Statistics reported Friday. That’s down from the revised 8.1% gain reported for October.

US stocks fell immediately after the report, as economists surveyed by Refinitiv had expected wholesales prices to have risen just 7.2%, annually. The higher-than-expected inflation readings raised concerns about whether the Fed will be able to slow the pace of rate hikes.

But futures for the Fed funds rate still show a strong likelihood of a half-point increase at the central bank’s policymaking meeting next week, rather than the three-quarter point hike instituted at the last four meetings.

The PPI report generally gets less attention that the corresponding Consumer Price Index, which measures prices paid by US consumers for goods and services. But this is a rare month in which the PPI report came out before the CPI report, which is due out Tuesday.

That and the Fed meeting scheduled for Tuesday and Wednesday next week is making this inflation report of particular importance to investors.

“Next Tuesday’s CPI release will be more important than today’s data, but with traders on edge, any indication that prices remain elevated and that inflation is more sticky than currently believed is a negative for markets,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

Overall prices rose a seasonally adjusted 0.3% compared to October — the same monthly increase as was reported in both September and October — but were slightly higher than the 0.2% rise forecast by economists.

Stripping out volatile food and energy prices, core PPI rose 6.2% for the year ending in November, down from the revised 6.8% increase the previous month. Economists had forecast only a 5.9% increase.

Core PPI posted a 0.4% increase from October, a far bigger rise than the revised 0.1% month-over-month rise in that previous month, and twice as big as the 0.2% rise forecast by economists.

Read original article here

Business

Mortgage rates fall for the second week in a row

Leave a comment

Mortgage rates dropped again this week, after plunging nearly half a percentage point last week.

The 30-year fixed-rate mortgage averaged 6.58% in the week ending November 23, down from 6.61% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.10%.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. But last week, rates tumbled amid reports that indicated inflation may have finally reached its peak.

“This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points,” said Sam Khater, Freddie Mac’s chief economist.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit. But many buyers who put down less money upfront or have less than perfect credit will pay more than the average rate.

The average weekly rates, typically released by Freddie Mac on Thursday, are being released a day early due to the Thanksgiving holiday.

Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

The 10-year Treasury has been hovering in a lower range of 3.7% to 3.85% since a pair of inflation reports indicating prices rose at a slower pace than expected in October were released almost two weeks ago. That has led to a big reset in investors’ expectations about future interest rate hikes, said Danielle Hale, Realtor.com’s chief economist. Prior to that, the 10-year Treasury had risen above 4.2%.

However, the market may be a bit too quick to celebrate the improvement in inflation, she said.

At the Fed’s November meeting, chairman Jerome Powell pointed to the need for ongoing rate hikes to tame inflation.

“This could mean that mortgage rates may climb again, and that risk goes up if next month’s inflation reading comes in on the higher side,” Hale said.

While it’s difficult to time the market in order to get a low mortgage rate, plenty of would-be homebuyers are seeing a window of opportunity.

“Following generally higher mortgage rates throughout the course of 2022, the recent swing in buyers’ favor is welcome and could save the buyer of a median-priced home more than $100 per month relative to what they would have paid when rates were above 7% just two weeks ago,” said Hale.

As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. But refinance activity is still more than 80% below last year’s pace when rates were around 3%, according to the Mortgage Bankers Association weekly report.

However, with week-to-week swings in mortgage rates averaging nearly three times those seen in a typical year and home prices still historically high, many potential shoppers have pulled back, said Hale.

“A long-term housing shortage is keeping home prices high, even as the number of homes on the market for sale has increased, and buyers and sellers may find it more challenging to align expectations on price,” she said.

In a separate report released Wednesday, the US Department of Housing and Urban Development and the US Census Bureau reported that new home sales jumped in October, rising 7.5% from September, but were down 5.8% from a year ago.

While that was higher than predicted and bucked a trend of recently falling sales, it’s still below a year ago. Home building has been historically low for a decade and builders have been pulling back as the housing market shows signs of slowing.

“New home sales beat expectations, but a reversal of the general downward trend is doubtful for now given high mortgage rates and builder pessimism,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Despite a general trend of falling sales, prices of new homes remain at record highs.

The median price for a newly constructed home was $493,000 up 15%, from a year ago – the highest price on record.

Read original article here

Business

Key inflation report indicates the Fed’s rate hikes may be starting to cool prices

Leave a comment


Minneapolis
CNN Business
 — 

A key measure of inflation, wholesale prices, rose by 8% in October from a year before, according to the latest report from the Bureau of Labor Statistics.

While still historically high, it was the smallest increase since July of last year and significantly better than forecasts. It’s the second inflation report this month to show signs of cooling in the rising prices that have plagued the economy.

Economists expected the Producer Price Index, which measures prices paid for goods and services before they reach consumers, to show an annual increase of 8.3%, down from September’s revised 8.4%.

On a monthly basis, producer prices rose 0.2%, below expectations and even with the revised 0.2% increase seen in September.

Year-over-year, core PPI — which excludes food and energy, components whose pricing is more prone to market volatility — measured 6.7%, down from September’s revised annual increase of 7.1%.

Month-over-month, core PPI prices were flat, the lowest monthly reading since November 2020. In September, core PPI increased by a revised 0.2% from the month before.

Economists had expected annual and monthly core PPI to measure 7.2% and 0.3%, respectively, according to estimates on Refinitiv.

President Joe Biden heralded October’s PPI report Tuesday calling it “more good news for our economy this morning, and more indications that we are starting to see inflation moderate.”

“Today’s news – that prices paid by businesses moderated last month – comes a week after news that prices paid by consumers have also moderated,” Biden wrote Tuesday. “And, today’s report also showed that food inflation slowed – a welcome sign for family’s grocery bills as we head into the holidays.”

For much of this year, the Federal Reserve has sought to tamp down decades-high inflation by tightening monetary policy, including issuing an unprecedented four consecutive rate hikes of 75 basis points, or three-quarters of a percentage point.

The better-than-expected PPI data reflects an economy that has slowed, with supply moving more into balance, said Jeffrey Roach, chief economist for LPL Financial.

Costs associated with transportation and warehousing, for example, declined for the fourth consecutive month, a likely result of the improved global shipping climate, he said. Producer costs for new cars fell the most since May 2017, he added.

“Barring geopolitical or financial crises, inflation should continue its deceleration into 2023,” he said in a statement.

Since PPI captures price changes happening further upstream, the report is considered by some to be a leading indicator for broader inflationary trends and a predictor of what consumers will eventually see at the store level.

“The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend,” Mike Loewengart, Morgan Stanley’s head of model portfolio construction, said in a statement.

Last week’s Consumer Price Index showed inflation slowed to 7.7% from 8.2% year-over-year for consumer goods, surprising investors and giving Wall Street its biggest boost since 2020.

The CPI data was “reassuring,” Fed vice chair Lael Brainard said on Monday, signaling that the rate hikes appear to be taking hold, and if the economic data continues to show inflation on the decline, then the central bank could scale back the extent of its future rate hikes.

“When you look at the inflation numbers, there’s some evidence that we’ve peaked, but are we coming down quickly?” Steven Ricchiuto, chief economist for Mizuho Americas told CNN Business.

Ricchiuto noted that the October figures are only a couple steps lower than what was seen in September.

“These aren’t the types of things that tell the Fed to stop tightening rates,” he said. However, “they may tell you [that] you don’t need 75 basis points.”

CNN’s DJ Judd and Matt Egan contributed to this report.

Read original article here

Business

Inflation causes 54% of adults trimming or stopping retirement savings

Leave a comment

Brandon Bell | Getty Images

‘Make a plan’ to replenish your retirement account

If rapidly rising prices have interfered with your ability to save for retirement, it’s important to try to get back on track with savings as soon as you can, experts say.

“Make a plan now about how and when you’ll do it,” said certified financial planner David Mendels, director of planning at Creative Financial Concepts in New York. “Maybe you know you’re getting a raise and you know when it’s coming, and so you say that money will go into your retirement account.”

The danger, he said, is that without a plan, “it’s way too easy to keep on sliding.”

Look for ways to reduce your spending

While smaller (or no) retirement contributions right now may help your cash flow for current expenses, “it’s critical that you think of this as a temporary stopgap,” Mendels said. “You’ll have to figure out how to reduce your spending to [increase] your retirement savings.”

If you examine how you spend your money, you may discover that there are expenses you could cut back on. 

“Don’t view it as black-and-white,” Mendels said. “Maybe you stop going out to dinner twice a week and only go once a month, or maybe you take a less expensive vacation.

“Wherever you can make costs a little lower, little by little they add up,” he said.

Dipping into retirement savings may mean a penalty

Also be aware that if you dip into your retirement savings early, there may be tax implications.

Depending on the type of retirement account and the circumstances, withdrawals made before age 59½ could come with a 10% tax penalty. For traditional 401(k)s and IRAs, if you don’t meet a qualifying exception, you’d pay that penalty on top of any taxes owed on the amount of your withdrawal.

If it’s a Roth account — whose contributions are made after-tax — you can take out any money you’ve contributed without taxation or penalty. However, withdrawing earnings could come with the penalty, depending on the specifics.

Next year, retirement savers can contribute up to $22,500 in 401(k)s, with people age 50 or older allowed an additional $7,500 in so-called catchup contributions. For IRAs, the contribution limit in 2023 is $6,500 and the catchup amount is $1,000.

Read original article here

Business

Inflation data shows US prices were still uncomfortably high last month

Leave a comment


Minneapolis
CNN Business
 — 

A new batch of inflation data released Friday showed that while prices remained uncomfortably high in September, a slowdown in wage growth indicates some relief may be in sight. That’s an encouraging development for the Federal Reserve, which is battling to bring down the highest inflation in 40 years.

The Personal Consumption Expenditures Index, which measures prices paid by consumers for goods and services, climbed by 0.3% from August to September but remained unchanged at 6.2% for the year, according to the latest report from the Bureau of Economic Analysis.

Core PCE, which strips out volatile food and energy prices and is the Fed’s preferred measure of inflation, climbed by 5.1% on an annual basis, higher than the August rate of 4.9% but below the consensus estimate of 5.2%, per Refinitiv.

From August to September, the core index rose by 0.5%, matching estimates. The prior month’s jump was revised down to 0.5% from 0.6%.

Separately, the Bureau of Labor Statistics released its latest Employment Cost Index, which shows a slowdown in wage and salary growth in quarterly labor costs. The central bank keeps a close eye on the ECI report to monitor the extent to which skyrocketing inflation is boosting wages — and fueling inflation.

The latest numbers come just days before the Fed meets to discuss another rate hike — and as Americans hit the polls to vote in midterm elections.

“These data confirm the Federal Reserve has more work to do to cool demand and reduce inflation and keep policymakers on track to raise the federal funds rate by another 75 basis points at the FOMC meeting next week,” Gregory Daco, senior economist at EY Parthenon, said in a statement.

But some of the underlying metrics that indicate a slowdown is on the horizon could mean that next week’s rate increase — which is expected to be the fourth-consecutive 75 basis-point hike — may be that last one of that size, said Mark Zandi, chief economist for Moody’s Analytics.

“There are a lot of moving parts, a lot of assumptions, but I think the most likely scenario is that we’re at the worst of the inflation, and it should be back close within spitting distance of the Fed’s [2%] target by spring of 2024,” he said.

Consumers have been struggling for months with prices that have remained firmly stuck at levels not seen since the 1980s. Despite a series of jumbo rate hikes from the Fed in its bid to tame inflation, the most recent Consumer Price Index — which measures the cost of everything from eggs to plane tickets — showed that price increases continue to surge and that inflation even spread from goods into the services sector in September.

The latest PCE report showed that Americans continued to spend beyond their means — consumer spending increased 0.6% in September from August and income grew 0.4%, while savings levels fell.

Even accounting for inflation, expenditures outpaced income.

“Monetary policy acts with a lag, but at this early stage, consumers’ spending is more or less unfazed by high inflation and the rate hikes intended to get prices under control,” Wells Fargo economists Tim Quinlan and Shannon Seery said in a note Friday.

Consumers, however, aren’t necessarily bullish about the economy and its future prospects.

The University of Michigan’s consumer sentiment index for October came in at 59.9, according to updated survey data released Friday. That’s only 10 index points above the all-time low reached in June.

“This month, buying conditions for durables surged 23% on the basis of easing prices and supply constraints; however, year-ahead expected business conditions worsened 19%,” said Joanne Hsu, surveys director. “These divergent patterns reflect substantial uncertainty over inflation, policy responses, and developments worldwide, and consumer views are consistent with a recession ahead in the economy.”

Beyond the consumer sector, the broader economic picture is darkening, Daco said.

“Rapidly rising interest rates, persistently high inflation, and elevated global uncertainty are eroding business sentiment and prompting companies to make more cautious hiring and investment decisions.”

And while the housing market is already buckling under the weight of surging mortgage rates, the full economic impact of the Fed’s policy tightening has yet to be felt, he said.

CNN Business’ Tami Luhby contributed to this report.

Read original article here

Business

Social Security COLA will be 8.7% in 2023, highest increase in 40 years

Leave a comment

Azmanjaka | E+ | Getty Images

Amid record high inflation, Social Security beneficiaries will get an 8.7% increase to their benefits in 2023, the highest increase in 40 years.

The Social Security Administration announced the change on Thursday. It will result in a benefit increase of more than $140 more per month on average starting in January.

The average Social Security retiree benefit will increase $146 per month, to $1,827 in 2023, from $1,681 in 2022.

The Senior Citizens League, a non-partisan senior group, had estimated last month that the COLA could be 8.7% next year. 

More from FA Playbook:

Here’s a look at other stories impacting the financial advisor business.

The confirmed 8.7% bump to benefits tops the 5.9% increase beneficiaries saw in 2022, which at the time was the highest in four decades.

The last time the cost-of-living adjustment was higher was in 1981, when the increase was 11.2%.

Next year’s record increase comes as beneficiaries have struggled with increasing prices this year.

“The COLAs really are about people treading water; they’re not increases in benefits,” said Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare.

“They’re more trying to provide inflation protection so that people can maintain their standard of living,” Adcock said.

How much your Social Security check may be

Beneficiaries can expect to see the 2023 COLA in their benefit checks starting in January.

But starting in December, you may be able to see notices online from the Social Security Administration that state just how much your checks will be next year.

Two factors — Medicare Part B premiums and taxes — may influence the size of your benefit checks.

The standard Medicare Part B premium will be $5.20 lower next year — to $164.90, down from $170.10. Those payments are often deducted directly from Social Security benefit checks.

“That will mean that beneficiaries will be able to keep pretty much all or most of their COLA increase,” Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told CNBC.com this week.

That may vary if you have money withheld from your monthly checks for taxes.

To gauge just how much more money you may see next year, take your net Social Security benefit and add in your Medicare premium and multiply that by the 2023 COLA.

“That will give you a good idea what your raise will be,” said Joe Elsasser, an Omaha, Nebraska-based certified financial planner and founder and president of Covisum, a provider of Social Security claiming software.

How the COLA is tied to inflation

The COLA applies to about 70 million Social Security and Supplemental Security Income beneficiaries.

The change is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The Social Security Administration calculates the annual COLA by measuring the change in the CPI-W from the third quarter of the preceding year to the third quarter of the current year.

Benefits do not necessarily go up every year. While there was a record 5.8% increase in 2009, the following two years had 0% increases.

“For seniors, because they spend so much on health care, those years were difficult,” Adcock said.

A similar pattern may happen if the economy goes into a recession, according to Johnson.

What the COLA means if you haven’t claimed benefits yet

If you decide to claim Social Security benefits, you will get access to the record-high COLA.

But you will also have access to it if you wait to start your benefit checks at a later date, according to Elsasser.

If you’re 62 now and don’t claim, your benefit is adjusted by every COLA until you do.

The amount of the COLA really should not influence claiming.

Joe Elsasser

CFP and president of Covisum

What’s more, delaying benefits can increase the size of your monthly checks. Experts generally recommend most people wait as long as possible, until age 70, due to the fact that benefits increase 8% per year from your full retirement age (typically 66 or 67) to 70. To be sure, whether that strategy is ideal may vary based on other factors, such as your personal health situation and marital status.

“The amount of the COLA really should not influence claiming,” Elsasser said. “It doesn’t hurt you or help you as far as when you claim, because you’re going to get it either way.”

How a record-high increase may impact Social Security’s funds

Social Security’s trust funds can pay full benefits through 2035, the Social Security Board of Trustees said in June.

At that time, the program will be able to pay 80% of benefits, the board projects.

Tetra Images | Tetra Images | Getty Images

The historic high COLA in 2023 could accelerate the depletion of the trust funds to at least one calendar year earlier, according to the Committee for a Responsible Federal Budget.

Higher wages may prompt workers to contribute more payroll taxes into the program, which may help offset that. In 2023, maximum taxable earnings will increase to $160,200, up from $147,000 this year.

What could happen to future benefit increases

While 2023 marks a record high COLA, beneficiaries should be prepared for future years where increases are not as high.

If inflation subsides, the size of COLAs will also go down.

Whether the CPI-W is the best measure for the annual increases is up for debate. Some tout the Consumer Price Index for the Elderly, or CPI-E, as a better measure for the costs seniors pay. Multiple Democratic congressional bills have called for changing the annual increases to that measure.

Read original article here

Business

BofA predicts breakout in mergers due to downcycle

Leave a comment

Mergers in software may be about to break out.

Top investment banker Rick Sherlund of Bank of America sees a wave of struggling companies putting themselves up for sale at cheaper prices due to the economic downturn.

related investing news

Ray Dalio says higher interest rates to squash inflation could tank stock prices by 20%

“You do need to see greater capitulation,” the firm’s vice chair of technology investment banking told CNBC’s “Fast Money” on Thursday. “Companies will have their valuation expectations soften, and that will combine with more fully functional financial markets. I think it will accelerate the pace of M&A [mergers and acquisitions].”

His broad analysis comes on the heels of Adobe’s $20 billion dollar deal Thursday for design platform Figma. Adobe failed to generate excitement on Wall Street. Its shares plunged 17% due to questions about the price tag.

Sherlund, a former software analyst who hit No. 1 on Institutional Investor’s all-star analyst list 17 times in a row, worked at Goldman Sachs during the 2000 tech bubble. He believes the Street is now in the beginning stages of a difficult market cycle.

“You need to get through third quarter earnings reports to feel confident that maybe the bad news is largely out into the market because companies will be reporting lengthening of sales cycles,” he said. “We need to reset expectations for 2023.”

Read more about tech and crypto from CNBC Pro

Sherlund and his team are very active in the M&A market.

“You have private equity with a boatload of cash, and they need functioning debt markets for leverage to do deals,” Sherlund noted. “They’re very eager and actively looking at this sector … It suggests that [for] M&A, in absence of an IPO market, we’re just going to see a lot more consolidation coming in the sector.”

He notes the IPO has been hurt in connection with rising interest rate headwinds and inflation.

“[The IPO market] is not open. But when the window does open back up, you are going to see a lot of companies going public,” he added.

The long-term prospects for software are extremely attractive, according to Sherlund.

“You’ve got to be very bullish on the long-term fundamentals of the sector,” Sherlund said. “Every company is becoming a digital enterprise.”

Disclaimer

Read original article here

Business

U.S. needs miracle to avoid recession, economist Stephen Roach warns

Leave a comment

Negative economic growth in the year’s first half may be a foreshock to a much deeper downturn that could last into 2024.

Stephen Roach, who served as chair of Morgan Stanley Asia, warns the U.S. needs a “miracle” to avoid a recession.

“We’ll definitely have a recession as the lagged impacts of this major monetary tightening start to kick in,” Roach told CNBC’s “Fast Money” on Monday. “They haven’t kicked in at all right now.”

Roach, a Yale University senior fellow and former Federal Reserve economist, suggests Fed Chair Jerome Powell has no choice but to take a Paul Volcker approach to tightening. In the early 1980’s, Volcker aggressively hiked interest rates to tame runaway inflation.

“Go back to the type of pain Paul Volcker had to impose on the U.S. economy to ring out inflation. He had to take the unemployment rate above 10%,” said Roach. “The only way we’re not going to get there is if the Fed under Jerome Powell sticks to his word, stays focused on discipline, and gets that real Federal funds rate into the restrictive zone. And, the restrictive zone is a long ways away from where we are right now.”

Despite the Fed’s sharp interest rate hike trajectory, the unemployment rate is at 3.5%. It matches the lowest level since 1969. That could change on Friday when the Bureau of Labor Statistics releases its August report. Roach predicts the rate is bound to start climbing.

“The fact that it hasn’t happened and the Fed has done a significant monetary tightening to date shows you how much work they have to do,” he noted. “The unemployment rate has got to go probably above 5%, hopefully not a whole lot higher than that. But it could go to 6%.”

The ultimate tipping point may be consumers. Roach speculates they will soon capitulate due to persistent inflation. Once they do, he predicts the pullback in spending will reverberate through the broader economy and create pain in the labor market.

“We’re going to have to have a cumulative drop in the economy [GDP] somewhere of around 1.5% to 2%. And, the unemployment rate is going to have to go up by 1 to 2 percentage points in a minimum,” said Roach. “That would be a garden variety recession.”

‘Cold war’ with China

The prognosis abroad isn’t much better.

He expects the global economy will also sink into a recession. He doubts China’s economic activity will cushion the impact, citing the country’s zero-Covid policy, serious supply chain backlogs and tensions with the West.

Roach is particularly worried about the U.S. and China relationship, which he writes about in his new book “Accidental Conflict: America, China and the Clash of False Narratives” due out in November.

“In the last five years, we’ve gone from a trade war to a tech war to now a cold war,” Roach said. “When you’re in this trajectory of esclating conflict as we have been, it doesn’t take much of spark to turn it into something far more severe.”

Disclaimer

Read original article here