Category: Financial Planning

One of the reasons investing is tricky is because it involves so many factors that we cannot control. One factor is the specific investment itself. In the case of a stock, the share price relies on company management and leadership; manufacturing, marketing and distribution; and balancing expenses with revenues. Another factor is investor and market sentiment, which can change on a dime based on economic uncertainty, the day’s news or a presidential tweet.

Then there’s a third component, which encompasses broader economic events and how they impact investment market fundamentals and the business life cycle. One way we monitor the economy and try to predict market cycles is through economic indicators. These are trackable data points that economists use to get an idea of the direction of specific aspects of the economy.

The following is an overview of regular economic indicators considered reflective of the current economy and indicative of future activity.

Gross Domestic Product (GDP)

GDP measures the total monetary value of all finished goods and services produced in the United States over a specified time period. Economists believe it is the most accurate measure of a country’s overall health.

Price Indexes

There are several types of price indexes, which are basically a way of tracking prices – and thus cost increases and decreases – in order to measure inflation. The most popular measure is the Consumer Price Index (CPI). It is published monthly and tracks the prices of a “basket” of many of the most common goods and services that urban consumers buy, including food, transportation, clothing and medical care.

The Producer Price Index is used to help monitor data from a commercial (wholesale) perspective. It tracks product price changes from a cross-section of sectors in the U.S. economy and is published on a monthly basis.

Jobless Claims Report

The jobless report tracks the number of workers who file for unemployment benefits, which tend to increase when the economy slows. The report does not track self-employment, contract or part-time employees (none of who qualify for unemployment benefits). It is published weekly but typically evaluated as a four-week moving average to account for short-term variances.

Housing Starts

The New Residential Housing Construction Report tracks the number of new building permits issued, which indicates increases or decreases in new construction activity. For reference, new construction usually picks up during the early expansion phase of the business cycle. This housing report generally refers to supply, while the Existing Home Sales Report, compiled by the National Association of Realtors, reflects the current demand for home sales. When viewed together, they offer a balanced assessment of the housing sector.

Consumer Confidence

Because consumer perspective can influence market fundamentals, economists track what is called a Consumer Confidence Index (CCI) that measures the general outlook of the American population. The CCI monitors a sample of 5,000 U.S. households with regard to consumer spending, which represents 70 percent of the economy. A rise in consumer confidence is typically viewed as a positive indicator for strong economic growth.

Purchasing Managers

The Purchasing Managers’ Index (PMI) gauges the confidence level of businesses, based on their spending patterns with regard to new orders, inventory levels, production, supplier deliveries and employment. The PMI is comprised of a sample of 300 purchasing executives in the manufacturing sector. For reference, an increase in new orders typically indicates a rise in prices, while a decrease points to a drop in prices. This indicator is generally used to anticipate GDP growth.

There are dozens of key economic indicators that signal changes in the direction of the economy. These regular reports help investors, market analysts and wealth managers make day-to-day buy and sell investment decisions.

The path for women is a little like two steps forward, one step back. For example, almost 40 percent of all privately held firms in the United States today are owned by women. Furthermore, the 2018 midterm elections yielded 23 female senators and more than 100 in the House of Representatives.

And yet, despite the fact that women comprise 51 percent of the U.S. population, their ranks account for less than one-quarter of Congress. And women hold only 10 percent of chief executive and chief financial officer positions in S&P 1500 companies.

What is most unfortunate about the lack of women in powerful positions is that they continue to trail men in terms of income and investment assets. When it comes to managing money, this means women are at a disadvantage because they tend to live longer than men, often are financially responsible caregivers – both as single moms of dependent children and elderly parents – and tend to have higher health and long-term care expenses as they age.

Earning Discrepancy

While younger, well-educated professional women are starting to level the playing field when it comes to earning salaries on par with male counterparts, this does nothing to help the mid-career, near-retirement or retiree with long-term financial security. Women still earn an average of 20 percent less than men in the same positions despite the fact that women have earned the majority of master’s degrees in the United States since as far back as 1981.

To add insult to injury, women’s earnings tend to peak at an earlier age and their income level drops at a faster rate than men as they grow older.

The income component of the financial picture has far-reaching impacts, such as:

• Less disposable income than men
• Less savings
• Less money invested
• Lower Social Security benefits during retirement

One of the oft-cited reasons for women earning less is because they tend leave the workforce for extended periods of time to raise children. Not only does career interruption leave them with fewer opportunities for promotion, but it reinforces the perception that women are less reliable and easily distracted by home-life responsibilities. However, the opposite is true of men. Employer surveys have revealed that when a man starts a family, he is perceived as more reliable and dedicated.

Lifestyle Benefits

While the financial scenario appears bleak for women, there are ways that they can take advantage of inherent lifestyle benefits to improve long-term security. Consider the following tips:

• Firsthand knowledge – Because women are often in charge of the household budget, they are in a position to know where and how to cut costs.
• Diligent – When it comes to saving money, studies show that at every salary level women consistently save a higher percentage of their income than men.
• Communication skills – women tend to ask lots of questions, especially about things they don’t understand. When working with a financial advisor, they are more likely than men to ask about fees and expenses.
• Practical – Women tend to value money in terms of what it can provide, thus they are not just interested in accruing money for the sake of wealth – and less inclined to chase investment performance.
• Conservative – Women tend to be more conservative investors than men. They prefer lower-risk, conservative growth and are more focused on asset preservation.
• Longevity – Women tend to have a longer time period for their investments to grow because, demographically speaking, they live longer than men. This means women benefit from their conservative style of investing slow and steady for the long game.
• Outperformance – Despite their penchant for lower-risk investing, on average women’s investments have performed better than men by 0.4 percent, according to research by Fidelity Investments. While the variance is small, it can have a substantial impact over their longer lifespan.

By utilizing inherent lifestyle, disposition and life expectancy advantages, women can work toward long-term financial savings and investment earnings to help secure their future.