​A Report Card on the American Household.... We Are Looking Good!

Consider if you will the past eighteen+ months+ of activity in the US economy and the sources of economic well-being of the American people, such as jobs, investments, tax cuts and home ownership.   How does all this connect to the American household?   Here's a summary of where we are:

ECONOMY
JOBS: Since January, 2017, the economy has added 4+ million jobs.    The details:

  • Unemployment rate has fallen to 3.8%, lowest level in fifty years
  • Participation in the workforce is 62.7% of eligible workers, best since 1950
  • Unemployment in our black communities is at all-time lows, in the 6.8% range, the lowest rate since reporting began in 1972.
  • Unemployment in our Hispanic communities is 4.9%, close to an historic low
  • Employment of Women is at an 18 year high
  • Jobless rate for non-college graduates fell to the lowest level since 2001
  • Jobless rate for those without HS diplomas, is at lowest point since 1950's
  • Wages of American workers grew at a 12-month rate of 4%, fastest pace in 12 years
  • 800,000+ manufacturing jobs have been added since January 2016
  • Mining Industry jobs up by 91,000 in the past eighteen months
  • Food stamp recipients peaked at 48 Million, dropped to 40 million in past 18 months
  • Claims for Unemployment Compensation are at a 45 year low
  • Fourteen states report record lows for unemployment (April 2018)
  • Finally, as of June, 2018,there are more job openings reported (6.7M) than people on unemployment compensation, actively looking for work (6.3M)


Current forecast for growth of the economy the next twelve months is estimated at 4%. Note that, for every increase of 1% in growth, GDP rises by $3 Trillion and the economy adds 10 million jobs. 


Per Gallup survey (May, 2018), two out of three Americans believe now is a good time to find a quality job.  And in a Natl. Association of Manufacturers Poll released in mid-June, 95% of Manufacturers are optimistic about the economy, the highest rating ever recorded since the start of the survey twenty years ago.

REPATRIATION

For decades, US companies have accumulated

an estimated $3 to 5+ Trillion dollars in profits

earned outside the US.   The profits have stayed

outside the US because bringing those dollars

home would be a taxable event of 35%. However,

under the Tax Cuts and Jobs Act, the funds can

now be brought back to the US at a one-time

repatriation rate of 15%.    US companies will

evaluate the pros and cons of wiring billions of

dollars stateside and act in their best interest. 

What we do know is that, whatever a company

does with these funds, it creates jobs.  In the first Q of 2018, $305B has returned to US, with results such as:  

  •  ​Apple has announced that it will bring home a reported $250 Billion now sitting in foreign banks, pay $38 Billion in taxes and expand US operations
  • It further announced plans for a new US facility that could employ up to 20,000


If large sums of money return to the US, it could add major impetus to the economy and job growth.   How much impact?  It’s an Unknown Unknown since no country in history has ever been in such a position.   Perhaps the closest example of wealth transfer and its positive economic impact would be the shift of wealth from the new world to a half-dozen European countries centuries ago.  It enriched those countries at the expense of the new world, but nothing like this scale of wealth transfer.     

  • Unlike the theft of foreign assets, however, this is money owned by US business enterprises, after paying taxes outside the US, not confiscated funds. 


A second, related Unknown Unknown is what actions the US will take to deal with the biggest tax windfall in history?  What if $5 Trillion dollars arrived in US banks from overseas next month, representing a tax windfall, using the 15% rate, of $800 Billion+ dollars?   Two core options include turning politicians loose to spend it, or sending it to the Treasury department to apply to reduction of the national debt.  An important national conversation needs to happen….

INVESTMENT

HISTORY:In 1952, 6.5 million Americans owned common stock, which is 4.2% of the population of that time. This era precedes mutual funds and a variety of investment vehicles that were not available in the 1950’s.  Well, things have changed!

TODAY: Since the election of 2016, the Dow an related market indicators are up 35%+, representing an increase of $9.4 Trillion in wealth for Americans.  Who benefits?  How about:



  • An estimated 54% of adults in the US have investments in the market, both direct and in retirement accounts
  •  Investors include 55M Americans with 401(k) plans, plus 25M Americans with IRAs and another 20M with company pension plans and employee stock ownership plans.  
  • Research of investment holdings suggest that $7.8 Trillion is held in IRA types of accounts, and $5.7 trillion in 401(k) type plans.   That’s an estimated of $13.5 trillion excluding other types of direct ownership of stocks and other investment instruments.
  • And the second biggest block of investment holdings?  Private and Public Pension funds hold an estimated 25% of financial investments, which are indirectly owned by the people participating in the plans
  • The total market valuation of US stock just set a record of $30 trillion, which suggests that, overall, US investors own almost half or more of American business enterprises.


Pause and consider the record noted.  The American people, to borrow Karl Marx’s favorite standard, own the means of production.  The most widely distributed ownership of corporate assets in history is right now.   Marx advocated government ownership and control of the means of production, which empowered government over the people.  Marx never dreamed of the possibility that the people would be in charge of the productive capacity of the country.  The record is clear.  We the people own America!

TAX CUTS AND JOBS ACT

First, some key facts about our workforce:

  • Total employment in US, both private and public sectors, is 155+ million people, highest ever in history 
  • The average tax burden of those employed is 31.7% for federal tax (income, social security) and 9.9% for state and local tax (SALT)
  • Given the above, the average taxpayer after tax income is about 60% of gross pay


So the average American family is managing its monthly budget with about 60% of gross pay.   Not anymore!   The Tax Cuts and Jobs Act reduces tax liability for over 90% of taxpayers.  Per Heritage Fdn study, take home pay increased by $1400 a year for single earner and $2917 for family of four in 2018.  An incredible lift to the family budgets of the American people.

HOME OWNERSHIP

The American dream of owning a home has a long history, perhaps related to owning farms and land in the past.  In 1950, for the first time, America became a nation of majority home owners, with 55 percent of households.   In 2017, home ownership increased to 63.9 percent of households, out of a housing stock of 135 million.   Home ownership averaged 65.25 percent from 1965 until 2017, reaching an all-time high of 69.20 percent in the second quarter of 2004 and a record low of 62.90 percent in the second quarter of 1965.

Net value of homes in the US increased by $2 trillion in 2017, with total valuation of $31.5 trillion.  Home ownership is a vital source of net worth for millions of American families, and this addition of $2 Trillion added value for their investments.   And the numbers of families acquiring homes is on the increase.

SUMMARY

On the basis of jobs, the economy, investments, more take home pay per family and home-ownership, the American people should be feeling good!  America Rocks!

Bill Broderick
MPI Resources
September, 2018