Tuesday, April 30, 2013

The Merry Month of April

April has turned out to be a most interesting month. The weather was “un-April-like” and the stock market “Un-Stock Market” like! The starting point is actually March 29th when the S&P 500 closed at 1569. The close on April 1st was 1564, down 5 points. Some market commentators immediately began discussing an “April Swoon”. By April 11th, the “Swoon” idea was no longer discussed, as the S&P 500 hit 1593. Now the experts were predicting all kinds of good things for the stock market. The middle of April is when large companies report their earnings for the first quarter. The results were subpar. Earnings either missed the consensus-estimated earnings (many companies); were better than estimates, but the company put forth possible issues facing them in the future (GE); or better than expected earnings, with experts fearing issues going forward (Apple). As the earnings season took hold, the stock market began to wilt (think “Swoon” again). By April 18th, one week after the high point, the S&P had dropped to 1542, down 51 points, or more than 3%. This was good for bonds, as interest rates fell and the value of bonds increased. Then something strange happened. The market went up, up, up. As of this writing it stands at 1598, the highest point of the month. So, for the month, both bond and stock values increased, and both gold and oil rose again. What can one make of all of this positive change? My only answer is that, as you look to the future, the economy, though growing slowly, about 2.4% for the first quarter, is growing. While earnings did not meet expectations, the stock market was able to rebound and take a longer perspective, which has not been the case for the past five years. If it continues, this is likely a good sign for the economy.

Monday, April 8, 2013

Unemployment Drop

It seems that even when it appears we are seeing “good news” it may belie bad news. It appears such is the case with the drop, reported last week, in the unemployment rate from 7.8% to 7.6%. The initial stated cause of the drop was people dropping out of the work force. Seems straight forward enough but it made me wonder; “What are they living on now?” Today the Wall Street Journal, in a front page article, seems to have come up with one place where these unemployed workers have been going. A rather high percentage are using Social Security Disability as their avenue for income. This is not to say that a person qualifying for disability shouldn’t get the benefit. During most recessions, people who lose their jobs or become underemployed and who have significant disabilities, will apply for benefits. During the early part of the recession, December 2007 thru June 2009, the percentage of people on government disability rose from 7.1% to 7.6%. At the end of March 2013, this had risen to 8.9%. This represents 8.8 million beneficiaries getting $137 billion of benefits, as well as 2.1 million family members getting $80 billion in aid. After two years on disability an individual can qualify for Medicare benefits too. Some states, during this prolonged recession, helped compound the problem, as they moved welfare and Medicaid recipients off their roles and onto the Social Security Disability program, ending the state’s payment responsibility. The average payment to a recipient is $1,130 a month, or about $13,560 annually. This is about $2,000 more than a person would get paid at the Federal minimum wage and also about $2,000 more than the poverty level. While the costs associated with the program are great, the plan is expected to have insufficient funds by 2016, it’s the loss of workers that may be the true burden to the U.S. In 1970 about 1.7% of the potential work force was on disability, now it is 5.7%. Of the 8.8 million on disability about 2.5 million are in their 20’s to 40’s. In the past the work force in the U.S. was growing at about 1.7% a year, now it is barely increasing, in part due to the increase in individuals getting disability payments and no longer working. The fear is that many of these potential workers, who could be retrained for other jobs, will simply remain on disability. As with many agencies of the government, the Social Security Disability agency is under-staffed and unable to keep up with medical reviews that might change the picture. In addition, back in the mid 80’s, Congress widened the sphere of who is eligible for benefits. In the long run, if Congress does not take action, the nation could have 2.5 million potential workers getting about $34 billion in benefits and not contributing to the economy. If these potential workers suddenly came back our unemployment might be 9.6% rather than 7.6%. A retraining program for some of these individuals seems in order.
Ed Mallon