US consumer spending surged 1 percent in September
Are you learning from the 2017 RICP
Retirement Income Literacy Survey? http:// retirement.theamericancollege.edu/ retirement-101/2017retirement-incomeliteracy-quiz ). I’m still getting comments and questions, so I’m going to finish this… probably next time.
Question 27: True or false? Medicare typically pays for the costs of a nursing home for the first year.
Answer: (59-percent correct responses) I’m actually surprised more people didn’t know this. It’s false. Medicare does not typically pay the costs of nursing care. There is an exception for Medicare-eligible people who need skilled nursing care following a three-day or longer stay in a hospital. (That’s three full days, often referred to as “three midnights”.) In this case, Medicare might cover costs for up to 100 days. Understand, though, that there are typically three types of admission to a hospital – inpatient, outpatient or observation. Only those who have met that three-day rule as inpatients typically qualify for Medicare relief if they then move to a skilled nursing facility. Case in point: Several years ago, my mother went from her home to the hospital. She was dehydrated and had flu-like symptoms. Although she stayed in the hospital for nearly a week, she was admitted under observation, not as an inpatient; therefor when she was moved to a skilled nursing facility, Medicare did not pick up the cost of care. Should we have been upset at our doctor or at the hospital for her “observation” status? No. There are metrics that have to be followed, and she simply didn’t meet the requirements to be considered inpatient.
Let’s switch subjects with the next few questions…
Question 28: True or false? Buying a single company’s stock usually provides a safer return than a stock mutual fund.
Answer: (82-percent correct responses) This is a good question to test basic financial literacy. The answer is “false”. Individual companies have many risks around product offerings, legal exposure, business cycles and others that make holding one stock typically too risky. By contrast, a stock mutual fund invests in the stock of many companies, thus minimizing the risk to the individual investor.
Question 29: If 100-percent of a mutual fund’s assets are invested in long-term bonds and the investment climate changes so that interest rates rise significantly, then the value of the mutual fund shares… (A) decrease significantly, (B) increase significantly, (C) will not change at all, (D) may rise or fall depending on the type of bond.
Answer: (34-percent correct responses) The correct answer here is A. Investors often think of bonds as low-risk investments, but the value of bonds depends on the relationship between the interest rate paid by the bonds and the interest rates available in the market. Clear as mud? Try this: If I purchase a bond fund when interest rates are very low, then the value of the bonds within the fund have to be higher to entice me to buy the fund. But if interest rates go up, the “new, improved” bonds that are now available are paying higher interest rates, so the value of the bonds, themselves, can be lower because the higher interest rate is what entices the buyer. That’s a true layman’s explanation, but perhaps it make a little more sense. The thing to remember is that the relationship between bond prices/value and interest rates is inverse – as interest rates rise, bond values fall.
Question 30: Historically, which one of the following generates the highest returns over a long time period? (A) Dividend paying stock funds; (B) large company stock funds; (C) small company stock funds; or (D) high yield bond funds?
Answer (10-percent correct responses) Don’t beat yourself up. Unless you’re in the financial world, this is a tough question. The correct answer is C. Small company stock funds carry more risk, which means that performance typically varies more from year to year. So on average, to compensate for that risk, returns are generally higher. (Obviously, past performance cannot truly be used as a predictor of future success.) Think about it this way… Would you rather invest your money right now in X-business in Starkville that’s been in business a 50 years, or in Z-company that has great promise but opened its doors earlier this year? The smaller, newer company is riskier, but with great risk can come great reward.
We’re going to stop here for this time, and will probably wrap up this adventure in our next chat. Do you feel like you’re learning? I hope so; that’s the intent! Until next time!
Barbara Runnels Coats, FICF, Modern Woodmen of America Financial Representative. Tax issues can be complex. Please consult your tax professional before making a decision. Medicare supplement insurance is underwritten and issued by independent third party carriers and brokered through MWAGIA, Inc., a subsidiary of Modern Woodmen of America.”
WASHINGTON — Consumers boosted their spending by 1 percent in September, the biggest gain in eight years. The surge was fueled by robust demand across sectors, especially autos in the wake of recent hurricanes.
The sharp jump in consumer spending was up from a tiny 0.1 percent gain in August and was the best showing since an increase of 1.3 percent in August 2009, the Commerce Department reported Monday. Income growth was also solid in September, rising by 0.4 percent as wages and salaries climbed.
Consumer spending is closely monitored because it accounts for 70 percent of economic activity. The latest result suggests that Americans were feeling increasingly confident about the economy heading into the final quarter of the year.
That should support solid growth in the fourth quarter. The overall economy, as measured by the gross domestic product, grew at a solid 3 percent annual rate in the July-September quarter, despite the devastation from two hurricanes.
The big spending surge in September was led by a 14.7 percent increase in spending for new motor vehicles, as drivers began replacing the estimated more than 300,000 vehicles destroyed in the hurricanes. Spending on nondurable goods such as clothing and services such as utility payments was also strong.
“Consumers were not shy in September,” said Eugenio Aleman, senior economist at Wells Fargo. “Every sector of consumption was booming.”
Consumer confidence has been bolstered by a Wall Street rally, which has pushed stocks to new highs. Economists expect even stronger spending next year if Republicans are able to push their tax cut package through Congress, and the cuts are made retroactive to the start of 2018.
“Most households should get the benefit of a reduction in taxes early in the New Year, but we won’t know what proportion of households will be net beneficiaries of the Republican’s tax cuts until the details of the plan are released this Wednesday,” said Paul Ashworth, chief U.S. economist for Capital Economics.
A key inflation gauge closely followed by the Federal Reserve showed consumer prices rose 1.6 percent in September compared to a year ago, up from readings of just 1.4 percent the past three months.
Fed officials, who have raised interest rates twice this year, will meet again on Tuesday and Wednesday. However, analysts expect them to defer a third rate hike in an effort to ensure that low inflation is rising and annual price gains are again moving toward the Fed’s 2 percent target.
The 1.6 percent 12-month rise in prices was the strongest gain since a 1.7 percent increase in April. Core inflation, which excludes food and energy, remained stuck at an increase of 1.3 percent over the past 12 months, the same as August.
The 1 percent jump in consumer spending reflected a 3.2 percent advance in spending on durable goods such as autos. Auto sales were strong in September, posting the first monthly gain of the year. Analysts said sales were helped by purchases of replacement vehicles for cars damaged by the hurricanes that hit Texas and Florida.
Sales of non-durable goods such as clothing posted a 1.5 percent rise, while spending on services such as utility bills and rent rose 0.5 percent.