Business Report: Stock Markets Flux Following New Signs Of Recession
Friday, August 16, 2019
Q: This week U.S. stocks dropped 800 points in one day. Today, stocks are bouncing back. Some analysts have said it’s recession, others say it's because of the trade war with China. Miro, what's causing all of this uncertainty?
A: Well there's a lot of confusion and both are correct. So on the plus side you know there's going to be a lot of volatility going forward. On the plus side you still have a relatively strong economy, you have low unemployment. You have a lot of consumer spending which is really good. On the downside, yes, number one is the trade war with China. The Trump administration blinked a little bit, they realize that, like we discussed last week, a lot of these products are going to be taxed on September the 1st are big Christmas gift items, cell phones, computers, game consoles, toys. They're postponing those tariffs to December. Still, $110 billion in tariffs are going into effect on the 1st.
The other thing that happened is the global economy is hurting. Germany announced a contraction for the first time on Wednesday for the last quarter. The U.K. is in the same shape. China is also being impacted; their growth rate as disclosed in 17 years. And finally, what really freaked out the market was that the yield curve which is that short term rates generally are lower than long term rates switched. That meant that short term rates were higher than the 10 year Treasury bill rates. When that happens that's a signal to recession. Ray Dalio, the founder of Bridgewater, one of the biggest hedge funds in the country, predicted that a 40% chance of recession is here. This is double what economists were predicting at the end of the first quarter.
Q: A new survey found that many Americans are living paycheck to paycheck, and don't have nearly enough saved for retirement one. If there are other signs of a healthy economy such as a low unemployment rate, what’s going on?
A: It could suggest that the wages aren't there. People aren't earning enough even though there's been wage increases. The average American median income is about $60,000. That has not budged since 2000. Six in 10 Americans live paycheck to paycheck and 45% of all Americans carry credit card debt. You can imagine when you have credit card debt or credit cards that's a big burden on a household.
Most Americans, 75% of Americans, don't even have a financial plan or financial goals. So a lot of financial advisers would tell you to really look at your monthly expenses and look at what memberships you have with subscriptions, you have to look at Netflix, or memberships at the gym, that you don't use or going to get that latte in the morning. Are there things that you can cut? The one thing that's really fascinating about this whole study was that Americans are more preoccupied with what their friends and family are doing in social media. They're so shocked that people seem to be spending a lot of money in these experiences. They're focusing more on what their friends are spending than how they're saving.
Q: Finally, the San Diego Union-Tribune actually crunched some recent numbers from the Bureau of Labor Statistics, which found that San Diegans are spending more due to inflation rates. Can you tell us more about that?
A: San Diego is the third City with the highest inflation rate. So, San Francisco has almost a 4% inflation rate, L.A. is 3%, and we're 2.8%, and the national average is just under 2% for the first six months of the year. So not only do we have a higher cost of living in general for housing, for gas prices, for all sorts of things, the growth of those products and services is growing at a much faster rate.
This year rent is up almost 4%. Gas is up almost 3%. Medical costs for San Diego is up over 2.5%. So all of this stuff kind of ratchets things up. The inflation rate is a lot less expensive in other parts of the country. So even though the median income in San Diego, $76,000, when you start paying taxes and the increased cost of living in San Diego and the incremental rate of inflation...that's an extra $1000 a year just the increase in prices that San Diegians pay.
Anica Colbert contributed to this story.
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