Are You Better Off Than You Were A Year Ago?

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
February 22, 2022

IN THIS ISSUE:

1. Are We Better Off Than We Were A Year Ago?

2. Other Indicators Which Don’t Look So Good

3. Wholesale Prices Soared 9.7% Last 12 Months

4. ZEGA Financial Services Webinar On March 2

Overview

Every year around this time, various publications look back on the year which just passed and offer opinions about whether it was a good year or a bad year overall. A year ago at this time, virtually every source agreed that 2020 was a terrible year largely due to the outbreak of the coronavirus.

Most of those same sources agree that 2021 was a much better year as the economy rebounded strongly from the COVID recession. While some new variants of COVID did show up in 2021, the COVID rebound brought us the best economy in decades.

While there were many positive developments in 2021, there were also plenty of disappointments. Today, we look at some of those developments in light of the question of whether we’re better off than we were a year ago.

Are We Better Off Than We Were A Year Ago?

Turn the clock back a year. President Joe Biden had just taken office and was pitching his American Rescue Plan, saying that “It’s big, and it’s bold. And it’s a real answer to the crisis we’re in.”

Biden promised the $2 trillion spending spree would “generate more growth, higher incomes, a stronger economy, and our nation’s finances will be in a stronger position.” We’d be at “full employment by the beginning of next year.”

Well, here it is. Next year. And pretty much nothing Mr. Biden promised has come to pass.
The nation’s finances are in far worse shape, with the national debt up $1.8 trillion since Biden took office. We’re still nearly 3 million jobs shy of the previous peak.

Incomes, which finally rose significantly last year, were eaten up by the highest inflation in 40 years. Optimism is below where it was during the height of the pandemic in 2020.

Oh, and COVID deaths under Biden topped 445,000 last year – more deaths than the 351,700 which happened in 2020 under Donald Trump – which he was vilified for.

Let’s go through some of the specifics of how many of us are worse off than a year ago. Let’s start with the most often cited indexes of consumer confidence. The Conference Board’s Consumer Confidence Index plunged in 2020 as did all others, and while it has rebounded, it is still nowhere near the highs in late 2018 and 2019.

Chart of Consumer Confidence Index

The next most cited index of consumer confidence is the University of Michigan’s Consumer Sentiment Index which shows a similar pattern but looks even weaker.

Chart of Consumer Sentiment Index

Other Indicators Which Don’t Look So Good

It is true that some good things happened in 2021. The economy grew by 5.8%, the strongest in decades. However, not all the economic reports were so encouraging. As noted above, incomes finally rose for most workers last year but they were offset by prices at the supermarket, the gas pump and many others. Let’s look at some of the other indicators which hurt the economy in 2021.

Inflation is up. The year-over-year inflation rate in January of this year was 7.5%, the highest rate in almost 40 years. The year before that in 2020, it was just 1.4%. For the second half of 2021, prices jumped 6%, a rate higher than any year since Jimmy Carter’s “stagflation” gripped the nation in the late 1970s.

This is definitely making people worse off than the year before. An analysis by Moody’s Analytics – the same outfit that praised Biden’s rescue plan a year ago – found that the higher inflation is costing households an average of $250 a month or $3,000 per year. That’s huge!

“A lot of people are hurting because of high inflation,” Moody senior economist Ryan Sweet told the Wall Street Journal. “$250 a month – that’s a big burden. It really hammers home the point of ‘what is the cost of inflation?’”

Gas prices up $1 per gallon. The national average price for a gallon of unleaded gas is up almost exactly $1 from a year ago, from $2.53 this time last year to $3.53 nationally today. President Biden is responsible for this. His War On Energy policies have taken us from a net exporter of energy back to a net importer, unfortunately.

Wages and disposable income are down. Biden keeps claiming that wages are climbing. And they are. But inflation is climbing faster. As a result, after adjusting for the rapid rise in prices, average weekly wages are down 3% from a year ago.

So is disposable income. Data from the Bureau of Economic Analysis show that real household disposable income was lower in December 2021 than it was at the start of the year, and back down to where it was in November 2020.

Crime rate is up, murders hit new record. The violent crime rate rose in cities large and not so large last year. The homicide rate hit new record highs in major cities across the country in 2021. Law enforcement is not in general agreement on the reasons why, but efforts to defund the police definitely played a big role.

The Misery Index is up. When Biden took office, the Misery Index – which simply adds the unemployment and inflation rates together – stood at 7.7 and it was falling fast. It peaked at 15.03 in April 2020 after the COVID lockdowns threw millions out of work.

But instead of continuing to head back down to the 5.8 level it was before COVID, the Misery Index has steadily climbed under Biden. It is now at 10.94, with increases in inflation swamping the decline in unemployment.

Consumer confidence is down. The University of Michigan’s Index of Consumer Sentiment has been nosediving since last spring and this month hit a low not seen since 2011 when Biden was vice president.

As the University of Michigan put it, “Sentiment continued its downward descent, reaching its worst level in a decade, falling a stunning 8.2% from last month and 19.7% from last February.”

The IBD/TIPP Poll’s Economic Optimism Index dropped to 44 in February (anything under 50 signals a pessimistic outlook). It was 51.9 a year ago. The poll also found that personal financial stress is higher now than when Biden took office.

Dissatisfaction is up. An ongoing Gallup survey finds that nearly two-thirds of the public are dissatisfied with the state of the nation, up from 55% in January 2021. The year before that, only 29% said they were dissatisfied.

I could cite other examples, but you get the point. What I have noted above alone is a fairly remarkable list of failures in just one year. And unless Biden dramatically changes course, I don’t expect this picture will brighten over the next 36 months.

I remember when Ronald Reagan was running against Jimmy Carter in 1980, he asked Americans, “Are you better off than you were four years ago.” The answer was a resounding NO. It won’t surprise me if President Biden’s challenger in 2024 asks the same question.

Wholesale Prices Soared Nearly 10% Last 12 Months

Let’s round-out today’s discussion with a look at the Labor Department’s Producer Price Index for January which was released last week. PPI offers a window to the price pressures that businesses are facing, and which will likely be passed on to consumers in the way of consumer price inflation in the months to come.

Chart of Producer Price Index The DOL reported last Tuesday that its PPI rose 1% in January alone, and for the year ended last month was up 9.7% for the second month in a row. Excluding food, energy and trade services, the so-called “Core PPI” climbed 0.9% for the month, well ahead of the 0.4% estimate. For the 12-month period, the core measure increased 6.9%.

Last week’s wholesale price numbers are the latest sign that inflation hasn’t yet peaked, darkening an otherwise upbeat economic outlook for 2022. The economy grew 5.5% last year, powered by a robust labor market. However, though employers added 1.6 million jobs over the past three months, job vacancies remain near the highest level on record, putting upward pressure on wages – and, in turn, helping power consumer demand.

With inflation well above the Fed’s target, strong hiring gains and consistently high inflation leave the Fed poised to raise interest rates next month and almost certainly several more times later this year. I wrote about that at length in last week’s issue, so I’ll leave it there for today.

ZEGA Financial Services Webinar On March 2

It’s no secret that over the last several weeks the equity markets have plummeted from their record highs. The question many investors think about now is: How can I position my portfolio if the market goes UP? What about DOWN further?

On Wednesday, March 2 at 11:00 AM Central Time, Jay Pestrichelli, the CEO and Co-Founder of ZEGA Financial will be with us in a live webinar to discuss the ZEGA Buffered Index Growth (ZBIG) Strategy. It is designed to provide upside exposure to the markets when they are going up, but in times like these uses a “buffered zone” to help protect you if the markets drop further.

This unique strategy, which we have been recommending for several years, uses options to participate in market gains, plus hold-to-maturity corporate high yield fixed income ETFs as a buffer to help protect against downside risk. Both the option expiration and the fixed income maturity dates are aligned with expirations of 18 to 36 months.

The goal of the ZBIG Strategy is to help reduce or eliminate some market losses should the markets drop. The strategy is available in three different versions, depending on the risk level that is appropriate for your needs.

I encourage you to sign up for this webinar with Jay to learn more about ZBIG. You can see their latest performance results on our website. Or you can give us a call at 800-348-3601.

As always, keep in mind there are no guarantees with this or any other investments.

All the best,

Gary D. Halbert

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