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A Recession Hasn’t Arrived (Yet). Here’s Where You’ll See It First.

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A Recession Hasn’t Arrived (Yet). Here’s Where You’ll See It First.

For a few weeks last summer, you would have been forgiven for thinking the United States was racing headlong into a recession. Financial markets were in turmoil, once-confident business leaders were suddenly jittery and seemingly every financial news outlet was warning that the economy was in trouble.

As the year comes to a close, the fever seems to have broken. The stock market has rallied. Job growth has remained strong and consumers have continued to spend. Forecasters still think the economy will slow next year, but for now, at least, they expect the longest economic expansion on record to continue.

What happened? One possibility is that we dodged a bullet: The economy really did come close to the brink, but then the Federal Reserve cut interest rates, President Trump toned down his trade rhetoric (at least temporarily) and the risks of a recession abated. It is also possible that those risks were never as great as they had appeared.

Back in July, I highlighted several indicators to watch for signs that a recession was imminent, or even already underway. As is so often the case in economics, they told a complicated and not altogether consistent story. Still, it is worth checking on each of those indicators to see what they are saying now.

The bottom line: Things look better now than they did in the summer, but there is still cause for vigilance. (For more information on all of these indicators and why they are important, see our original story.)

What it was saying in July: All clear.

What it is saying now: All clear.

Discussion: The unemployment rate was near a 50-year low back in July. It is even lower now — 3.5 percent in November, according to the blockbuster jobs numbers that came out last week.

Historically, a falling unemployment rate has been a near-certain sign that the economy is still growing. In other words, it is highly unlikely that a recession has already begun. But while the jobless rate is excellent at detecting recessions, it is not much good at predicting them — the labor market can change directions quickly in times of trouble.

What it was saying in July: Storm warning.

What it is saying now: A break in the clouds? Or the calm before the storm?

Discussion: More than any other single indicator, the yield curve was responsible for the outbreak of recession fever over the summer. The curve “inverted” earlier this year, meaning that interest rates on long-term government bonds fell below rates for short-term bonds. When that has happened historically, recessions have tended to follow in short order.

Since then, the yield curve has un-inverted — it once again costs the government more to borrow money for longer periods. That could be a sign that investors are less worried than they were about the direction of the economy. A measure from the Federal Reserve Bank of New York, which translates fluctuations in the yield curve into recession probabilities, shows that the chances of a recession beginning in the next year have fallen to about one in four, from one in three in August.

But just because the yield curve has returned to normal does not mean we can all breathe easy. As my colleague Matt Phillips wrote last month, “Once the yield curve has predicted a recession, one usually follows even if that signal changes later.”

What it was saying in July: Mostly cloudy.

What it is saying now: Mostly cloudy.

Discussion: Back in July, the Institute for Supply Management’s closely watched manufacturing index was hovering just over 50, indicating the sector was still expanding, but barely. A month later, the index slipped below 50, meaning manufacturing was officially contracting. It has stayed below 50 since, weighed down by tariffs and a sluggish global economy.

But while the manufacturing sector is definitely struggling, it is not yet in bad enough shape to suggest that a recession is on the way. And the much larger service sector is still expanding, albeit slowly.

What it was saying in July: Partly cloudy.

What it is saying now: Mostly cloudy.

Discussion: With manufacturing in a slump and business investment falling, the economy is relying more than ever on consumers to keep the expansion on track. So it is a worrying sign that consumer sentiment is the only indicator on this list that has grown unambiguously gloomier since July.

Consumers are not panicking by any means: Confidence is still relatively high by historical standards. But it has fallen over the past year, which has historically been an early warning sign of an economic slowdown. The Conference Board’s confidence measure was down 8 percent in December from a year earlier; economists at Morgan Stanley have found that a 15 percent drop is a reliable predictor of a recession. (Another closely watched measure, from the University of Michigan is also down but not by as much.)

The indicators above have historically been among the most reliable canaries in the economic coal mine. But there are plenty of other measures that warrant attention. Here are four that I highlighted in July:

Temporary staffing levels: Companies hire and fire temp workers quickly in response to fluctuations in demand, making temporary staffing a good measure of business sentiment. Employment levels fell for three straight months in the spring and summer, but have since rebounded.

The quit rate: The rate at which workers voluntarily leave their jobs has been holding steady at a near-record level for more than a year. That is a sign of confidence, since people are generally reluctant to quit if they are worried about the economy.

Residential building permits: Housing construction has picked up in recent months, buoyed by low interest rates. But while housing has historically been an important indicator of the health of the economy, the sector is smaller today than in the past, so it may be less meaningful as an indicator.

Auto sales: The picture here has not changed much since the summer — or since 2016, for that matter. Car sales have been holding more or less steady for years.

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These 16 money wasters are why so many Americans can’t save for retirement

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These 16 money wasters are why so many Americans can’t save for retirement

From the lofty perch of old age, and after a lifetime of thrift, I declare that I am qualified to comment on how not to waste money.

We’ve all heard the reports: Most Americans live paycheck to paycheck, a large number can’t come up with $400 for an emergency, and there’s no money to save for retirement and other goals.

Most of that data comes from surveys where people are, in effect, saying they don’t have enough income. My curmudgeonly reaction: Stores, fitness centers and entertainment venues are packed with shoppers, many of them buying unnecessary goods and services. If three-quarters of Americans are living paycheck to paycheck, how can they afford to spend like this? It’s a funny thing: I have yet to see Warren or Bill in one of the many local spas.

Most Americans live like no other people on earth. We have more and bigger stuff: Larger houses, bigger vehicles, more shoes. And, in my not so humble opinion, we can’t tell the difference between needs and wants, between necessities and desires—and we sure can’t defer gratification.

All this leads me to one conclusion: We’re unable to control our spending or manage our money. Here are 16 things that this 75-year-old considers big money wasters:

1. Tattoos. They’re an admitted obsession of mine. What will they look like when you’re my age? From what I’ve heard, a good tattoo artist charges $200 an hour.

2. Vacations. Hey, everyone needs a break. But you don’t need to go into tuition-level debt to have a good time. Your kids will survive if they never visit the Magic Kingdom.

3. College. Picking a college involves many factors. Affordability is one that’s often overlooked. If the cost of the school you choose will land you in debt, you’d better have a plan for paying it off. Don’t mortgage your future, just so you can have a prestigious decal on your car window.

4. Restaurants. Eating out, or buying $4 designer coffee, is expensive and—wait for it—it’s also a luxury. Skip that daily $4 coffee and after 30 years you’ll have more than $121,000, assuming a 0.5% monthly return.

5. Opportunities lost. We do it every day by failing to grab the employer match on our 401(k) plan, not investing in a tax-free Roth IRA, failing to fund a flexible spending account to pay medical costs with pretax dollars, and withholding too much from our paycheck, so we’re essentially making an interest-free loan to the IRS.

6. Transportation. You don’t “need” an SUV or $40,000-plus pickup truck to get from A to B. My four kids grew up riding in our 1972 Duster. Now they, too, all have trucks or SUVs.

7. Credit cards. When people say they live paycheck to paycheck, does that include purchases put on credit cards that aren’t paid off that month? In that case, they’re spending more than their paycheck—and what they buy will cost them the purchase price, plus a hefty interest rate.

8. Lottery. The lowest-income groups spend the most on lottery tickets, wasting hundreds of dollars a year—about the same as that $400 emergency fund they don’t have. Not to worry: 60% of millennials think winning the lottery is part of a wise retirement strategy.

9. Clothing. My new condo has two bedrooms and three walk-in closets, two of them larger than the bathroom in my old 1929 house. The average adult spends $161 a month on clothing. We are obsessed with keeping up with the latest fashions and ensuring nobody sees us in the same clothes twice.

10. Shoes. Surveys suggest the average American woman owns more than 25 pairs of shoes, which they admit they don’t need. So why buy so many pairs? It seems shopping and wearing trendy stuff makes us feel good.

11. Tchotchkes and stuff. Clean out a house after many years—which my wife and I just did—and you often hear the words, “Where did we get that?” Though relatively inexpensive per item, tchotchkes and similar stuff cost money—and it all adds up.

12. Failing to look ahead. Henry Ford said, “Thinking is the hardest work there is, which is the probable reason why so few engage in it.” I still marvel that people spend so little time thinking about retirement. After working 30 to 40 years, they reach retirement with no plan and are shocked they can’t live on Social Security alone. Planning for retirement early in your career is essential for financial security—and it isn’t that hard.

13. No backup plan. I like to think ahead about “what ifs” and how I’ll deal with them. In my head, I have backups for the backups. I recently took out a large mortgage to buy a condo. Now I’m thinking, “What if I can’t sell the house to cover the mortgage? What if I must do some upgrades to sell the house?” I temporarily stopped reinvesting my tax-free bond interest, so I can build up more cash—just in case.

14. Holidays. Somehow, every December, financial caution goes out the window and we pay for it the following year. But my pet peeve are those inflatable characters on lawns that cost hundreds of dollars. Talk about blowing money.

15. Toys. One study shows that U.S. parents spend $6,500 on toys during a child’s upbringing. The spending is even higher for millennials, who favor “smart” toys—toys that do the thinking for the child. There’s something wrong with this picture. Hey, I’ll challenge anyone to a contest dropping clothespins into a milk bottle.

16. Haircuts. The average haircut reportedly costs $28.30 in a barber shop. Many men pay a lot more. Nowadays, nearly a third prefer a “salon.” I pay $12 at my local barber. But I’m still annoyed: My hair is disappearing, but the price is inching up.

This column first appeared on Humble Dollar and was republished with permission.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Quinn was a compensation and benefits executive. His previous articles include One Last Thing, Over Coffee, Get the Point and Poor Judgment. Follow him on Twitter @QuinnsComments.

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Everything Is Private Equity Now

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Everything Is Private Equity Now

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I’ve been in finance for 30 years—and this is how I teach my kids about money

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I’ve been in finance for 30 years—and this is how I teach my kids about money

“How do I teach my kids about money?”

I hear this question often, and if you’re a parent, you’ve probably Googled it several times yourself.

In my 30 years of professional experience, I’ve worked as an auditor, investor, tax preparer and financial consultant — and I’ve witnessed the impact of financial literacy (or lack thereof) on countless adults of all ages.

Teaching your children about money doesn’t have to be complicated. You either put in the effort and time, or you don’t. And if you do, it’s best to start sooner rather than later. (According to a 2013 Cambridge University study, children are already able to grasp basic money concepts at age three, and by age seven, their money habits are already set.)

How we teach our kids about money

My wife and I have two kids, both under 14. Like most parents, we don’t want them to suffer from financial anxiety when they’re older. Nor do we want them to be in debt and have to eat into our retirement savings.

The same way we want them to understand the importance of telling the truth or saying “please” and “thank you,” we also want them to understand the importance of money: What it’s worth, why it’s important and how to practice smart habits that lead to success.

In order to do that, we keep things fun and simple:

1. We play “Let’s Go Shopping”

I’ve found that my kids are more engaged in the learning process when it’s experimental or gamified. “Let’s Go Shopping” was a game we played when they were in preschool.

To start, we created a miniature supermarket in our living room — complete with a toy cash register and a farmer’s market fruits and vegetables play set. The register featured a numerical keypad, cash drawer and pretend money.

After my wife and I priced the items, we had one child do the shopping while the other handled checkout. We stood by to facilitate and answer questions. But eventually, they became skilled enough to play on their own.

Stimulating the shopping experience sharpened their math and budgeting skills. It also helped them feel more comfortable talking to one another about money.

2. We play “How Much Does It Cost?”

A game that we continue to play is “How Much Does It Cost?” (It’s basically our family’s version of “The Price Is Right.”)

At the dinner table, we all take turns presenting arbitrarily selected items for sale, along with multiple choice answers for their approximate prices.

A few examples:

  • Water bottle: $0.50, $2.50 or $6?
  • Movie ticket: $4, $10 or $40?
  • Monthly phone bill: $12, $100 or $400?
  • New (basic) car: $5,000, $35,000 or $500,000?

Games like this help them understand the relative values of various products and services.

3. We don’t freely give them money

One of the biggest mistakes I see parents making is offering unlimited funds to their children for non-essentials.

Our kids started getting a weekly allowance when they turned six. We’d give them $6 per week and increased the amount by $1 each year they got older. They could earn more if they did something good that week, like offer to help someone or ace a math test.

Of course, there are no set rules as to how much you should give your children; it mostly depends on your financial means and what you expect them to be financially responsible for.

The consequences of giving your children unlimited funds for discretionary spending (especially after they’ve used up their entire allowance) aren’t realized by most parents until much later.

Children of parents who do this may develop the habit of relying on additional funding sources that can be quite costly, such as debt in the form of high-interest credit cards.

4. We guide them through the budgeting process

The easiest way to teach your kids about budgeting is to budget together.

When my kids get invited to a birthday party, for example, I give them a reasonable budget and help them shop for a gift that stays within their price lane. (My wife and I prefer to do this on Amazon because it’s an easy way to teach them how to comparison shop.)

5. We show them how to put their money to work

When my oldest daughter saved up enough money, we relocated her cash from a piggy bank to a local bank.

“Congratulations! You’re putting your money to work,” I said.

Even though the process makes complete sense to you, it might be too abstract for some children. That’s why it’s important to explain — in layman’s terms — how their money is earning more money (passive income) and how that additional money will continue to generate even more money (compounding).

These are concepts and skills that will serve them for life.

6. We encourage them to do good with their money

My wife and I make it a point to donate to charity or a nonprofit organization every once in a while. It sets a good example for our kids and discourages behaviors of selfishness and greed.

When our kids have saved up enough money, we review a list of charitable organizations together (Charity Watch is a good place to start) and have them pick one that supports a mission they value.

This is a great way to teach them about sharing, kindness and how money — whether it’s $1 or $10 — can be used to help others.

Jim Brown is a financial consultant and the founder of Jim Brown Investing. With more than 30 years of expertise in the financial industry, Jim has been interviewed on Yahoo! Finance TV, the So Money Podcast with Farnoosh Torabi, KFNN Money Radio and U.S. News & World Report. He is also the co-author of “Financial Statement Fraud Casebook: Baking the Ledgers and Cooking the Books.”

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They became millionaires and retired at 31. They think you can do the same

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They became millionaires and retired at 31. They think you can do the same





Life and style

The authors Kristy Shen and Bryce Leung are part of a movement called Fire that encourages people to save intensively to retire early






Kristy Shen and Bryce Leung, authors of Quit Like a Millionaire, retired at 31 and 32, respectively
Photograph: Kristy Shen and Bryce Leung

Growing up in poverty in rural China, where her family collectively lived on as little as $0.44 a day, Kristy Shen learned to make decisions based on pragmatism rather than passion from a young age.

On her first ever trip to a toy shop aged eight, after her family moved to Canada, she declined the offer of a teddy bear in favour of a cheaper one and requested that her father send the remainder of the money to their family in China. As a teenager, she chose to be a computer engineer, ignoring her dream to be a writer, based on a formula she devised to rank the best value university courses based on tuition fees versus future pay. And as an adult, any domestic disagreements with her husband, Bryce Leung, are generally won or lost based on who makes the best mathematical case.

But when, in 2012, Leung told her that in three years’ time their savings had the potential to hit C$1m (US$760,000) and they could retire in their early 30s, she was convinced the facts in front of her were incorrect. “My reaction was like, ‘No, this is wrong, your math is wrong, there’s something wrong here,’” she says. “I didn’t believe that was possible at all.”

In the end, of course, the most logical argument won. Three years later, Shen, then 31, and Leung, then 32, retired.

They are part of the growing Fire (financial independence retire early) movement that encourages workers to save intensively to enable them to stop working for money far earlier than is commonly done.

Today, at the grand old age of 36 and 37, respectively, Shen and Leung are reveling in their “retirement” (to use the term on two people so pulsating with youth seems disingenuous).





Kristy Shen and Bryce Leung during their travels. Photograph: Kristy Shen and Bryce Leung, author of How to Quit Like a Millionaire

Since leaving their old jobs – they both worked as computer engineers – they have travelled the world almost constantly – spending time in countries including Japan, the UK, Portugal and Thailand – started a successful blog, Millennial Revolution, teaching others how to retire early too, and co-written two books. The first was a children’s book, Little Miss Evil. The second, Quit Like a Millionaire, a memoir-cum-how-to guide came out this month and presents financial independence as a route to happiness and is refreshingly dismissive of home ownership as an investment.

To begin with, their friends and families were skeptical, expecting them to return penniless after a year. But travelling cost them less than spending a year at home in Toronto, and their investment portfolio has grown since they left their old lives behind, so they now have more money than they started with. Some people, says Shen, see what they’re doing as “invalidating” because it challenges the status quo. “It really makes people question their lives and they don’t like that because it’s scary.”

Their journey to Fire started fairly conventionally – they were saving for a deposit to buy a house. But the more they saved, the more house prices went up and the less sure about getting on the property ladder they became. By 2012, after seven years of saving, they had C$500,000, but Leung started looking for other solutions. After coming across early Fire bloggers like Mr Money Mustache, he says: “I realised based on what they were doing and where we were that we could either be in debt for the next 25 years or retired in about three.”

Using an adapted version of the “4% rule” – a principle borrowed from the traditional retirement world – they calculated their basic living expenses, C$40,000, and multiplied it by 25 to come to C$1m, the amount they would need to retire. In a total of nine years they managed to accrue around four-fifths of that in savings, plus a further C$200,000 through low-risk investments.

But their saving lifestyle wasn’t exactly frugal. They continued to spend money on holidays and even allowed for treats. Cuts were focused on three key areas: transportation, housing and food. They avoided eating out, only used public transport and car share services and lived away from downtown to save on rent. Tracking their spending helped to identify areas that they could cut back – including drinking habits. “At one point at the beginning, he was spending $400 just on beer,” says Shen, laughing. “I was like, ‘Do you realise this is how much we used to pay for rent at uni a month?’”

Now that they’re retired, they believe their savings, invested in low-cost index ETFs (exchange-traded funds), will keep them going for the foreseeable future. In case of disasters, including a 1929-style crash, they have three backup plans.

“We are probably some of the most pessimistic people you’ll ever meet,” says Leung, by way of explanation. “And we’re only doing this because we’ve created all these safety nets that will catch us.”

During her early childhood in Taiping, a village in Sichuan province, Shen says she learnt the scarcity mindset early on. “If you ever run out, the government is not here to help you, there’s never going to be any safety net to catch you. So my parents had instilled it in my head that money is the most important thing in the world.” As a student her father, who before she was born spent 10 years imprisoned in a labour camp, was able to visit Canada. Shen and her mother followed two years later.

Despite earning comparatively little money as a student and dishwasher, her parents sent money to China to support the rest of the family. Her early experiences in China gave Shen perspective on poverty, she says. “Basically, if you have four walls and you have your parents and you have food, you are wealthy.”

It’s a position of privilege to not be money-driven, she says. “Anybody that says ‘oh yeah, it’s only money’, ‘money comes and goes’, ‘it’s not about the money’, it’s like, you’ve never been poor.” If it hadn’t been for her childhood experiences, Shen doesn’t think she would be doing early retirement now. “I would’ve just thought just do something I love to do … I wouldn’t have thought put in the hard work now and get the gain later.”

Since retiring she is so much happier – at one point, her job made her so miserable she was on anxiety and depression medication – so much so that she wants to show others how to do it, too. She sees Fire as a remedy: “It’s almost like you see people get sick, you know what it feels like and it sucks to be sick and you want to give them the medication to help them feel better.”

Leung, meanwhile, says he was recently diagnosed as “obnoxiously happy” by a doctor. He is so convinced by the power of Fire that he thinks it could even have political ramifications. “[Donald] Trump’s rise to power was caused by economic fear, Brexit was caused by economic fear … If everybody was FI [financially independent], Trump wouldn’t have got elected.”

So would they ever go back to their old jobs? Shen giggles drily. “I don’t think I would be very useful as an employee any more.” She has, she says, become too open-minded to obediently follow instruction. “Once you’ve been out of the matrix, you can’t go back into the matrix,” she says soberly. “You’ve already seen too much.”

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