Household Formation

May 3, 2012

This isn’t something I normally worry about since I am not an economist (thank goodness).  However, I was struck by this Washington Post article that pointed out how drastically the recovery has been impacted by the lack of household formation.

The recession reduced the rate at which Americans set up new homes or apartments by at least half. Although the number of new households has begun to recover over the past year, its growth rate continues to lag behind its historic pace, according to Census Bureau statistics.

More than one in five adults between ages 25 and 34 live with their parents or in other “multi-generational” living arrangements, the highest level since the 1950s, according to the Pew Research Center.

Analysts estimate that there are more than 2 million fewer occupied homes than there would have been had Americans continued moving into new homes and apartments at the  rate they did before the recession.

Household formation is important because it is usually a period of much higher than normal consumer spending.  Once you move out, you end up acquiring some of your own furniture, dishes, and so on.  If the recovery ever gets going, there will probably be extraordinary demand for housing—not just the regular demand, but also all of the pent-up demand from adults now living with their parents—and a really big burst of consumer spending.

Source:  (click on image to enlarge)


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Retiree Inflation

May 3, 2012

A very interesting tidbit from an article on retirement distributions in Financial Planning:

To find out, he [financial planner Jim Shambo] looked at inflation calculations by the Bureau of Labor Statistics and found something interesting: Inflation tends to strike retirees harder than preretirees. Most notably, health care costs are rising faster than the inflation rate.

Beyond that, the CPI calculation factors out cost increases that are attributable to improvements in the goods and services you purchase. A car may cost 4% more this year than last, but if there are new fancy electronics in the standard model, the government may decide that inflation only counts for a half-percent of the increase. Of course, if you buy the car, you still have to pay the full higher cost. Add it all up, and people aged 65 to 74 appear to be experiencing an inflation rate that is a remarkable 1.11 percentage points a year higher than CPI, and this grows to 2.09 percentage points (a year!) when retirees get past age 75.

That’s rather remarkable.  The rule of thumb that you should be able to retire on 70% of your working income appears to have a big hole in it.  Inflation is even worse for retirees than we thought.

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Fund Flows

May 3, 2012

The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs).  Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders.  Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

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