Personal Financial Pleasure Rises on Stock Market Gains, Increased Job Openings
Americans are experiencing their highest levels of personal financial satisfaction since the fourth quarter of 2006, according to the Q2 2017 AICPA Personal Financial Satisfaction Index (PFSi), released today. The 10-year high was primarily driven by three factors: the PFS 750 Market Index maintaining a record-high, job openings per capita climbing to a record-high and a significant decrease in the inflation measure from the prior quarter.
The PFSi is calculated as the Personal Financial Pleasure Index minus the Personal Financial Pain Index, with positive readings indicating that Americans are feeling more financial pleasure than pain. The Q2 PFSi measured 24.1, a 7.6 point increase from the prior quarter. The increase was due to the slight uptick in the Personal Financial Pleasure index (1.4 points) and a substantial 6.2 point decrease in the Personal Financial Pain index.
“In conversations with our clients, we’ve been telling them to be aware of the long-term trend. People naturally overweigh the current situation and forget that it is part of a cycle,” said David Stolz, CPA/PFS and member of the AICPA PFS Credential Committee. “Americans shouldn’t let their present situation allow them to drift from their plan of reducing debt and adding to their savings. It’s always wise to save some acorns in the summer, because we know eventually winter is coming.”
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The Personal Financial Pleasure Index, at 66.0, is up 1.4 points from the previous quarter and has continued its steady increase, setting a record for the third quarter in a row. The PFS 750 Market Index has been the biggest contributor to the Pleasure Index for several years, a trend that continued in Q2. Compared to the prior quarter, the information technology industry saw the strongest gains followed by consumer discretionary and health care, whereas energy and telecom experienced losses.
Of the four factors that make up the Pleasure Index, Job Openings per Capita Index experienced the largest increase over the previous quarter (5.3 points), reaching a record-high and moving into position as the second most important contributor to the Pleasure index. Job openings were highest among lower-paying sectors such as leisure/hospitality and accommodation/food services – both of which saw vacancies rise to all-time highs. In addition, government job openings are at their second-highest level of all-time, in part because the federal hiring freeze was lifted in April, resulting in many open positions. However, hiring was notably weak in the information technology, trade, transportation and financial activities sectors. According to the Federal Reserve’s Beige Book April 2017 Report, employers are having a harder time finding skilled workers to hire as the labor market continues to tighten.
The Personal Financial Pain Index, at 41.8, saw all four factors decrease from the previous quarter combining to drop the index 6.2 points which contributed to the overall improvement in the PFSi. The decrease from the preceding quarter was driven largely by a 16.5 point drop in the inflation index, the most volatile factor in the PFSi. The U.S. economy has continued to show signs of strength as it leaves the great recession behind. The Q2 inflation index, which preceded the Federal Reserve’s June announcement that the target interest rate will rise, has been held down in recent months by a price war in the wireless cell phone industry and falling prescription drug prices.
“Consumers should keep in mind that the Fed will likely continue to boost interest rates, making it more expensive for banks and ultimately, the consumer to borrow money,” said Robert A. Westley, CPA/PFS and member of the AICPA PFS Credential Committee. “In advance of future rate hikes, Americans should look to pay down their credit cards and other high-interest bearing debt as much as possible. Any future interest rate increase will result in higher monthly payments and therefore less disposable income and less financial satisfaction.”
Additional Findings from the Q2 2017 PFSi:
- Real Home Equity per Capita is 7.1% above the prior year level, and 0.9% above the previous quarter level. It is still 16.5% below its 2006 all-time high. The changes in value have been due to increases in the market value of real estate which have exceeded increases in mortgages outstanding.
- The AICPA Economic Outlook Index, which captures the expectations of CPA executives in the year ahead for their companies and the U.S. economy, was the only factor in the Pleasure Index that decreased from the previous quarter level, dropping 0.9 points. The survey was conducted in May.
- Personal taxes, still the leading overall contributor to financial pain for the fourth quarter in a row, showed a 1.2 point decrease from the previous quarter and a 1.4 point decrease from the prior year level.
- Underemployment, though still higher than it was prior to the great recession, continued to decrease dropping 5.3 points this quarter and 6.9 points year-over-year.
- Loan delinquencies continued their downward trend at 2.7 points lower than the previous quarter and 9.9 points below the level a year ago. However, loan delinquencies today are still 23.8 points higher than they were in Q4 2006, the previous high of the PFSi.
Additional information on the PFSi can be found at: www.aicpa.org/PFSi.
The Personal Financial Satisfaction Index (PFSi) is the result of two component sub-indexes. It is calculated as the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. These are comprised of four equally weighted factors, each of which measure the growth of assets and opportunities, in the case of the Pleasure Index, and the erosion of assets and opportunities, in the case of the Pain Index.