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Despite Stock Market Dip, Lower Taxes Help Americans Reach Record Level of Financial Satisfaction: AICPA Index

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Despite Stock Market Dip, Lower Taxes Help Americans Reach Record Level of Financial Satisfaction: AICPA Index
  • Initial impact from the Tax Cuts and Jobs Act drives decline in financial pain.
  • In a volatile quarter, PFS 750 Market Index drops for first time since Q3 2015.
  • New AICPA data by The Harris Poll finds more than two-thirds of Americans are satisfied with their personal finances.

The extreme volatility that brought the stock market down in the first quarter of 2018 was narrowly offset by the positive effects of lower taxes. This allowed Americans’ personal financial satisfaction to advance to a new record high, according to the AICPA’s Q1 2018 Personal Financial Satisfaction Index (PFSi) released today. This is the first quarter to reflect the impact of the Tax Cuts and Jobs Act and in it, the PFSi increased 1.5 points (6.2 percent) over Q4 2017 to reach 26.1, a new all-time high. This positive reading indicates that the average American is feeling a strong sense of financial well-being.

The positive gains to the overall PFSi were buoyed by personal taxes decreasing 4.2 points (7.3 percent) from the prior quarter which gave many working Americans an increase in their paycheck. The personal taxes component is one of four factors that make up the Personal Financial Pain Index. Thanks largely to the decline in personal taxes, the Personal Financial Pain Index measured 43.7 in Q1 2018, a 1 point (2.1 percent) decrease from the prior quarter. The lower overall value of the Pain Index helped to boost the modest improvement in the PFSi.

Even though taxes declined in the first quarter, they continue to be the largest contributor to financial pain, now for the eighth quarter in a row. The tax component of the Pain Index is particularly important when measuring financial satisfaction because it is a distinct factor that many Americans recognize. When income taxes change, Americans tend to notice because it impacts their take home pay. The personal taxes value uses information from the Bureau of Labor Statistics on income tax, tax on realized net capital gains and taxes on personal property.

“As Americans appreciate an increase to their take home pay, they should recognize that the changes in tax law went far beyond a reduction to income taxes,” said Dave Cherill, CPA, member of the AICPA Personal Financial Planning Executive Committee. “There are countless provisions in the new law that can help middle class families create and secure wealth for themselves and future generations, but many of the new rules expire at the end of 2025. Educating oneself and planning should start now.”

The Q1 2018 Personal Financial Pleasure Index measured 69.8, which is a slight 0.6 point (0.8 percent) increase over the prior quarter. Market volatility was uncharacteristically absent for 2017 but it returned dramatically during the first quarter of 2018. The PFS 750 Market Index declined for the first time since Q3 2015, dropping 3.5 points (3.9 percent) from its Q4 2017 level to 85 and ending its streak of successive record high quarters at four. Despite this, it remains the leading contributor to the Pleasure Index.

“As Americans begin to feel increased market volatility, it’s important to resist the urge to time the market and instead remain focused on a long-term financial plan,” said Robert Westley, CPA/PFS, member of the AICPA Personal Financial Specialist Credential Committee. “A strong financial plan will help to align an investor’s portfolio with their personal financial goals and corresponding time horizons. As the need to draw from a portfolio approaches, investors should begin decreasing their portfolio’s risk. This is especially important for Americans near or at retirement age since bull markets, like the one we have been experiencing, often cause investors to overlook the importance of holding safer investments in their portfolios.”

The other three factors of the Pleasure Index all improved, most notably job openings per capita which increased 3.4 points (4.9 percent) over the last quarter and set a new all-time record as overall job openings totaled 6.3 million in January. The greatest job availability was in professional and business services, transportation, warehousing, utilities, and construction.

The PFSi ‘s numbers are in sync with Americans’ overall attitudes about their personal finances. An April 2018 telephone survey, conducted on behalf of the AICPA by The Harris Poll, found that more than two-thirds of Americans (68 percent) are satisfied with their personal finances which is a slight increase from a year ago when the 2017 study found 64 percent were financially satisfied. In contrast, a little more than a quarter of Americans (28 percent) said they are not financially satisfied, with 14 percent saying not at all. This is a drop from a year ago when slightly more than a third of Americans (35 percent) reported that they were not financially satisfied, with 16 percent saying not at all.

Additionally, more than twice as many Americans (39 percent) said that their personal financial satisfaction has improved over the past year, compared to those who said it has declined (17 percent). However, it was status quo for a sizable number as 41 percent said satisfaction levels remained about the same.

Additional Findings from the Q1 2018 PFSi:

  • The AICPA CPA Outlook Index, which captures the expectations of CPA executives in the year ahead for their companies and the U.S. economy, saw an increase of 1.9 points (3.4 percent) above the previous quarter, finishing Q1 with a value of 56. The strongest factors in the level of the Q1 2018 index are US Economic Outlook and Revenue.
  • The Real Home Equity per Capita Index, at 67, is still 14.5 percent below its 2006 all-time high. The changes in value have been due to increases in the market value of real estate exceeding increases in mortgages outstanding.
  • Underemployment is 8.2 percent, down 2.9 percent from the Q4 2017 level. In comparison, its peak value was 17.1 percent in the fourth quarter of 2009. It is now 1.8% below its average value in the two years before the great recession. Unemployment decreased in almost all industrial sectors over the last year.
  • Delinquencies on Loans Q1 level is 2.3 percent below the previous quarter’s level. All the improvements quarterly are due to delinquencies on mortgages. Though the Q1 reading of delinquencies on mortgages (3.54 percent) is well below the peak delinquency rate for mortgages (11.26 percent) set in the spring of 2010, it is still above what was typical between 1994 through 2003 (2.12 percent).
  • The blended inflation measure for Q1 is 1.8 percent, which is still below the Federal Reserve’s 2 percent target for inflation. In terms of the index, the Q1 index value is 46, up a slight 0.5 percent from Q4. Inflation is the most volatile factor contributing to the PFSi, and with absolute levels so low, small changes result in large percent gains. The Q1 measure relies on the February level.

Additional information on the PFSi can be found at: www.aicpa.org/PFSi.

Personal Financial Satisfaction Index Methodology 

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.

The Harris Poll Methodology

The cited survey was conducted on behalf of AICPA by The Harris Poll by telephone within the United States between April 5 and 8, 2018, among 1,014 adults (510 men and 504 women aged 18 and over) including 414 interviews from the landline sample and 600 interviews from the cell phone sample. The 2017 study was conducted by telephone between March 24 and 27, 2017, among 1,018 adults (505 men and 513 women aged 18 and over) including 518 interviews from the landline sample and 500 interviews from the cell phone sample. Results were weighted (using data from the Current Population Survey) where necessary to bring them into line with their actual proportions in the population.

 

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EU sets itself jobs, training and equality targets for 2030

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EU sets itself jobs, training and equality targets for 2030 1

By Jan Strupczewski

BRUSSELS (Reuters) – The European Commission on Thursday announced goals for the 27-nation bloc to reduce poverty, inequality and boost training and jobs by 2030 as part of a post-pandemic economic overhaul financed by jointly borrowed funds.

The EU executive arm said the European Union should boost employment to 78% in 2030 from 73% in 2019, halve the gap between the number of employed women and men and cut the number of young people neither working nor studying to 9% from 12.6%

“With unemployment and inequalities expected to increase as a fallout of the pandemic, focusing our policy efforts on quality job creation, up- and reskilling and reducing poverty and exclusion is therefore essential to channel our resources where they are most needed,” the commission said.

The goals, which will have to be endorsed by EU leaders, also include an increase in the number of adults getting training every year to adapt to the EU’s transition to a greener and more digitalised economy to 60% from 40% now.

Finally, over the next 10 years, the EU should reduce the number of people at risk of poverty or social exclusion by 15 million from 91 million in 2019.

“These three 2030 headline targets are deemed ambitious and realistic at the same time,” the commission said.

The goals are part of the EU’s set of 20 social rights, agreed on in 2017, to make the EU more appealing to voters and counter eurosceptic sentiment across the bloc.

They say everybody has the right to quality education throughout their lives and that men and women must have equal opportunities in all areas and be paid the same for work of equal value.

The unemployed have the right to “personalised, continuous and consistent support”, while workers have the right “to fair wages that provide for a decent standard of living”.

(Reporting by Jan Strupczewski; Editing by Nick Macfie)

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UK aero-engineer Meggitt eyes return to growth after pandemic slump

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UK aero-engineer Meggitt eyes return to growth after pandemic slump 2

LONDON (Reuters) – British engineer Meggitt said that it could return to profit growth in 2021 provided there are no further lockdowns, despite a weakening in the struggling aviation market at the end of 2020 and early this year.

Pandemic restrictions halted much flying globally last year and forced plane makers Boeing and Airbus to cut production rates, dragging down suppliers like Meggitt, which makes and services parts for such aircraft.

Meggitt’s underlying operating profit plunged by 53% to 191 million pounds ($267 million) in 2020, it said on Thursday, despite continued growth in its defence business which makes parts for military jets and accounts for about 45% of the business.

Meggitt, however, said it expected air traffic to recover in the second half of the year which would help it return to profit growth over the year, although its guidance for flat revenue disappointed analysts who had expected growth of 6%.

Meggitt’s Chief Executive Tony Wood said in November that he had expected flying to start to recover by Easter, but new variants have led to more restrictions and delayed the recovery.

“It has gone back a couple of months… it’s now very much in the summer,” Wood said of the recovery in an interview on Thursday.

Further in the future, Meggitt is positioning itself for the move to lower emissions flying, and its sensors and electric motors will be used on electric urban air mobility platforms, such as flying taxis, and in hybrid aeroplanes being developed.

But Meggitt said new tax breaks announced in Britain’s annual budget on Wednesday aimed at encouraging investment would not change its plans.

“Yes, it will be a benefit. Are we looking at any acceleration as a result specifically of that? Not really,” Woods said.

Shares in Meggitt were down 1% to 427 pence at 0943 GMT. The stock has risen by 50% since news of a COVID-19 vaccine last November, but is still down 23% on where it was pre-pandemic.

($1 = 0.7165 pounds)

(Reporting by Sarah Young; Editing by Alistair Smout and Susan Fenton)

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UK’s Sunak will struggle with plan for tax hikes and spending cuts – IFS

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UK's Sunak will struggle with plan for tax hikes and spending cuts - IFS 3

LONDON (Reuters) – British finance minister Rishi Sunak will probably have to offer concessions to businesses if he wants to be able to implement a big hike in corporation tax that is at the centre of his new budget plan, a leading think tank said on Thursday.

The Institute for Fiscal Studies also said it was very unlikely that Sunak would be able to deliver the 17 billion pounds annual spending cuts included in his plan.

IFS director Paul Johnson said if the plan was implemented as announced on Wednesday, Sunak would meet one definition of a balanced budget – borrowing only to invest – by 2025-26.

“The sad truth is that that would be a balance built on the highest sustained tax burden in UK history and yet further cuts in unprotected public service spending,” Johnson said.

“That is perhaps one measure of the difficulties presented by more than a decade of paltry growth followed by the deepest recession in history.”

(Writing by William Schomberg, editing by David Milliken)

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