Crisp mornings, football and apple cider. Just a few signs that fall is upon us. And before you know it, we’ll be shoveling snow. Unlike our four seasons, the economy isn’t as predictable. Recent reports indicate the economy may be slowing down a bit. And that’s a sign that fewer jobs are being created and unemployment is rising.
One statistic that concerns me is the labor participation rate. While the unemployment rate counts people who are actively seeking work, the labor participation rate counts people who could be working but aren’t looking for work. It doesn’t get much news coverage and that troubles me.
The stereotyped image of that demographic is someone who is living in mom and dad’s basement or is simply unmotivated to seek employment. It’s quite concerning that both the unemployment rate and labor participation rate have increased. Apparently, those that are working are not changing jobs. Which is an indication that the economy is slowing, and workers are content to stay put, at least until the economy finds its direction.
I bring this up because, whether or not the economy ultimately slows down, you need to be prepared. I liken it to keeping an umbrella in your car, just in case. Being prepared could mean different things to different people. But generally, it just means paying attention to your spending,
The term “shrinkflation” has become part of our economic vocabulary. Here’s a personal example. I recently bought a can of coffee, noticing that the price was the same as the last time I bought it. But instead of stating 150 cups in a can, I also noticed it was now 130 cups. Same price, lesser amount. Subtle, isn’t it? Or maybe sneaky. In any event, I chose to pay the same for less, even though I could have taken a small risk and tried a different brand at a lower price.
Consumers are faced with three choices. Pay the higher price, work more to make more money, or make your money work harder. For example, in the financial world, the trend is toward lower interest rates. So, you can accept a lower rate on your bank account or seek alternatives. However, while switching coffee brands is minimally risky, going from a bank deposit to an investment could mean additional risk.
Early in my career, I remember talking to a new client during a cycle of decreasing interest rates similar to today’s. Prior to our meeting, he moved money from his bank into a bond fund to make his money work harder. The bond yield was better than the bank’s interest rate.
But he didn’t realize that, unlike his bank account, his bond fund’s principal could fluctuate. I’m not saying it was a bad move, but I was concerned that he didn’t fully understand that he was taking on an increased amount of risk.
When your dollars don’t go as far as they used to, and you’re considering changes to make up for a shortfall, be careful. Without adequate research and due diligence, you could unwittingly be taking unnecessary risks. As for your money in the bank, consider carefully if you’re contemplating repositioning dollars from savings into investments. The harder you work, the harder your money can work. Having a bad experience with your money is much worse than a bad cup of coffee.
Email your questions to kenmorris@lietimeplanning.com
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.
