Consumer Spending Falls in July

U.S. retail sales came in “flat” in July, the Commerce Department announced this morning.  Overall, it appears that consumers spent money on automobiles, which saw a 1.1% rise in sales.  However, when auto sales are excluded, retail sales actually declined by 0.3% in July, suggesting a pause among consumers, at least for this month.  This figure is very closely watched by market participants, as it is a gauge on consumer sentiment and the health of the broader U.S. economy.  At the same time, retail sales are only a piece of personal expenditures we see from the U.S. consumer; consumption of services make up nearly two-thirds of all spending.

Within the report, we didn’t see much that was surprising.  Corporate earnings releases gave us some indication that retail sales were going to come in below expectations, especially within the restaurant space, which saw a sizable decline as consumers are opting to eat out less across the board, from fine dining to fast food.

The Producer Price Index (PPI) also showed a 0.4% drop for the month of July despite a relatively robust labor market.   The Federal Reserve will certainly take these data points into consideration when they meet next month to decide on their current interest rate policy.    The futures market is now putting the probability of a rate hike in September at 6.0%.  This is down from the previous probability of 12% from the previous week.


BOE Experienced Liquidity Problem:

The Bank of England relaunched its quantitative easing program this week and ran into an immediate liquidity problem.  On the program’s second day, the BOE was unable to secure the entire amount of long-dated gilts (note: gilts is a term for bonds that are issued by the Bank of England on behalf of His/her Majesty’s Treasury)  it sought to purchase in a reverse auction.  Market participants chalked up the failure to unwillingness on the part of the insurance companies and pension funds to part with relatively high – yielding paper.  The bank had better luck on Wednesday, securing all the bonds for which it bid.  Separately, a BOE business conditions survey showed that firms expect weaker investment, hiring and turnover in the coming months.


Jobless Claims Remain at Historically Low Level:

Yesterday, the Labor Department announced that the number of Americans filing for unemployment benefits fell by 1,000 last week to a total of 266,000.  This was slightly higher than the 265,000 that economists were forecasting, but the data still shows overall U.S. employment is strong.  Jobless claims have now remained below 300,000 for 75 consecutive weeks making it the longest stretch since 1973.  The four-week average for jobless claims ticked up 3,500 to 262,750.  This measure is perhaps a better measure of the employment picture as weekly claims can have more wild swings if something extreme happens.  The reading has changed very little over the last several weeks and is perhaps a good indication that we are at or near full employment, meaning the jobless claims number is unlikely to continue its downward trend.  Not surprisingly, another piece of data was released this week and showed that layoffs ticked down to a 1.1% rate and is one of the main contributors to this week’s jobless claims report.


Are You Responsible for Parents’ Long-Term Care?:

Individuals are living longer than ever and most are requiring some sort of care as they get older.  These needs can be a strain on retirement savings and increase the possibility that one could outlive their money.  Not only do we need to worry about this for ourselves, but also for our loved ones.  Unbeknownst to many is the fact that medical care expenses incurred by indigent parents can become a liability for the children.

Over half of the states in the U.S. have what are known as filial laws that can hold children legally responsible for the unpaid long-term care expenses of their parents.  Enforcement of these laws has been scarce so far, but the increased application of these laws for some states is a possibility in the future.  This is especially true for states with expanding deficits and as the costs for healthcare continues to rise, putting more pressure on programs such as Medicaid.   One such example is a 2012 case in Pennsylvania where the court found a defendant responsible for $93,000 of his mother’s skilled nursing facility bill.  Most instances of the application of these laws is due to a shortage of private funds, often due to gaps that Medicaid did not cover.  But the most aggressive enforcement has been aimed at families attempting to hide assets.  Going forward, these laws could potentially be used as a type of debt collections as nursing care facilities look for ways to deal with increasing costs.

Many baby boomers are now experiencing the “sandwich generation” effect, where they find themselves caring for both their parents and their children in one household.   The threat of these laws makes understanding long-term care needs and their potential impact on the entire family as important as ever.   While states such as Missouri, Illinois, and Kansas do not have filial laws, those whom are residents of, or those with parents in one of the 30 states with filial laws need to be mindful of these risks.


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