In The Headlines

Will Our Graying Workforce Taking a Toll on Productivity?”

Graying WorkforcePopulation aging is expected to be a drag on U.S. growth, and the hit could be substantial. The retirement of baby-boomers in the decade between 2010 and 2020 will lower GDP growth per capita by 1.2% a year from what would have been the case if the nation’s demographics had held steady, according to a National Bureau of Economic Research study published recently. The bright side is that the dent is only half as deep between 2020 and 2030 as the pace of aging slows.

The study is based on a simple idea: population aging is already long underway and has been playing out with varying degrees of intensity across different regions of the country. By looking at variations in state population aging, authors Nicole Maestas at Harvard Medical School, and Kathleen Mullen and David Powell at policy research group RAND Corporation, are able to estimate how a graying workforce affects output, participation rates and productivity.

What is surprising is the composition of the slowdown. Just one-third is driven by slowing workforce expansion and the rest by a drop in productivity gains. The productivity slump is not reserved to older workers: it takes place across age groups, the researchers find.

The authors suggest a few theories about why that is the case. It could simply be that younger and older workers complement one another. Or the most productive older workers might be leaving the workforce, while less-productive old timers stay on the job. “How much of it is that relatively productive workers are the ones who are choosing to retire? It’s very hard to say,” Maestas said in an interview. Regardless of what is behind it, the discovery that the aging workforce could be weighing on productivity comes in contrast to other guesses and is important.

As Federal Reserve officials met in Washington this week, tepid growth in ouput-per-hour is likely to have been one of the economic questions they pondered. It is not clear why productivity growth has dropped off, and the change has real-world implications. It is one factor that caused Fed officials to lower their projections for where interest rates will settle in the longer-run, based on meeting minutes from their June meeting.

Another notable feature of the new findings is that they are really pessimistic. If growth over the next 20 years otherwise held near its average for the 1960-2010 period—about 1.9%—adjusting for the demographic shift would lower per-capita GDP gains to 0.7% this decade and 1.3% in the next decade, based on the estimates.

Other research on the topic has suggested that population aging will have a smaller drag on output growth—for instance, a 2012 National Research Council report found that aging could knock 0.3 to 0.6 of a percentage point off of growth over the next two decades as the workforce structure changes, which it characterized as a “modest” macroeconomic consequence. According to Maestas, the difference arises because the council did not factor in productivity as a major way aging could act as a drag on growth. “The real challenge next is to take a closer look at productivity and whether there are ways to redesign the way we work, and take a look at policy that can inadvertently encourage retirement by productive workers,” Maestas said.

Citations

1. http://bloom.bg/2ajpo03 – Bloomberg
2. http://bit.ly/2aFojSB – Nat’l. Bureau of Economic Research

TJ Maxx is Poised to Take a Bite Out of Whole Foods

TJ Maxx is Poised to Take a Bite Out of Whole FoodsTJ Maxx’s sales are soaring. They have surpassed Macy’s, Nordstrom’s and JC Penney. It now appears that even Whole Foods should be scared. While the budget retailer is an unlikely competitor for Whole Foods, TJ Maxx has a surprisingly specific and successful strategy when it comes to its edibles section, which is filled with items like obscure spices, seemingly random dry goods, and quirky jams.

TJ Maxx buys gourmet items in large quantities at a huge discount, reports Bon Appétit. Then, the stores purposefully understock the shelves, creating a sense of urgency for shoppers who spot items, like bacon spice, that they are unlikely to see elsewhere, and certainly not at the same price. Meanwhile, Whole Foods is struggling to create the same sense of urgency. As budget grocery chains, such as Trader Joe’s and Kroger, have upped their organic offerings, Whole Foods has had a hard time competing. Recently, the grocery chain reported comparable-store sales fell 2.6% in the third quarter, greater than an expected decline by 2.4%.

Whole Foods made a name for itself by selling organic and gourmet products that customers could not find anywhere else. Now, as organic becomes expected at grocery stores that sell items for significantly less than Whole Foods, private-label gourmet foods are one of the last areas that customers can only find at Whole Foods. Except they can also find these items at TJ Maxx. Just like William-Sonoma and Whole Foods, TJ Maxx buys items directly from manufacturers, often buying products specially produced for the store. With more locations, TJ Maxx can bring these gourmet products to more people, reducing their need to set foot in a Whole Foods.

Realistically, it is unlikely that TJ Maxx would become a major competitor to Whole Foods any time soon, as there is no sign that the retailer is planning on significantly boosting its investment in food. However, TJ Maxx and Marshall’s have more than 2,100 locations, compared to Whole Foods’ roughly 430 stores. If TJ Maxx increases its food offerings even slightly, it could cut into the grocery chain’s business. Further, comparing the two brands highlights why TJ Maxx is thriving and why Whole Foods is struggling.

TJ Maxx’s approach to food is part of its larger strategy that is allowing the brand to triumph over rival budget retailers: creating fresh deals on an item that actually appeal to customers. “The constantly changing assortment, the excitement of finding a bargain, and the sense of urgency associated with having to secure a product before it is sold out, all give consumers a reason to regularly visit shops,” Neil Saunders, CEO of consulting firm Conlumino, wrote in a note to clients in May. “Its products are genuine bargains which have been carefully found and selected with the customer in mind–rather than being a mish-mash of unpopular and unwanted apparel lines which constitute the tragic clearance sections of players like Macy’s and Sears.”

Meanwhile, Whole Foods has spent the last year offering deals that have failed to excite customers. While the grocery chain promised to lower prices in 2015, sales have failed to increase. “If we had a magic bullet, we’ve already shot it,” Whole Foods co-CEO John Mackey said last November. Now Whole Foods’ last hope for the future is the company’s millennial-friendly, less-expensive 365 chain. The chain is appealing to a different, younger customer base than TJ Maxx, but intends to do similar things—offer no-frills deals and perks that actually fit customers’ needs. With a new rewards program and digital price tags intended to simplify discounting, 365 could capture part of the thrill of finding a deal that draws customers to TJ Maxx.

So far, Whole Foods’ dreams for 365 remain untested, as only a single store in Los Angeles is currently open. As more 365 locations open, Whole Foods should be looking to TJ Maxx for guidance. If it does not, the brand could soon find itself dealing with an unlikely competitor—and one that is more than ready to take on the world of gourmet food.

Citations

1. http://read.bi/2aDmZOQ – Business Insider
2. http://yhoo.it/2aSHsNf – Yahoo! Finance

The Good News Is . . .

Good News• Consumer confidence remained strong in July at 97.3. The “jobs-hard-to-get” component of the present situation index, offered a positive indication for the July employment report, falling to 22.3% from 23.7% in June which was already a very strong month for the labor market. And readings on future employment, which is a component of the expectations index, also showed improvement. The present situation index is up 1.7 points this month to 118.3 for the strongest indication on month-to-month consumer activity since September 2015. This reading should give a lift to estimates for July consumer spending.

• Raytheon Co., a technology firm specializing in defense, civil government and cybersecurity solutions, reported earnings of $1.85 per share, an increase of 12.12% over year-earlier earnings of $1.65 per share. The firm’s earnings topped the consensus estimate of analysts by $0.11. The company reported revenues of $6.0 billion, an increase of 3.2%. Management attributed the results to strong revenue growth in its intelligence and information services, missile systems, and space and airborne business segments.

• Verizon, seeking to build an array of digital businesses that can compete for users and advertising with Google and Facebook, announced that it was buying Yahoo’s core internet business for $4.83 billion in cash. The deal unites two titans of the early internet, AOL and Yahoo, under the umbrella of one of the nation’s largest telecommunications companies. Verizon bought AOL for $4.4 billion last year. Now it will add Yahoo’s consumer services—search, news, finance, sports, video, email and the Tumblr social network—to a portfolio that includes AOL as well as popular sites like The Huffington Post. Verizon, which has a vast amount of information about its customers’ internet use, hopes the combination will help it create a strong No. 3 challenger to Google and Facebook for digital advertising revenue. After the close of the deal, Yahoo shareholders will still own shares in what is left of the company, essentially an investment fund with two holdings: a 15% stake in the Chinese internet company Alibaba and a 35.5% stake in Yahoo Japan.

Citations

1. http://bloom.bg/1Dl6vPO – Bloomberg
2. http://cnb.cx/1gct3xa – CNBC
3. http://rtn.co/2azVYvW – Raytheon Co..
4. http://nyti.ms/2aot692 – NY Times Dealbook

Planning Tips

Tips for Avoiding Taxes on Your Social Security Benefits

Avoiding Taxes on Your SSN BenefitsWhether your Social Security benefits are taxed depends on your provisional income. Your provisional income is your adjusted gross income, not counting Social Security benefits, plus nontaxable interest and half of your Social Security benefits. If it is below $25,000 and you file taxes as single or head of household, or less than $32,000 if you file a joint return, you will not owe taxes on your benefits. If your provisional income is between $25,000 and $34,000 if you are single, or between $32,000 and $44,000 if you file jointly, up to 50% of your benefits may be taxable. If your provisional income is more than $34,000 if single or more than $44,000 if married filing jointly, up to 85% of your Social Security benefits may be taxable. Below are a few strategies that can help you keep your income below the cutoffs and reduce the portion of your benefits that is taxable. Be sure to consult with your financial advisor to determine the best tax strategy for your situation.

Give your required minimum deduction to charity – People who are 70½ or older can give up to $100,000 per year to charity from their IRAs tax-free; the gift counts as the required minimum distribution but is not included in your adjusted gross income.

Buy a Qualified Longevity Annuity Contract – You can invest up to $125,000 from your IRA or 401(k) in a special version of a deferred-income annuity called a Qualified Longevity Annuity Contract (QLAC). Money in a QLAC is ignored when figuring your required minimum distribution (RMD), so you can reduce the size of your RMD, lower your income and trim your tax bill. Payouts do not start for several years–as late as age 85–when they will be included in your taxable income.

Withdraw money from tax-free Roth IRAs – Tax-free withdrawals from a Roth IRA or Roth 401(k) are not included in your adjusted gross income. Rolling over money from a traditional IRA or 401(k) to a Roth years before you start receiving Social Security benefits is a good way to avoid taxes later in retirement. You will have to pay income taxes in the year of the conversion, but you can tap the account tax-free after that.

Be careful with income investments – You could structure your portfolio to minimize the income it generates, especially if that income is being reinvested. You are just recognizing income you do not need and triggering taxes you do not want to pay. A growth-oriented portfolio may make more sense. Also keep in mind that nontaxable interest, such as interest on municipal bonds, is included when calculating the taxes on your Social Security benefits.

Put your tax moves into perspective – If your income is well over the $44,000 threshold, there likely is not anything you can do to get yourself below that level. Do not just focus on Social Security taxes, but instead focus on tax-efficiency overall.

Citations

1. http://on.wsj.com/2aCFof4 – Wall Street Journal
2. http://bit.ly/2amMcZI – Bankrate.com
3. http://bit.ly/2aCFoeX – Kiplinger
4. http://bit.ly/2amMdg9 – US News & World Report
5. http://bit.ly/2a9yUUX – Investopedia