In The Headlines

Is the UK Headed for a Post-Brexit Recession?

The U.K. may be heading for its weakest growth in a year, possibly heralding the start of a Brexit-induced slowdown. IHS Markit’s gauges for manufacturing and the dominant services sector fell in February, with both readings coming in below economists’ median forecasts. While the construction index rose, that was not enough to stop the composite Purchasing Managers Index (PMI) falling to a six-month low of 53.8 from 55.5.

Markit’s combined surveys point to economic growth of 0.4% this quarter, which would be the slowest pace in a year and down from a sluggish 0.7% in the previous three months. The pound fell after the publication of the latest PMI, dropping down 0.3% to $1.2226. That is the lowest since Prime Minister Theresa May delivered the speech in mid-January on her vision for the U.K. after it leaves the European Union. “The buoyancy of recent U.K. growth numbers may be going away,” said Alan Clarke, an economist at Scotiabank in London. “To be fair, a composite reading of almost 54.0 is still very respectable; but we just are not booming anymore.”

The loss of momentum in services, the main driver of better-than-expected growth since the Brexit vote in June, is a major challenge. The economy is already forecast to weaken this year as the weaker pound pushes up prices, squeezing consumer incomes. The median prediction in Bloomberg’s monthly survey is for expansion to cool to 1.5% this year from 1.8% in 2016.

The services report also showed that sterling’s 18% drop since the referendum is continuing to feed through. Companies’ input costs and prices charged both rose at the quickest pace in more than eight years in February. “The ongoing steep upturn in costs suggests that consumer-price inflation has significantly further to rise,” said Chris Williamson, chief business economist at Markit. He added that household budgets may be “starting to crack under the strain of higher prices and weak wage growth.”

While survey respondents noted that rising business costs had the potential to constrain growth, optimism remained near its post-referendum high recorded at the start of the year. That was partly on hopes that Brexit-related uncertainty would have little impact on demand in the near term, Markit said.

However, consumers are starting to rein in their spending as their budgets are being squeezed by rising inflation, sparking fears that the economy could be in for a bumpy ride this year, new data suggests. Retail sales figures for January disappointed for the second month in a row after data showed that the quantity of goods bought in the period only increased by 1.5%, compared with a year earlier, marking the lowest rate of growth since November 2013. Between December and January, the volume of goods sold by retailers actually fell by 0.3%, according to the Office for National Statistics (ONS). The lackluster retail report from the ONS follows an equally disappointing December, when volumes fell 1.9% month-to-month. It suggests that higher inflation and the weak pound are finally starting to eat into household spending as retailers pass rising costs on to shoppers.

According to Williamson, the latest PMI results are back toward levels more indicative of additional Bank of England (BOE) stimulus. “Policy makers are therefore likely to continue to stress the need to look through any further upturn in inflation,” he said. The BOE announces its next policy decision in mid-March.

Citations

1. http://bloom.bg/2mStoYZ – Bloomberg
2. http://bit.ly/2kQAvk6 – The Telegraph

Google vs. Apple: Battling for the Classroom

Apple’s status in the education sector has tumbled in recent years. Apple’s mobile operating system iOS ended 2016 with a 14% share of new mobile devices used in kindergarten through 12th grade, down from 26% in 2014, according to new data from research firm Futuresource Consulting. Meanwhile, Apple’s computer-only operating systems OS X and macOS fell to a 5% share in 2016 from 8% two years earlier.

As Apple’s hold on the education world declined, Google has grown the share of its cloud-based operating system, Chrome OS, to 58% from 38% in 2014. Microsoft stabilized the market share of its Windows operating system in education last year at 22%, flat from 2015 and down from 25% in 2014. The findings are troubling for Apple considering that the education market is growing rapidly and presents a major opportunity for technology companies because of its size. Apple once had a strong position in schools thanks to its iPad, but its tablet’s high prices appear to be stunting sales.

Device makers shipped 12.6 million mobile computers—laptops, tablets, and smartphones—to U.S. schools last year, according to Futuresource. In 2015, that number was 10.7 million units. Futuresource’s data looks at electronics shipped to U.S. schools including mobile devices like notebooks, netbooks, and tablets. But it does not include desktop computers.

Apple, which has emphasized its commitment to the education market for years, acquired LearnSprout, a software company that helps teachers monitor and track student performance, in 2016. It came on the heels of Apple announcing several school-friendly improvements to iOS, including adding the ability for a single device to have multiple user accounts so that students could share it.

But, increasingly, Google has a stronger appeal in schools. According to Futuresource, Google’s combination of cheaper devices, called Chromebooks, which use Chrome OS, along with its software services, have given it a lift with educators. Google Classroom, a software tool designed for schools, is also popular, according to Futuresource. Additionally, Microsoft has improved devices and services for the education market, according to Futuresource. But it’s been unable to stop Google’s rise.

Apple’s biggest problem may be the higher prices for its devices compared to its competition. Some schools said this year that they bought Chromebooks for as little as $120, a huge savings over Apple’s iPads, which cost hundreds of dollars more. “At the end of the day, I can get three Chromebooks for each of the Mac devices I would have purchased,” Steve Splichal, the superintendent of Eudora Public Schools in Kansas told The New York Times in a recent interview.

Apple is doing little better in schools overseas, where its iOS market share was 9% last year. Microsoft still dominates the international market with a 65% share. Google’s mobile operating systems Android and Chrome OS combined for 23% market share last year outside the country.

Citations

1. http://for.tn/2mVQJch – Fortune
2. http://bit.ly/2mW69gx – FutureSource Consulting

The Good News Is . . .

• The number of Americans filing for unemployment benefits fell to near a 44-year-low last week, pointing to further tightening in the labor market. Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973, according to the Labor Department. It was the 104th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. The labor market is at or close to full employment, with the unemployment rate at 4.8%.

• The Priceline Group Inc., a leading online travel and related services firm, reported earnings of $14.21 per share, an increase of 32.4% over year-earlier earnings of $10.73 per share. The firm’s earnings topped the consensus estimate of analysts by $1.20. The company reported revenues of $711 million, an increase of 31.2%. Management attributed the results to accelerating growth in hotel room nights booked.

• Law firms Norton Rose Fulbright and Chadbourne & Parke, will merge into a single entity with more than 4,000 lawyers and expected annual revenue just under $2 billion. The combined firm will be known as Norton Rose Fulbright. The combination with Chadbourne will give the new firm about 1,000 lawyers in the United States, including more than 300 in New York and around 130 in Washington. The combination of the two firms continues a trend in the legal industry. There have been more than 80 mergers and acquisitions involving law firms in each of the past four years. There were 85 such deals in 2016, according to the Altman Weil MergerLine, which tracks such deals. With demand for legal services sluggish, more consolidation is predicted in the industry.

Citations

1. http://reut.rs/2mP4XfC – Reuters
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2lF1hv3 – The Priceline Group Inc.
4. http://nyti.ms/2mkIRUp – NY Times Deal

Planning Tips

Guide to Living Trusts

Many families wonder whether they need a living trust as part of their estate plan. Living trusts are often promoted as the single, best document that will help you avoid costly probate proceedings when passing assets to your heirs. And while this technically may be true, in most cases there are easier, less expensive ways to avoid probate. In addition, there are certain pitfalls associated with improperly managed trusts. Below are some factors to consider when evaluating whether a living trust actually makes sense. It is important to consult with your financial advisor to determine whether a living trust is appropriate for your situation.

Certain Assets May Not Require Protection from Probate – There are several types of assets that typically are not subject to probate, and thus may not require the protection of a living trust. These include:

• Jointly Owned Assets – Property that you jointly own with right of survivorship will automatically pass to the survivor upon your death. For example, no probate will be involved with major jointly-owned assets like your primary residence.
• Assets With Named Beneficiaries – Pensions, retirement accounts and life insurance policies offer you the opportunity to name a beneficiary. As long as you take this important step, these kinds of accounts and assets will also avoid probate and pass directly to your named beneficiaries.
• Bank Accounts with a Payable on Death Designation – Your bank accounts can also easily be moved outside of the probate process by setting them up as payable-on-death accounts. Designating them as such grants your designated heir immediate access to the accounts when you pass away.

Living Trusts Are Expensive – Although this should not be the primary driver in your decision making, it is a factor. Many simple wills cost around $300 to put in place, while living trusts typically cost $1,000 to $3,000 to implement. If all of your assets fall into the three categories listed in the first item above, it may not make sense to incur this extra expense.

Living Trusts Can Create Unnecessary Hassles – When you set up a living trust, each asset that you want to shield from probate must be placed within it. So, for example, if you have property that you want to put into the trust, you will need to record a new deed transferring ownership to the trust. Again, there is no need to do this if it is your primary residence that you own jointly with your spouse.

There Can Be Unintended Consequences – In certain situations, a living trust can actually complicate rather than simplify matters. A living trust requires that you name both a trustee as well as either a joint or successor trustee. Typically, you will name yourself as the trustee, and many people opt to name a spouse as a successor trustee. Let us say this is the case for you and you become incapacitated and at the same time your spouse has dementia. In this scenario your children or other heirs will need to have your spouse declared mentally incompetent before gaining access to the trust assets.

When Living Trusts Make Sense – Despite all of the reasons listed above, there are some situations when it does make sense to put a living trust in place. These include:

• If you have significant out of state property holdings and want to avoid probate in that state.
• If you own a small business and want to have the best chance of quickly passing along your business interests and minimize the chances of business disruption.
• If you want to disinherit a child or leave more money to certain heirs as opposed to others, a living trust may be the way to go because they are harder to contest than a will.

Citations

1. http://bit.ly/1XgH38G – LegalZoom.com
2. http://bit.ly/2m4bxyP – Nolo.com
3. http://bit.ly/2mBRJpU – Investopedia
4. http://bit.ly/1kVZn2b – Kiplinger
5. http://bit.ly/2m5fF3r – Forbes