You are cordially invited to the Investor Symposium hosted by Matson Money.
When: Thursday, July 31, 2014 – Saturday, August 2, 2014
Where: Horseshoe Casino & Conference Center
1000 Broadway, Cincinnati, OH USA
Speakers Include:
Arthur B. Laffer, PhD: Chief economic advisor to Ronald Reagan
Terrance Odean, PhD: Professor at Cal-Berkley, expert in the field of investor behavior
Lyman Ott, PhD: Expert in the field of statistics, providing validity to Free Market Portfolio Theory
Concert featuring country singer (and former leader of Hootie & The Blow Fish) Darius Rucker
Seating is limited. RSVP by emailing reservations@matsonandcuprill.com. Admission is free to all Matson & Cuprill clients and their guests.
In The Headlines
Could the U.S. Be Facing an Extended Labor Shortage?
Economists who worry about high unemployment are plentiful these days. It is far less common to find an economist predicting an era of chronic labor shortages, with employers struggling to fill openings. That is the future that Gad Levanon sees. He is an Israeli-born director of macroeconomic research at the Conference Board, a business research group founded in 1916, and he has arrived at his conclusion by challenging conventional thinking in four areas.
Automation: If companies are automating and streamlining jobs out of existence, we should see a big jump in the government’s measure of output per hour worked—i.e., productivity. Yet when averaged over a three-year period, productivity has been drifting lower. This key fact simply does not fit the conventional wisdom of a hyper-efficient economy pushing workers into the street.
Baby-Boomer Retirements: One thing we can say with certainty is that in 25 years, baby boomers will be 25 years older than they are today. The aging of the workforce has pushed down the share of Americans in the labor force, either working or looking for work. The labor force participation rate has fallen and will continue to fall in coming years as the vast majority of those who have not already retired do so in the next couple of decades. Levanon predicts that companies will struggle to replace those retirees.
Two-Tier Labor Market: We are seeing labor market shortages co-existing with high unemployment among those people who lack the skills that employers are seeking. For people who have been out of work for less than half a year, the job market is quickly returning to normal, while there is still an enormous number of people who have been out of work for more than half a year. And these numbers do not even reflect those who have dropped out of the labor force altogether. The upshot is that the labor market could start to tighten—and wages could start to rise—even at low levels of employment, Levanon says.
History: Automation has been a fact of life in the working world for generations, and it has never generated mass unemployment. It dislodges people from old jobs and forces them to find new niches, but it has never caused permanently high joblessness, according to Levanon. He asks why it should be any different now.
His message rings true to many people in the business world, who have long been complaining that it is a seller’s market for labor despite the above-average unemployment rate now at 6.7%. “There’s a greater demand for workers than there is a supply with the right skill sets,” says George Prest, chief executive officer of the Material Handing Institute of America.
Levanon asserts that both Republicans and Democrats have a political incentive to exaggerate the slackness of demand for labor—Republicans because perceived weakness makes the Obama administration look like a poor steward of the economy, and Democrats because it justifies more stimulus. So does that put Levanon on the side of those who think the Federal Reserve should start raising interest rates sooner?
Not exactly. He thinks a tighter labor market would help lift some people out of long-term unemployment, because employers could not afford to be so picky. And he does not think there is a grave risk of an inflationary wage-price spiral. On the whole, Levanon thinks the big labor issue facing the U.S. economy over the next 15 years will be shortages, not surpluses.
Nordstrom Patiently Positions itself for the Future
At Nordstrom, customers are not only right, but they help set the company’s direction. The specialty-retail department store chain, founded in 1901, has evolved into a $12-billion-a-year business with 262 stores in 35 states on the strength of its strong reputation for customer service and by adapting well to changes in shopper preferences. The upscale retailer is not resting on its laurels, however. Nordstrom continues to invest heavily in improving its vaunted service and making it more accessible to customers who want to shop online. The company says it plans to invest $3.9 billion over the next five years to update online-shopping options, enhance full-service stores, and expand its fleet of off-price Nordstrom Rack stores. “It’s what the customer wants,” says CFO Mike Koppel. “It is not necessarily our strategy.”
To persuade value-driven customers to shop at Nordstrom, the retailer is expanding both its off-price outlet, Nordstrom Rack, and its customer-loyalty program. Nordstrom earns $550 in sales per square foot in its 142 Rack stores, compared with $400 at traditional Nordstrom stores, according to Deutsche Bank vice president Paul Trussell. The company plans to capitalize on those higher-margin shops by opening nearly 100 more Rack stores by 2016. Analysts say Nordstrom may also pump up its Fashion Rewards Plan, which offers discounts to 3.7 million private-label credit card holders.
Nordstrom executives have a reputation for taking great care before investing in new markets and channels. New Yorkers have been asking for a Nordstrom in Manhattan for at least two decades, but the retailer will not have a full-service store completed there until 2018. The company was scrupulous during its search for the right location and was willing to put off the project until an ideal spot on West 57th Street came along. Likewise,
Nordstrom is just now moving into the Canadian retail market. The restraint it has shown in investing there looks smart judging by Target’s experience. The discount retailer opened 124 stores in Canada last year and continues to absorb huge losses from the expansion. Nordstrom plans to open just six stores there over the next three years.
Nordstrom executives are focused on what would it take to operate a best-in-class experience online. The company is investing nearly $1 billion over the next five years to enhance its online shopping platforms by updating its mobile websites and offering faster delivery.
Like many of its peers, Nordstrom’s online strategy floundered out of the gate. At the tail end of the last Internet boom in 1999, the company started its online store, with the help of venture capital partners like Benchmark Capital. The merchandise and pricing on the initial version of the site differed from that in Nordstrom’s regular stores and confused customers.
Over the next several years, Nordstrom worked on reconfiguring its site to create a more seamless shopping experience for consumers, standardizing its prices and introducing in-store pickup. In 2011, Nordstrom acquired flash-sale retailer HauteLook, which made a name for itself during the recession by promising exclusive discounts of high-end brands for a limited time. Since Nordstrom took over, HauteLook’s membership base has tripled to 15 million active customers.
Nordstrom’s efforts to keep its customers happy have been rewarded not only with growing sales, but also with a place on Fortune magazine’s list of the 50 Most Admired Companies for six years in a row.
Sources:
1. http://www.businessweek.com/articles/2014-03-21/this-economist-foresees-15-years-of-labor-shortages#r=hp-ls
2. http://money.cnn.com/2014/03/20/leadership/nordstrom-stores.pr.fortune/index.html?pw_log=in
3. http://dealbook.nytimes.com/2012/04/11/stores-go-online-to-find-a-perfect-fit/
The Good News Is . . .
• The number of Americans filing for jobless benefits last week hovered near a three-month low. Initial claims for state unemployment aid increased 5,000 to a seasonally adjusted 320,000 last week, according t the Labor Department. The rise, which was smaller than economists had expected, kept claims close to the three-month low hit in the prior week. A four-week moving average of new claims, which cuts volatility to provide a better gauge of underlying conditions, hit its lowest level in more than three months.
• Nike, Inc., the world’s leading designer, marketer and distributor of sports and fitness apparel, reported earnings of $0.76 per share, a 4.1% increase over year-ago earnings of $0.73. The firm’s earnings topped the consensus estimate of analysts by $0.04. The company reported that revenues were $7.0 billion, an increase of 12.7%. Management attributed the company’s performance to higher revenues driven by strong demand for its brands, gross margin expansion, and a lower tax rate.
• Men’s Wearhouse announced a deal to buy smaller rival Jos. A. Bank for $1.8 billion. The deal combines the two largest independent men’s clothing retailers. Men’s Wearhouse, which has 1,133 stores, will pay $65 a share in cash for Jos. A. Bank, which has 629 stores. Both brand names will continue in operation after the acquisition. The companies did not announce plans to close any of the more than 1,700 stores they have between them.
Sources:
1. http://www.reuters.com/article/2014/03/20/us-usa-economy-idUSBREA2C13J20140320
2. http://www.cnbc.com/id/18080780/
3. http://investors.nikeinc.com/files/NIKE,%20Inc%20Q314%20Press%20Release%20-%203-20-14%20-%20FINAL_v001_q28clp.pdf
4. http://money.cnn.com/2014/03/11/news/companies/mens-warehouse-jos-a-bank/
Planning Tips
Tips for Getting the Most Out of Your Social Security
Spending a handful of hours to understand the consequences of your decisions on when and how to claim your Social Security benefits can add many thousands of dollars to your lifetime Social Security payouts. It is well worth your time, and your bottom line, to spend a few hours doing your research and estimating your benefits.
Consider waiting to claim your benefits – While you are allowed to start claiming Social Security benefits at age 62, holding off for several years can add thousands of dollars to your payments over a lifetime. That is because you do not qualify for all of your earned benefits until you reach full retirement age, which is 66 for most Baby Boomers and 67 for those born in 1960 or later. So checks claimed at age 62 are about 25% smaller than if you wait until your full retirement age. And if you wait even longer, your annual benefits will grow by another 8% for each year you wait up to age 70.
Calculate the difference in benefits – Use one of the many widely available online Social Security benefit calculators to figure out what waiting can mean for you. For example, let’s say 61-year-old Mary, who currently earns $55,000, is deciding when to retire. If she files for Social Security benefits at 62, she would receive around $15,400 a year, according. If she waits until 66, however, her annual benefits would grow to around $20,500 per year. And if she is able to wait until age 70, her annual benefits would climb to roughly $27,100 per year. The difference can really add up. If Mary lives to be 95 years old, claiming her benefits at age 70 would result in roughly $677,000 in cumulative Social Security benefits (in today’s dollars), compared to the $500,000 or so in benefits that she would receive if she had filed at age 62.
Check out other Social Security options available to you – Married couples (and divorced couples who were married for at least 10 years) have a variety of strategies to consider. Each married partner is typically eligible for three kinds of benefits, depending on circumstances:
- A retired worker benefit, which are the benefits you accrue over your own working years.
- A spousal benefit, which entitles you to half of your spouse’s benefits while he or she is still alive. If you have not hit full retirement age, you are only eligible to receive a portion of those benefits.
- A survivor benefit, which entitles you, once you reach full retirement age, to a deceased spouse’s full benefit. If you have not hit full retirement age, you are only eligible to receive a portion of those benefits.
Couples can increase their annual benefits by coordinating when and how they file for Social Security. In many cases, for example, it makes sense for the lower-earning spouse to file first, while the higher-income earner waits as long as possible. Not only does this strategy result in larger annual benefit checks, it also locks in a higher “survivor benefit” for the lower-earning spouse. The survivor benefit is so important that sometimes it makes sense for even a spouse with health problems to hold off on claiming benefits if he or she is the higher earner. Couples can also “file and suspend,” which allows one partner to receive spousal benefits while the other partner delays their annual benefits to receive a larger check.
Sources:
1. http://www.usatoday.com/story/money/columnist/brooks/2013/05/06/social-security-retirement-pension-401k/2132295/
2. http://www.cbsnews.com/news/social-security-errors-that-can-cost-you-big-time/
3. http://money.cnn.com/2013/07/31/pf/expert/social-security-benefits/
4. http://www.csmonitor.com/Business/Latest-News-Wires/2012/0313/Social-Security-eight-key-things-to-know
5. http://www.cbsnews.com/news/social-security-errors-that-can-cost-you-thousands/
6. http://www.ssa.gov/retire2/AnypiaApplet.html
7. http://www.bankrate.com/calculators/retirement/social-security-benefits-calculator.aspx
