Americans' Financial Satisfaction at All-Time High
Inflation is now the leading financial pain point, narrowly overtaking taxes, which held the distinction for eight consecutive quarters.
Now that the U.S. economy is revving again, personal financial satisfaction is at an all-time high on the American Institute of CPAs’ Q2 2018 Personal Financial Satisfaction Index (PFSi).
The index measured a record high of 27.7 in the second quarter, a 0.7 point (2.6%) increase from the prior quarter, indicating the likelihood that the average American is feeling a strong sense of financial well-being.
The PFSi is derived by calculating the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. These are in turn composed of four equally weighted factors, each of which measure the growth of assets and opportunities, in the case of the Pleasure Index, and the erosion of assets and opportunities, in the case of the Pain Index.
All the factors in the Pleasure Index drove the increase, with job openings per capita posting the most improvement — increasing 5.9 points (11%) over the last quarter to 76, a new record high. Overall job openings set records in the second quarter, with almost 6.7 million openings in April. In May, the most American workers in 17 years quit their jobs, indicating strength in the job markets as more people appear confident they can find a new job elsewhere, possibly at higher pay.
“A great job market is the perfect time for Americans to shore up their emergency fund, double check they’re making the most of their work benefits, and even consider shopping around to see if there is a better financial opportunity in their field,” says Kelley Long, CPA/PFS, member of the AICPA’s Consumer Financial Education Advocates.
“In these times of increased market volatility, the best thing to do is stay the course, unless you’re near retirement,” Long says. “If that’s the case, then now is a great time to rebalance your portfolio to ensure you have adequate cash set aside, so that when the market does inevitably take a downturn, your retirement plans aren’t affected.”
The leading contributor to the Pleasure Index — as well as the PFSi overall – is the PFS 750 Market Index, comprised of the 750 largest companies trading on the U.S. Market, adjusted for inflation and per capita.
After declining last quarter for the first time since the third quarter of 2015, the PFS 750 Market Index rebounded 4.3 points (5.2%) in the second quarter to 89 — and has once again reached an all-time high. Information technology stocks drove the increases, followed by consumer discretionary and health care, whereas real estate and telecom delivered losses.
The blended inflation measure for the second quarter was 2.3 percent, an additional 0.6 percent higher than the prior quarter – and above the Federal Reserve’s 2 percent target for inflation. Inflation is the most volatile factor contributing to the PFSi, and with absolute levels still low by historical standards, small changes result in large percent gains. In terms of the index, the blended inflation measure value for the second quarter is 54, an increase of 13.8 points (34.5%).
With the significant increase, inflation is now the leading contributor to the Personal Financial Pain index, narrowly overtaking taxes which held the distinction for eight consecutive quarters. Climbing to a six-year high, the inflation increase caused the Personal Financial Pain Index to rise 2.1 points (4.9%) to 44.5.
“Given inflation’s unpredictability, Americans should revisit the inflation assumptions used in their financial plans, especially if in, or close to, retirement,” said Michael Velazquez, CPA/PFS, member of the AICPA’s Personal Financial Planning Executive Committee.
The pain from taxes declined 1.3 points (2.5%) from the prior quarter — the second quarter to reflect the impact of the Tax Cuts and Jobs Act. The personal taxes value uses information from the Bureau of Labor Statistics on income tax, tax on realized net capital gains and taxes on personal property.
Additional findings include:
– The AICPA CPA Outlook Index, fell 1.8 points (3.3%) below the previous quarter. By region, organization optimism was strongest in the South, where it increased from the first quarter. This measure decreased everywhere else, declining the most in the Northeast.
– The Real Home Equity per Capita Index, at 68, increased a steady 1.2% and is still 13.2% below its 2006 all-time high. The changes in value have been due to increases in the market value of real estate exceeding increases in mortgages outstanding.
– Underemployment is 7.6%, down 8.6% from the first quarter. In comparison, its peak value was 17.1% in the fourth quarter of 2009. Unemployment decreased in almost all industrial sectors over the last year.
– Delinquencies on loans in the second quarter was 2.5% below the previous quarter’s level. Though the second quarter reading of delinquencies on mortgages (3.49%) is well below the peak delinquency rate for mortgages (11.26%) set in the spring of 2010, it is still above what was typical between 1994 through 2003 (2.12%).