Job growth helps push Americans’ financial well-being to record high

By Samiha Khanna

Stock market gains and burgeoning job opportunities improved the financial outlook of the average American in the second quarter of 2018, according to the AICPA’s Personal Financial Satisfaction Index (PFSi) released Thursday. The index measured 27.7, a record high.

The PFSi weighs positive and negative economic influences on the financial well-being of the average American. A positive rating means financial pleasure outweighs financial pain. The four factors that make up the Financial Pleasure subindex are job openings; home equity; the PFS 750 Market Index, a proprietary stock index; and the AICPA CPA Outlook Index, a measure of CPA executives’ sentiment toward the economy. The four factors that make up the Financial Pain subindex are inflation, underemployment, loan delinquencies, and personal taxes.

According to second-quarter results, most indicators of Americans’ financial satisfaction were trending up. Job openings set U.S. records in January, March, and April. Job openings per capita grew 11% since the first quarter of 2018, with most opportunities created in the private sector in professional and business services, trade, transportation, warehousing, utilities, and other industries. Most growth was in the West and Midwest.

The PFS 750 climbed 5.2% from the previous quarter to set a record at 89 points. The information technology industry has been the biggest contributor to stock market growth both in the past quarter and the past year, while the real estate and telecom sectors have lost ground in the same period.

Many investors may be reassessing their portfolios during this growth period, but they should strive to maintain a balance, said Robert Westley, CPA/PFS, a member of the AICPA Personal Financial Specialist Credential Committee.

“The average American who has been a long-term investor over the past 10 years has likely experienced sizable returns on their risk assets,” he said. “It is prudent for investors to revisit their asset allocation keeping in mind the importance of holding safer assets intended to dampen the volatility of the overall portfolio. Given the pickup in market volatility in 2018, investors should tune out the noise and maintain focus on their long-term goals.”

Three measures of Americans’ financial discomfort continued to improve compared with the prior year and quarter. Compared with the first quarter of 2018, loan delinquencies dropped 2.5%, underemployment dropped 8.6%, and personal taxes dropped 2.5%.

One indicator, inflation, rose substantially from last quarter. The annual inflation rate reached 2.3%, up from 1.7% the previous quarter, and higher than the Federal Reserve’s target of 2%. As measured by the PFSi, inflation increased 34.5% from the first quarter of 2018, reaching a six-year high.

Inflation is a measure that can erode financial well-being, particularly for those who are holding on to long-term savings in cash, Westley said.

“Individuals need to be mindful that inflation can really eat away at their purchasing power over time,” he said. “Households with large amounts of cash in their checking and savings accounts will lose real value every year since those deposits are likely earning less than the current inflation rate of 2.3%. To offset the effects of inflation, investors should look to keep their long-term funds invested in a diversified portfolio of equities and fixed income.”

Additional information about the PFSi can be found at aicpa.org/PFSi.

Samiha Khanna is a freelance writer based in Durham, N.C. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, a JofA editorial director, at Kenneth.Tysiac@aicpa-cima.com.

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