Hopefully, or perhaps, despondently, all of us recall early 2009. The stock market crash of 2008 hit bottom in early 2009, and, thankfully, we began to emerge from the greatest financial crisis of our lifetimes. In 2009, the broad S&P 500 Index was working its way back to 1,000; a low it had not seen since 2003. Today it closed at 3,000 which means that if you had $1 invested, then it today is worth $3, a triple in baseball parlance. Lest you celebrate your triple too much, bear in mind that if you invested a dollar in late August 2000, that dollar had no gain in value for almost 13 years.
In 2009 Northwestern Mutual Life began to survey people about their financial affairs including their expectations. This year marks a 10th anniversary of this data collection. While some are reporting upon this news as negative, I am not so pessimistic. The survey generally shows that people are devoting more time and energy to managing their financial affairs. By in large, they are saving more for retirement although a significant portion of Americans still are reliant entirely on social security for their golden years. They are more conscious of their debt and what it costs to carry. This is good news. In my career dividing families and their assets I have seen a few times when people saw the economic sky as limitless; in the late 1980s real estate was the flavor. In the late 1990s it was tech stocks. In 2000 Cisco Systems was $80 a share. Today it is $15. The 2008 economy was a more mixed bag although the financial service sector was the leading indicator at the time.
As noted, stocks have come back and in recent weeks have reached new highs as the Federal Reserve backs off from increased interest rates. But the tariff wars are starting to take a toll on U.S. manufacturing and the financial sector is asking itself how much more “up” is in the cards.
The bigger concern in the Northwestern survey relates to optimism about the future. As bad as 2009 was with an unemployment rate approaching 10% and negative growth in the economy, people were more optimistic about their ability to succeed and live the American dream than they are today. So, today unemployment is less than half of 2009, the economy is growing at 2.5% and the markets are at record highs. Yet, while people might be living the dream they don’t feel the love. American optimism as measured by Northwestern is less when the S&P is at 3,000 than it was when the S&P was at 900. We can’t easily figure out why, but one integer that triggers my interest is the US labor force participation rate. It tells us how many Americans are either working or actively looking for work. That number, currently 63%, is less than England, France, Russia, Netherlands, Italy and Canada. Want the good news? We beat Japan, Brazil, Germany and Mexico, but not by much. Another indicator of change is that the number of people comfortable taking financial risks has declined precipitously while the number who were inclined to take career risks fell by a lesser, but still significant amount.
The upshot is that we feel more financially secure, however, it also appears that we feel more vulnerable. This makes a lot of sense. Companies like General Electric, Intel and Hewlitt Packard once considered the bulwarks of the economy have floundered. Eastman Kodak and Sears are very close to “lights out.” In 1981 IBM introduced the personal desktop computer for business. Fifteen years later it exited the computer manufacturing business entirely. The computers they placed in every office in America now predict for us how many employees we need and when we need them. Thus in a full employment economy, Ford announced 7,000 layoffs in May 2019. That followed 10,000 layoffs at GM. The survey reminds us that the only thing certain about future employment trends, is their uncertainty.
The study merits attention. You can read Northwestern Mutual’s article The Financial States of America: 2019 vs 2009 here and perhaps become depressed. Or you can read it with the Chinese proverb in mind, “Within each crisis there is opportunity.”