Power Up Wealth podcast – How Are Americans Doing? – Episode 33 transcript:
Sharla Jessop 0:00
Americans are coming off a cash high through the pandemic. They were receiving stimulus money and socking it away. But times are changing. I’m Sharla Jessop. And today, my guest and longtime colleague James Derrick will discuss how Americans are really doing.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James, thanks for joining me today.
James Derrick 0:50
Happy to be here.
Sharla Jessop 0:51
James is our Chief Investment Strategist at Smedley Financial Services. And he holds a Chartered Financial Analyst designation. James, you have done a lot of research on the state of Americans. What did you find interesting?
James Derrick 1:04
Well, what surprised me was how much money is actually left from all that stimulus money of 2020 and 2021. Prior to the pandemic, Americans in aggregate, I mean, some people had zero in savings, right, but in aggregate had about $1 trillion in savings. And the economy was about $21 trillion each year. So that means that Americans are making about 21 trillion a year back then. And they had about 1 trillion in savings. During the pandemic, the savings rate, the amount that people were saving jumped as high as 30%. And so coming into 2022, Americans had over $5 trillion in savings, which is just a massive, massive amount, and most of it is still there in savings.
Sharla Jessop 1:53
That’s amazing. That number is amazing. When you think about that much money being sitting in cash, in different places, and peoples savings accounts, money markets, wherever they were hanging on to it. That’s a large portion. I think more than I remember ever having heard in cash before.
James Derrick 2:04
Oh, yeah, they’re very large numbers. I mean, this country has never had so much stimulus, and they’ve never had so much in savings either. And it really sets up the situation we are in right now with a quite a bit of spending and inflation.
Sharla Jessop 2:25
So what’s happening to all of this cash that people I mean we’ve built up this big reserve those who hadn’t already spent it? What’s happening to that cash now?
James Derrick 2:33
Well, it’s coming down, as you would expect. People are really tapping into it because of inflation. And so we remember about a year ago used cars prices were up about if I remember right about 46% in one year, which is just unbelievable. And you think well who would buy cars at that price? Who would? But actually a lot of people. Which is exactly why they went up that high and they stayed that high. And it wasn’t just used cars. All kinds of things were up. And because of all this excess savings, people didn’t care enough to say no. So they continued to spend, and the inflation numbers are really fascinating right now. Used cars have actually started coming down in value. We probably will never see them come down as low as they were two years ago. They have come down over in the last month. In the last year they’re still up about 2%. But they are coming down. The highest level of inflation right now is airfare. Up 43% in the last 12 months.
Sharla Jessop 3:38
Makes you wonder how people can afford to travel.
James Derrick 3:40
Yes, well, it’s the excess savings. People are excited to spend on airfare, even though they know it’s expensive. Energy is still expensive. Gasoline. Everybody listening to this knows that. And food. Food at restaurants is just unbelievable to me. We talked about it, I think just last month in the podcast, and still really high. Food at restaurants. Food at home. It’s all really high. And obviously, it would be great if it came down, but it’s probably not going to come down as long as people are spending.
Sharla Jessop 4:10
You know, I think we’ve watched over the years things increase in price, especially when you’re talking about eating out and the cost of eating out. I remember when you could get four tacos for $1. I don’t think you can get a taco for $1 now.
James Derrick 4:23
I feel like my parents. I’m like, you know how much this used to cost?
Sharla Jessop 4:27
Now we all feel that way. But we really even though inflation has been creeping up over time. We’ve really noticed. It has really hit the pockets of Americans in the last couple of years and even more recently in the last nine months.
James Derrick 4:39
Oh yeah, yeah. So the excess savings is coming down. There’s probably enough of it though at the current rate that I’m seeing it come down. I mean, it’s gonna last for several more months, maybe three to six more months of excess savings. I realized we’re talking about an aggregate here, so some people don’t have savings or if they had it, they have spent it. But in aggregate, Americans still have some, and they probably are not going to run out of the excess for several more months, which means that inflation will probably continue to be a little sticky and a little high for quite some time. And, you know, the Federal Reserve will be watching that. And it means that they’re going to continue to try to bring down that inflation.
Sharla Jessop 5:23
You know, as they try to bring down inflation almost has a triple trickle-down effect, because inflation is, is going up, that’s costing companies, you know, even companies, individuals have issues with inflation, but so do businesses have issues with inflation as well. Unlike the airlines, who seem to be making a lot off of inflation. Not all companies are. What’s going to happen with unemployment right now? We have inflation, but we have very low unemployment. So most people are able to manage what’s going on, even with inflation in their day-to-day spending. What could happen if we see unemployment change?
James Derrick 5:56
That’s a great question. What I see happening right now is sort of the haves and the have-nots. We see it with the consumers, and we see it with companies in the economy, you know, certain industries, certain companies are positioned just right. And they’re doing, I mean, they’ve never done better. They’re like, what, what recession? Why is everybody talking about the recession, and then there are others that have already started laying people off. We see it in a lot of the large technology companies. It seems like there’s a headline every single week. And so we’re just beginning to see the tide turn, as you mentioned, and it will trickle down. When consumers begin to run out of that excess savings and spending begins to come down, then I suspect that there’s a very real possibility that employment will begin to rise. And if it does, then what we might see is a change in the housing market. Let me dive into that for a moment. What I see this is a little anecdotal. But what I see in my neighborhood is that there are houses for sale that have been for sale for a while and haven’t moved in the market yet. And that alone is unusual. We haven’t seen that for maybe a decade. But the prices are still high, and nobody needs to sell. So they’re just waiting. And I imagine this is happening all over the country. As the dominoes begin to fall, it’s possible that unemployment begins to rise. If unemployment begins to rise, it’s possible that some people become forced sellers, you know, they need to sell their homes, even if they’re not getting top dollar for it, even if they’re not getting what they think it should be worth. And so at that point, then we begin to see prices really change, and perhaps the momentum would build in a negative way. Now time will only tell if, if that is what is going to happen. Obviously, we have high-interest rates on mortgages. And so there’s already a headwind out there. And so I don’t want to be all doomsday and and depressed about the outlook. But I think there’s enough things to be concerned about that watching this excess savings come down is going to be sort of the pivotal element for where this economy goes. Like can inflation come down before consumer spending drops? Or are they one in the same? If they’re one in the same? Then you know, we’re headed for a recession. And the sooner people realize that, I think the better because you can hold on to some of your excess savings.
Sharla Jessop 8:29
Build it up for a rainy day rather than finding a way to spend it. Find a way to make sure you hang on to it.
James Derrick 8:34
Oh, yeah, be prepared. And don’t assume, you know, I mean, I think a lot of people are probably working in these industries that are doing just fine. Just be aware that, you know, it might change. And so if you’ve got excess savings, you know, hang on to as much as you can, because times may not always be as good as they are right now.
Sharla Jessop 8:54
Difficult, difficult to address, and difficult to think about. And you’re coming up on the end of 2022. But we’re not coming up on the end of inflation, as we’ve been seeing it over the last year. What do you think lies ahead?
James Derrick 9:06
Well, it’s obviously coming down, but it’s coming down very slowly. I mean, the investors in the stock market got very excited when it moved to 7.7%. Because they thought it was going to be 7.9. I mean, can you imagine a year ago getting excited about 7.7% inflation? I mean, it’s crazy. It’s crazy. So it’s definitely high. It’s kind of stuck at a high level. It really needs to come down. It would be the best thing that could happen would be for it to come down quickly.
Sharla Jessop 9:39
Even though the Fed has signaled that they’re not going to raise rates at such an aggressive rate as they had because inflation came in a little bit lower than expected. They’re still going to be raising rates.
James Derrick 9:50
Yeah, I mean, I have to applaud the attitude of the Fed here. I mean, I often will criticize them. You know, they, did too much in one direction. And then they’re going to do too much in the other direction. And I think that this idea of, hey, we’re, we’ve been really aggressive, and we don’t need to be quite so aggressive going forward, we’re going to slow it down just a little bit. Because in their, in their words, they do not want to raise interest rates so fast that they end up just lowering them again because we have some massive recession on our hands. You know, 12 months from now. So they’re going to slow down a bit, but they are going to continue to hike interest rates. Right now the thought is, is that they will raise rates by half a percent in December. And then, and I’m not sure this is priced into the market yet, but then maybe even a half a percent, again, in February, is a possibility. If not, you know, a quarter of 1%, they’ll keep going up. And it you know, it’s going to have an impact, it’s going to have a big impact on the economy, but I don’t want to be too negative about it. I mean, I’ve been around as an investor long enough to see the cycle several times, and you know, the economy goes down, then it comes up, you know, then it goes down, and then it comes up. And this is just normal. Every time is a little bit different. But the fact that there is a cycle is very normal.
Sharla Jessop 11:15
So knowing that, what do you think the one thing that our listeners should know about inflation, and maybe what they should consider with their excess savings if they have some?
James Derrick 11:25
Yeah, I would just hold on to whatever you can. If there are ways you can change your spending habits so that you can hold on to a little bit extra, you won’t regret it. If the economy is fine, 6-12 months from now, you’re not going to regret saving a little bit extra, and so that’s probably the best advice. And then the other thing is just with your investment accounts, don’t panic. You hear it all the time from us. But you know, there’ll be moments when you’re excited about how well it’s doing and moments when you’re worried about how poorly it’s doing, and it’s just completely normal. And but over the long run. You know, you really need to believe in America and believe in the opportunities that are coming because it’s the optimists that tend to make more money.
Sharla Jessop 12:09
Great advice. James, thanks for joining me.
James Derrick 12:12
Thank you.
Shane Thomas 12:17
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn.
The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
