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Election Year Myth Busting: What’s True And What’s False

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Michael Brush, Election

With Michael Brush, Journalist at Marketwatch.com

Myths belong in tales from ancient Greece or Rome, not in Presidential campaigns. This year, however, they’re coming at us like love bugs on a Florida highway in September. So how do we break through all the rhetoric to get to the truth?

Michael Brush of Marketwatch.com addresses six of these election year myths which center around your financial life and could influence you at the voting booth.

Myth #1:  The economy is merely trudging along at stalled speed, the GDP is low, and stocks are vulnerable. 

Michael explains that while GDP is coming in at 1.1%, GDI is coming in at about 3% which sounds about right if you consider the really strong auto sales, strong employment numbers, strong loan growth, and strong wage growth.
Auto sales came in this year at almost 18 million and employment’s been robust at about 280,000 jobs a month, about 200,000 a month over the past year.

Myth #2: The US has been plagued by stagnant wages for decades.

Politicians love to spread fear by unleashing misinformation that impacts the market. An example from a past election year is back in 2012 when both Newt Gingrich and Mitt Romney were talking about the “Obama depression”, triggering a market decline when, in fact, the economy was in recovery and on track.

There are different ways of measuring and when speaking about wages in the US, Michael refers to ADP, Automatic Data Processing, a company that handles payroll processing for a large number of US companies. “ADP tracks people in the same jobs, and they’re showing wage growth of about 4% to 5%, which is pretty good. As the boomers retire, a lot of really high incomes go out of the equation, and as young people come in, a lot of really low incomes come in.  As a group, that puts downward pressure.” So in essence, we have people who have earned higher wages coming out of the job market and being replaced by younger workers with lower wages.

Myth #3: People are angry and worried about the health of the economy, so they support Trump.

“Consumer spending was up almost 3% in the first half of the year,” says Michael.  “That’s a pretty big number. That doesn’t really jive with the concept of people being angry about the economy.”

Myth #4: We’re a nation that is drowning in personal debt.

That statement is not borne out by the facts. Taking out the millennials who have not been saving, the savings rate for those 45 and up is about 6%, which, according to Michael, is a healthy number.

Myth #5: Low oil prices devastated the oil patch, hurting jobs growth overall.

Although the oil-producing states of Texas and Oklahoma have been damaged, other states have actually benefited from the boost from cheap energy.

Myth #6: Technology helps us get more work done.

Surprisingly, the numbers don’t support this idea. Productivity has been flat since around 2005, which could be attributed to the theory that in the 80s and 90s—because of technology—how we do things in the office and in factories changed. Now a lot of the technology developments are in our personal lives which might actually detract from work. There are studies that show social apps (Facebook, Tinder, for example) lower self-esteem, which could theoretically lower motivation and make you work less.

Understanding what’s behind some of these myths helps us become better investors and smarter, more well-informed voters.


Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

Read The Entire Transcript Here

Steve Pomeranz: In case you haven’t heard, we are in an election year and there’s enough negative rhetoric flying around to choke a horse.  The only rhetoric we’re interested in here on this show is centered around your money and your financial life.  With the help of Michael Brush from MarketWatch.com, we want to address six wide-spread myths we pretty much all believe but aren’t really true.  Hey, Michael, welcome to the show.

Michael Brush:    Hey. How are you?

Steve Pomeranz: The first myth is that the economy is merely trudging along at stalled speed and stocks are vulnerable.  We hear that the GDP growth numbers are 1% and it seems pretty weak.  Michael, what’s really going on?

Michael Brush:    I think growth might be bigger than that because that doesn’t really match with a lot of the other economic numbers.  We can go through some example if you want.

Steve Pomeranz: Sure.  I do.

Michael Brush:    Okay.  First of all, there’s a lot of different ways to measure GDP.  The one that people site is based on productivity.  You can also measure gross domestic income.  This is just a sum of wages and profits, and things like that.  These two, over time, tend to track.  They tend to be kind of one to one.  While GDP is coming in at 1.1%, GDI is coming in at about 3% which sounds more about right if you consider also the really strong auto sales, to really strong employment numbers, the strong loan growth, and the strong wage growth.

Steve Pomeranz: Yeah, well there’s also this other ancillary data out there that doesn’t really jive with a 1% GDP growth rate.  You’ve got auto sales at record levels.  What are some of the other key points that don’t seem to match up with a sluggish economy?

Michael Brush:    I think that’s a big one.  They’re at records levels.  Auto sales at almost 18 million and employment’s been pretty strong at about 280,000 jobs a month, about 200,000 a month over the past year.  Loan growth is there at about 8% to 9%.  That’s pretty high for a sluggish economy.

Steve Pomeranz: Let’s talk about wage growth because both Donald Trump and Bernie Sanders have loved this one, that nobody’s gotten a raise in several decades, that we’ve got stagnant wages.  Is that actually true?

Michael Brush: This is one of my favorite ones because the politicians can spread a lot of misinformation that impacts the market.  If you understand when they’re wrong and they’re creating false fears, you can take the other side of that trade and make some money.  I would site the second Obama election when people like Newt Gingrich …  I’m apolitical, by the way, so this isn’t a political comment, I’m just

Steve Pomeranz: Yeah.  We are too.

Michael Brush:    People like New Gingrich and also Mitt Romney were actually still talking about the Obama recession.  Newt even went so far to say “Obama depression”.  This was in 2012 when the recovery was really solid and on track.  That shook up a lot of people and contributed to stock market decline.  I think we see the same thing now with this whole thing about nobody gets any wage increases.  I can explain to you where they get their number and why it’s wrong.  I can also explain to you the right numbers if you want to go into some detail here.

Steve Pomeranz: Yeah, go ahead.  Absolutely.

Michael Brush:    There’s a lot of different ways, as in everything in economic, there’s a lot of different ways to measure stuff.  I think you have to choose your right yardsticks.  Here, ADP which is a payroll company, they have really good data.  They track the wages of people in the same job over time.  This is important because that’s a real snapshot of how wages are going up.  If you think about it, as the boomers retire a lot of really high incomes go out of the equation, and as young people come in, a lot of really low incomes come in.  As a group, that puts downward pressure.  ADP tracks people in the same jobs, and they’re showing wage growth of about 4% to 5% which is pretty good.

Steve Pomeranz: These numbers can be confusing and very misleading.  I like your point that you just made that if you purify the figures and say, “Hey, let’s follow the people who stayed in the same job or have continued to work”, well, their wages are growing nicely.  The reason that it looks like wages is stagnating is that you’ve got people coming out of the job market, retiring, who have earned much higher wages being replaced by those with lower wages.  It seems as if wages are stagnating, but, in effect, they really aren’t for the average worker.

Michael Brush:    Right. When Trump and Sanders make this point— politicians lie all the time—but here they’re not actually lying, they’re just using the wrong numbers.  They’re citing the household income numbers from the Census Bureau.  These numbers do, indeed, show stagnant wage growth.  There’s no question about that.  The problem with these numbers is that if you think of the people around you and how society has changed, the nature of a household now is very different from the nature of a household 20, 30, years ago.  This is the time span they’re referring to.  By that, I mean, there’s a lot more households with singles without dual incomes.  This puts downward pressure on the household income numbers.  That’s why those numbers show a different picture.

Steve Pomeranz: Wouldn’t it be better to look at income per capita instead of the household?

Michael Brush:    You can do that.  There’s a lot of different ways.  There’s also Ed Yardeni Research that just takes average hours times average hourly earnings.  Those are government numbers.  That’s a pretty clean way to get at it.  That shows earnings growth of about 4% which is also pretty good.

Steve Pomeranz: I guess the lesson, up to this point in our discussion, is it’s a political season.  Politicians are looking to find a wedge to discredit the other side and to get your vote, and they’ll pretty much say anything or take a stat that fits their theme and oppress us with it.  It’s up to us to figure out what the truth is.  Here’s another myth.  People are angry and worried about the sluggish economy so they support Trump.

Michael Brush:    Yeah.  I think this is another one with a pretty strong political angle.  Look, obviously, there’s a lot of angry people around.  You look at the tone of the conversation on Twitter or the road rage.  People are angry, there’s no question about it.  I don’t know that they’re angry because of the economy.  Here’s what I mean, if people were worried about the economy and worried about their jobs and angry because of all of that, they wouldn’t be spending as much as they are.  Consumer spending was up almost 3% in the first half of the year.  That’s a pretty big number.  I don’t know.  That doesn’t really jive with the concept of people being angry about the economy.  It doesn’t.

Steve Pomeranz: Talking about spending and then the idea that …I know in the baby boomer generation, a lot of that spending was fueled by debt, but let’s take a look at the question about government debt.  Here’s a myth or a common theme, we are a nation that’s drowning in debt.  Let’s parse that out.

Michael Brush:    Of course, obviously, at the federal level there’s a big issue there.  Nobody can dispute that.  The numbers show that…

Steve Pomeranz: $19 trillion

Michael Brush:    Yeah, and more if you factor in the promises and so-called entitlements.  The consumer balance sheet is actually pretty good.  Throughout this recovery, if you take out the millennials who haven’t been saving—and younger people tend not to save—but everybody else is saving about 6% of income throughout this recovery, that’s a pretty good number.

Steve Pomeranz: That’s a good number because it wasn’t too long ago everybody was bemoaning the fact that Americans don’t save at all, and the savings rate was almost a negative.  You’re saying that the savings rate for people, let’s say, 45 and up, is a 6% number.

Michael Brush: Which isn’t bad.  That’s important for investors to know because that is consumer firepower, and the consumer, obviously, plays a big role in the economy.

Steve Pomeranz: All right, in the interest of time, we only have time for one more.  Here’s one.  Technology helps us get more work done.  Doesn’t technology make us more productive, Michael?

Michael Brush: Yeah.  You’d think so, but that certainly is not showing up in the numbers.  Productivity is declining through three-quarters in a row.  It’s been, basically, flat since 2005ish.  This isn’t good because you need productivity growth to keep the economy going.  There’s a lot of theories.  This is a whole other conversation.  There’s a lot of theories about this.  The key one here is that a lot of the technology in the 80s and 90s really did change how we do things in the office, for example, and in factories.  Now, a lot of the technology developments are in our personal lives, if you think of Facebook or Tinder.  These might actually detract from work.  There’s a lot of studies that show that these social apps lower self-esteem which could theoretically lower motivation and make you work less.  Basically, a lot of the tech has been in our personal life as opposed to our work life.

Steve Pomeranz: Well, hold on one second.  I want to update my Facebook page and my Twitter account.  Getting to productivity, I guess most of us are not goofing off at work on our social media, but I think some of the other things that are leading towards this lack of productivity have to do with foreign investment and the like, and the fact that companies really aren’t investing, and so on.  Unfortunately, we are out of time.  Michael Brush from MarketWatch to discuss the myths that we need to dispel.  We need to dispel these myths because we’re missing opportunities in our investments if we believe all of this negative rhetoric.  Thanks so much for joining me, Michael.

Michael Brush: Okay.  Thanks.  Have a great day.  Bye.

 

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.