Daily Gains Letter

Poverty Rate Reveals Just How Little the Fed’s Helping Main Street

By for Daily Gains Letter |

Poverty Rate RevealsAfter five years of pumping trillions into the U.S. economy, the average American really is no better off than before the Federal Reserve initiated its unprecedented economic stimulus efforts. This is in spite of Federal Reserve chairman Ben Bernanke’s claims that the Fed’s efforts at encouraging U.S. economic growth are helping Main Street more than Wall Street.

Bernanke may claim to be focused on helping the average American, but the U.S. economic numbers suggest his steely gaze is trained elsewhere. For example, even though unemployment numbers improved from 7.4% in July to 7.3% in August, the vast majority of those jobs were created in low-wage-paying industries. On top of that, more and more have given up looking for work and are no longer considered unemployed, so they’re removed from the equation. Voila, better numbers.

What about housing prices? While a slightly improving U.S. economy has lifted housing prices 13% over the last year and a half, they’re still down 25% from their 2007 pre-Great Recession highs. It’s also important to remember that any increase on the back of an improving U.S. economy, while a welcome sign, is only on paper.

At the same time, 7.1 million homes, or 14.5% of all residential properties with a mortgage, still have negative equity. Of the 41.5 million residential properties with positive equity, one quarter (10.3 million) have less than 20% equity. Borrowers with less than 20% equity could have a difficult time getting new financing. Interestingly, 1.7 million residential properties have less than five percent equity, meaning they are at risk of negative equity if the markets turn and home prices slide. (Source: “CoreLogic Equity Report: Second Quarter 2013,” CoreLogic web site, September 16, 2013.)

While the S&P 500 has improved 150% since March 2009, U.S. poverty rates have not fared as well. In 2007, before the Great Recession, the U.S. poverty rate was 12.5%; over the ensuing five years, it would soar 20%. In 2009, at the start of the Great Recession, the U.S. poverty rate was 14.3%. In 2012, about 46.5 million, or 15% of Americans, were living in poverty, slightly more than the 46.2 million living in poverty in 2011.

While an unabashed optimist would say the poverty rate held steady at 15% for two years, I think a realist would say it’s been stuck at 15% for the second straight year. According to the United States Census Bureau, income gains made after the recession ended in 2009 have gone to the top five percent of earners; those in the bottom 80% are making considerably less. (Source: “Income, Poverty and Health Insurance Coverage in the United States: 2012,” U.S. Census Bureau web site, September 17, 2013.)

Sadly, the U.S. economy has been in recovery mode for almost five years, and despite the trillions of dollars in economic stimulus, more Americans are actually worse off. Unless jobs, housing, and poverty levels are indicative of an improving U.S. economy and the Federal Reserve looking out for Main Street more than Wall Street, then things are not going according to plan.

Instead of looking at companies that provide products and services people want, it might be a better idea to consider those companies that provide products and/or services people need, such as a utility exchange-traded fund (ETF) like Utilities Select Sector SPDR (NYSEArca/XLU)

It may not be popular right now, but with the U.S. economy on dubious footing, it’s a good idea to keep precious metal ETFs on your radar, like the Power Shares DB Precious Metals (NYSEArca/DBP) ETF.

Despite the so-called improving U.S. economy, investors looking to add depth to their retirement portfolio might want to do the opposite of what the Federal Reserve is implying.

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