October 22nd, 2021
Strong Q3 earnings reports and year-end optimism propelled the S&P 500 to a new high this week. Electric vehicle maker Tesla was among the key reports this week. The company reported record revenue and profits in spite of ongoing supply chain challenges in the automotive industry. Bullish sentiment was also on display as a number of management teams offered generally upbeat outlooks, assuring the market that companies are equipped to navigate the higher inflation and current logistical challenges. Traders were largely fixed on earnings results given that U.S. economic news was light. Existing home sales and housing starts were the only true highlights. Overseas, China’s Q3 GDP slowdown made a surprisingly small ripple even as economic activity fell to 4.90%. This was well below policymakers’ 6.00% target. For the week, the S&P 500 finished up 1.64%.
Lower Mortgage Rates Lift Existing Home Sales as Housing Starts Disappoint
A brief dip in mortgage interest rates below the 3.00% mark in August proved enough to lift existing home sales higher in September. Sales of previously owned homes rose 7.00% to a seasonally adjusted annualized rate of 6.29 million units. The rise came despite the slim pickings given that supply of homes available for sale stood at 2.4 months. That’s well below the six to seven months considered to be a healthy balance between supply and demand. Tight inventories and strong sales at the higher end of the market continued to push the median price of an existing home sold in September to $352,800, up 13.30% from a year ago. Price relief appears nowhere in sight as supply is likely to remain tight. Housing starts, a measure of new home construction, fell -1.60% to a seasonally adjusted annual rate of 1.56 million as materials and labor shortages continue to weigh on the industry. Permits, a forward-looking measure of builders’ intentions to construct new homes, fell -7.70% to a seasonally adjusted annual rate of 1.59 million. The backlog remains high with the seasonally-adjusted count of homes authorized, but not yet started, rising to 150,000. That’s the highest level in at least a year and 40% higher from the year ago period.
Lights Out for China GDP
Power shortages, supply chain issues, and Beijing’s efforts to rein in the real estate and technology sectors led to a sharp slowdown in its Q3 GDP. China’s economy reportedly grew at a 4.90% annualized rate in the third quarter, down sharply from the previous quarter’s 7.90% growth rate and below its 6.00% target. China’s mighty factory sector was particularly hard hit in September when factories went dark across the country as Beijing attempted to achieve more stringent carbon emissions targets. Small manufacturers took the brunt from the shutdown as shipping delays and mounting inventories resulted in lost orders and production cuts. Woes in the property market also served to push economic activity lower during the quarter with China imposing borrowing curbs on developers, which in turn put the brakes on builders’ ability to break ground on new projects. Despite China’s short term dip, economists remain upbeat that the country will be able to hit its annual GDP growth target of 6.00%+. That may prove to be a tall order with policymakers signaling they will not tap traditional stimulus measures while they are presently attempting to stabilize the property sector by throttling its growth.
A relatively light week of economic news and the absence of other headlines left traders to focus on Q3 earnings results. The results continue to be impressive. With 70 of the S&P 500’s companies having reported, 86% have topped analyst expectations. Bulls have cheered the news, pushing markets to fresh highs. It is hard to argue with success, but that success has been built on low interest rates and strong demand and spending of private and governmental origin. The budget gridlock, Federal Reserve tapering, high inflation, labor shortages, supply chain challenges, and solvency concerns within China’s property market still need to play out. While the cards seem stacked in bulls’ favor for the remainder of the year, those issues still bear watching.
The Week Ahead
Investors will be looking for more stock market treats as October draws to a close. The Street will pour over the latest numbers on U.S. Q3 GDP, personal income, and consumer spending.
Social Security Changes for 2022
Every October, the Social Security Administration (SSA) announces changes to the Social Security program for the coming year. Below is a summary of some of the biggest changes that were announced earlier this month and that are set to take effect on January 1st, 2022.
1. Cost of Living Adjustment (COLA) of 5.9%
Social Security beneficiaries will see their monthly benefit increase by 5.9% starting in January. This is the biggest cost of living adjustment since the early 1980s. The COLA is intended to help benefits keep pace with inflation and is based on increases in the Consumer Price Index for Urban Wage and Clerical Workers (the CPI-W). The government calculates the Social Security COLA by comparing the average CPI-W for the third quarter of the previous year to the average CPI-W for the third quarter of the current year. The list below shows the COLAs that have been made to Social Security since 2010. Most recently, there were no benefits increases in 2010, 2011 or 2016 because there was no inflation.
The increase that will take effect on January 1st will make the average monthly benefit for all retired workers $1,657 next year compared to $1,565 in 2021, or a $92 increase. The maximum monthly Social Security benefit for a worker retiring at full retirement age is $3,148 in 2021. In 2022, the maximum benefit increases by $197 per month to $3,345.
The amount of Social Security income an individual receives is based on their earnings over their lifetime, the age at which they begin receiving benefits, and whether they are eligible to receive a spouse’s benefits instead of their own.
2. Maximum Taxable Earnings will Rise to $147,000
Social Security is primarily funded by payroll taxes paid by workers and employers. Currently, 12.4% of income up to $142,800 goes into the Social Security pot with workers paying 6.2% and employers matching that tax with another 6.2% contribution. The self-employed pay both shares. This month, the SSA announced an increase in the taxable wage base for workers. The amount of earnings subject to Social Security tax next year will rise 2.9%, or $4,200, to $147,000 in annual income. Any earnings above that amount are not subject to the tax.
3. Full Retirement Age Rose Two Months
When the Social Security program was enacted in 1935, life expectancy was 60.7 years, and it has risen to 78.81 years in 2020. The SSA enacts incremental increases to the full retirement age (FRA) to account for longer life expectancies. The FRA is the age where an individual becomes eligible to collect 100% of their monthly retirement benefit as determined by their birth year. Next year, the FRA increases by two months from 66 years and 10 months for persons born in 1959 to 67 years for anyone born in 1960 or later. An individual may start taking their Social Security benefit as early as age 62. However, if an individual begins taking their retirement benefit prior to hitting their FRA, their monthly payout will be permanently reduced. Conversely, waiting until after FRA to begin taking Social Security retirement benefits can significantly increase the payout. There is no additional incentive to delay past age 70. An advisor can help you determine the best Social Security claiming strategy based on your circumstances.
4. Earnings Limits for Recipients Were Increased
Individuals who collect Social Security benefits while working and earning income can have all or part of their benefits temporarily withheld, depending on how much they earn and when they start taking benefits. These income limits have increased slightly for 2022. Prior to reaching FRA, an individual can earn up to $19,560 in 2022 without decreasing their monthly benefit. After that, $1 will be deducted from their benefit payment for every $2 that exceeds the limit. The 2022 annual limit represents a $600 increase over the 2021 limit of $18,960. Once a worker reaches full retirement age, no benefits will be withheld if they continue working.
5. Social Security Disability Benefits Increased
The majority of Social Security recipients are retired workers or the immediate family of retired workers, however, the program also pays out a monthly benefit to millions of disabled workers. In 2022, disabled workers will be able to earn a little bit more each month without affecting their benefits. The amount a non-blind disabled worker can earn will increase from $1,310 per month in 2021 to $1,350 per month in 2022 without having their payouts decreased. Next year, disabled blind beneficiaries will be allowed to earn $2,260 per month without their benefits reduced. Disabled workers will also benefit from the 5.9% COLA increase in 2022.
6. Credit Earning Threshold will Go Up
To be eligible to receive Social Security benefits, an individual must earn credits by working in a job and paying Social Security taxes. Workers born in 1929 or later must earn at least 40 credits over their working life to qualify for Social Security benefits. The amount it takes to earn a single credit goes up slightly each year. This year, one lifetime work credit is awarded for every $1,470 in earned income. For 2022, workers will receive one credit for each $1,510 they earn, or $6,040 in full-year earnings. A maximum of four credits can be earned annually. Individuals who do not qualify for benefits by working and earning at least 40 credits may be able to claim benefits under the record of their spouse or ex-spouse.