The Arbor Outlook: Unemployment Declines, but Wage Growth Stalls

“Hundred dollar car note, two hundred rent; I get a check on Friday, but it’s already ready spent.”
—from “Workin’ for a Livin’,” as performed by Huey Lewis and the News

In spite of low unemployment and a consensus that an economic recovery has taken place, wage growth continues to stall. If the economy is good, where are the high-paying jobs that can support a family?

Unemployment is at its lowest level in 17 years and is likely to remain below 4 percent for the foreseeable future. Wage growth has often been a byproduct of tight labor markets: employers have to pay more to get good employees, or for that matter, any employees, because there is such competition for labor. But while wages have grown at over 3 percent per year since 2015, the rate of growth has stalled significantly. Wage growth was at its lowest level since the Great Recession (under 2 percent) in 2010, and has increased somewhat since then, but remains far below the 5 percent growth level achieved by the economy in 2000.

The Federal Reserve is raising interest rates periodically this year based partly on these low unemployment numbers. Simply stated, wage growth has traditionally accompanied low unemployment, and raising interest rates is a hedge against inflation.

So why aren’t paychecks getting considerably larger? Let’s consider two aspects of our current economy: an aging populace and hyper-globalization.

A large number of potential employees out there are growing older. But many business owners and employers are hesitant to hire and pay large salaries to older workers. We have shorter runways than our millennial peers. The median age in the U.S. is now over 38, more than a year older than it was only four years ago. The alternative, of course, is to hire to a younger person, a person with less experience but who may be willing to work for less. So unemployment remains low, but actual wage growth is stymied.

Secondly, international business competition is exerting forces on our economy that we haven’t experienced since the late 1800s. When a foreign company makes a competitive product, while paying its workers far less than U.S. workers are paid, it’s difficult for American businesses to compete on price. So business owners save money by paying employees less and then pass those savings on to consumers in order to remain competitive in the international marketplace.

There’s always been international business competition, but increasing hyper-globalization is creating a larger impact on our economy, and on the level of our wages, than at any time in American history. There’s just no way around it.

It’s complicated and confounding. The economy continues to improve; wages remain relatively flat.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 –, a “fee-only” registered investment advisory firm located near Sandestin.

The Arbor Outlook: Omaha Architecture and Wanting What We Have

“We always wanted a big two story house; back when we lived in that little two room shack... We wanted fame and fortune and we’d live life the way the rich folks do; we knew somehow we’d make it, together me and you...”
—from “Two Story House,” as performed by George Jones and Tammy Wynette

On a recent journey to Omaha my husband utilized some free time to explore the city. Omaha is an exceptionally attractive and clean place, its hilly, urban sectors punctuated by unique architecture, plenty of green space, and a thriving downtown restaurant district.

A few blocks from a main thoroughfare he found himself in a lovely, treelined neighborhood, with large lots and well-kept lawns, many featuring solid, brick homes built almost a hundred years ago. A realtor informed him that it was Warren Buffett’s neighborhood. So, like millions of others, he drove by and took a photo of Mr. Buffett’s house.

So, sitting at my office desk and holding my phone, I find myself looking at the primary residence of America’s most famous investor.

The home certainly doesn’t qualify as a mega-mansion, even though it is extremely spacious. It actually looks fairly similar to many of the other homes in the neighborhood.

There have been additions to the house over the years, and plenty of remodeling work. But the bones are the same as when Buffett paid $31,500 for it in 1958. It’s now worth about $650,000.

So what is Warren Buffett doing living in “only” an upper middle class, non-gated neighborhood?

Someone worth $87 billion can live wherever he chooses. Well, apparently Buffett likes the familiarity and feel of his long-time home.

It’s a classic example of wanting what we have. And of being satisfied with what is already ours, especially if it makes us happy.

So many of us (myself included) aspire to acquire, simply for the sake of “movin’ on up” in the eyes of others. What most of us really seek is peace and quiet, familiarity and happiness.

How many of us, for example, have traded in a perfectly good used car, one that runs well and suits our needs, just because its “newness” has faded?

Glittery new purchases are often accompanied by burdensome price tags, and we can find ourselves stuck with difficult, expensive payoffs long after the shine of newness recedes.

I am not naive enough to think that Mr. Buffett doesn’t own other homes. He does, including an $11 million house near the ocean in Laguna Beach, California. It’s instructive to note, however, that Buffett paid $150,000 (in 1971) for the house, so it proved an excellent investment. That home is currently for sale, because he and his family seldom can gather to use it.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 –, a “fee-only” registered investment advisory firm located near Sandestin.

The Arbor Outlook: Restaurants, Houses and Growth Runways

“Our house is a very, very, very fine house...”
—from “Our House,” as recorded by Crosby, Stills and Nash

While in high school I worked at my parents’ lunch restaurant in Lake Zurich, Illinois, then a sleepy little town that has since become a booming suburb of Chicago. Even though restaurants are oftentimes bad investments, my parents opened one anyway. My mom said, and I remember it well, “People have to eat.” Mom built a solid business that she later sold when she and my dad traded frigid Illinois winters for sunny Florida.

I was thinking about my mom’s “people have to eat” rationale recently while researching the large, publicly traded homebuilders. The shares of these companies have fallen since the start of the year, presumably because interest rates have risen slightly and because the pace of sales has slowed a bit. I believe that the country’s largest homebuilders have a multi-year growth runway ahead of them, so naturally the falling share prices further piqued my interest. Rising rates or not, people have to live somewhere, as well as eat.

In the past, homebuilding was a relatively low margin, capital intensive, boom-and-bust industry dominated by thousands of local builders. Small homebuilders still put up the majority of new houses in America, but that’s changing quickly. The ten largest homebuilders have been growing their market share and now construct almost a third of all new homes. Industry consolidation is often a sign that the remaining players will become more profitable since they face less aggressive competition.

Less competition isn’t their only advantage, though. Homebuilding costs are rising, which should also benefit the larger players because they can borrow money cheaper than smaller builders; buy materials in bulk and save money; and spread their design and labor costs over more projects. All this means more profit per home than subscale competitors.

Additionally, the largest homebuilders are moving to an “asset light” business model, which has substantially improved their returns on capital. Instead of having their money tied up in land that may or may not be developed in the near future, some homebuilders are increasingly using purchase options to reserve land they may buy rather than buying the land outright.

This sometimes means they end up paying a few percent more for a parcel of land. But by securing construction sites this way, companies can build more homes where the demand (and prices) are currently highest and forego projects that may not be as profitable. In the old days when a project got scrapped, the homebuilders had to find a buyer for their land, which isn’t always an easy task. Now, when a project doesn’t work out, they walk away from the land and forfeit the small option payment.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 –, a “fee-only” registered investment advisory firm located near Sandestin.

The Arbor Outlook: Sequoias, Berries and the High Cost of Housing

“California has worn me quite thin… I just can’t wait to see you again.”
—from “Come Monday” as performed by Jimmy Buffett

When I was 17, I took a trip to California that included a visit to San Diego, a stop at Disneyland, Knott's Berry Farm and the Hearst Castle, and a drive up that state's spectacular coastal highway. The turns were both frightening and exhilarating, especially around Big Sur. Monterey, Pacific Grove and Carmel were gorgeous; the air was clean and fresh; the quality of light remarkable. The sequoia trees near Mount Whitney were awesome, and John Muir’s redwoods were equally majestic.

The climate was wonderful. When we landed it was 55 degrees with no humidity. In August. Most of us, I think, especially those of us who spend a lot of time in the South, dream about being able to enjoy a summer afternoon without stifling heat and bugs. You can do that in California. There was a sense then that California was a special place, a desired location to visit or live.

Times change, though. A dozen mudslides and twice as many wildfires later, the Golden State has lost some luster. Especially if you want to own a home there. Consider this: the median price for a home in San Francisco recently rose to $1.6 million, or double the cost from only five years ago. Are wages keeping up, so that most folks can afford that increase? No way.
So it's no surprise that Californians are bailing. In addition to being one of the most highly taxed states, most folks simply can't afford to buy a home. Home prices are high throughout the state. So where are Californians moving? Everywhere, apparently. But especially to places like Las Vegas. It's close by, and home prices are still rebounding from the Great Recession. The median list price for a home in Vegas in April of 2018 was about $280,000. Eight per cent of those Californians who left the state in the first quarter of 2017 landed in Las Vegas.

From 2006 to 2016, California experienced a net decrease of a million residents. Contrast that with a state like, say, Florida, which over the same 10-year time span grew from a population of 18.17 million to 20.66 million, a net increase of almost two and a half million residents.
Many people still desire to own a house, and paying a million dollars for a two-bedroom starter home is unappealing to most, even if you've landed a high-paying tech job.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 –, a “fee-only” registered investment advisory firm located near Sandestin.

The Arbor Outlook: Responsible Investing, Clean Companies and John Prine

“Then the coal company came with the world’s largest shovel; and they tortured the timber and stripped all the land... “
—from “Paradise,” as performed by John Prine

“Socially responsible investing” is a phrase garnering lots of attention in the financial world. Some investors exhibit great concern over the type of companies in which their money is invested; some do not.

Let’s say you’re an investor who prefers not to place your capital in oil and gas companies or in MLP’s that transport oil or gas, because you are committed to the renewable energy movement. Or perhaps you choose not to invest in companies that produce tobacco or alcohol because you don’t want to support industries that you believe produce harmful products. Your concerns are completely understandable.

Most folks can quickly decide for themselves if tobacco or alcohol-related investments are in their moral wheelhouse. More often than not investors who eschew ownership of these companies have some personal connection to the negative side effects produced by these types of products.

But what about companies that make soft drinks and junk food? If a company knows their products aren’t healthy yet keeps producing them, is that company socially irresponsible? What about household goods companies that produce unnecessarily thick plastic containers for purely aesthetic reasons? Are media companies behaving in a socially irresponsible way when they repeatedly produce violent movies? If they produce a family-friendly movie for every violent one, does that make it more acceptable?

Like everything else in life, it’s complicated.

Take a company that checks almost all your social boxes. They donate generously to causes you support; they pay their employees a living wage even though others in their industry may not; they recycle everything they can and take active measures to reduce their environmental footprint; and they genuinely try to do the right thing based on your definition of “the right thing.” But what if they are extremely aggressive about avoiding taxes legally? They aren’t breaking the law, but does pushing the tax boundary to the very limit of legality fit in your definition of being good? Head hurt yet?

Here’s my take. I admire people who want to support ethical companies. Voting with your pocketbook is one of the truest forms of activism and those interested in a particular cause would naturally like to align their investments with their beliefs if possible. But for the average investor who just wants to enjoy a nice retirement, trying to only invest in companies you agree with socially, environmentally and politically is almost a full time job.

Isolating companies that are good investments is a challenge. Finding ones that are socially responsible is difficult as well. Doing both can sometimes be impossible.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 –, a “fee-only” registered investment advisory firm located near Sandestin.