WSJ 2 SUNDAY, NOVEMBER 9, 2014 THE AGGREGATOR Job Market Improves, But Wage Growth Remains Flat U.S. payrolls grew modestly while the unemployment rate fell in October, readings that mark the longest stretch of consistent job creation since World War II. Nonfarm payrolls grew a seasonally adjusted 214,000 last month, the Labor Department said. The economy has added better than 200,000 jobs each month since February, the best such streak since 1995. It marked the 49th straight month of positive job growth, the best stretch on record back to 1939. The unemployment rate, obtained from a separate survey of households, fell to 5.8% last month, the lowest level since 2008. Health-Enrollment Woes Short-Timers The unemployment rates for those out of work 27 weeks or more and those out for 26 weeks or fewer. 7% 6 Short term 5 4 3 2 1 0 growth in wages. That’s because demand for people recently out of work could better represent the labor market facing employers. The short-term jobless rate held steady in October at 4%, almost a percentage point below its average since 1948. The longterm rate held steady, too, at 1.9%. But there are other signs wage pressures are building. U.S. employers’ overall labor costs, including pay and benefits, have risen strongly for two straight quarters after years of sluggish gains. —Eric Morath The Wall Street Journal Long term ‘96 ‘98 ‘00 ‘02 ‘04 ‘06 ‘08 ‘10 ‘12 ‘14 Source: Labor Department | WSJ.com October’s reading continued a streak of steady, but not accelerating, hiring. Revisions showed the economy added 31,000 more jobs the prior two months than previously estimated. Employers added 256,000 jobs in September and 203,000 in August. One missing ingredient needed for stronger economic gains: wage growth. Average hourly earnings for private-sector workers were up 2% in October from a year earlier, in line with the pace recorded for most of the year and barely above the mild pace of inflation. Consumer prices rose 1.7% in September from a year earlier. Economists say a continued decline in the short-term unemployment rate—those out of work six months or less—could finally prompt meaningful Technology gaps in HealthCare.gov are expected to cause consumers and insurers a fresh batch of complications after the site reopens for health-plan enrollment this month, insuranceindustry officials say. Millions of Americans are expected to buy or change plans using the federal portal when the second year of enrollment under the Affordable Care Act begins Nov. 15. But some backend parts of the system have had problems and others haven’t been built, triggering difficulties that could affect tens of thousands of people when new plans kick in next year. Consumers who bought policies on the exchange for 2014 and switch to a different insurer for 2015 could end up enrolled in two plans, with bills for both, in January, according to two industry officials. Others who stopped paying premiums for their plans this year could find themselves automatically re-enrolled in those plans for 2015 regardless of whether they want them. Meanwhile, low-income Americans who receive federal tax credits to offset the cost of their coverage might not get a form they need to file their 2014 taxes because the federal government has an incorrect address for them, these officials say. The problems, while expected to cause headaches for shoppers, insurance companies and the Obama administration, aren’t likely to result in the disastrous complications that crippled the first year of health-law enrollment. They won’t fully surface until next year, when bills and tax information begin rolling in for exchange enrollees. — Louise Radnofsky The Wall Street Journal A Problem From Pimco For millions of employees putting aside money in their companies’ 401(k) plans, the recent management upheaval at the country’s biggest bond mutual fund has created a quandary. In many of those plans, Pimco Total Return Fund is the principal—and in some cases the only—option for bond investing. While other investors, such as those using standard brokerage accounts, could simply shift their money to a different yet comparable fund, these employees can’t. Many plan sponsors began reassessing Pimco Total Return following September’s departure of Bill Gross, Pacific Investment Management Co.’s founder and manager of the fund. In addition, for some, the fund’s underperformance and heavy short-term outflows may have undermined faith in the fund. Investors, ranging from individuals to large institutions, such as pensions and advisory firms, pulled $23.5 billion from the fund in September and $27.5 billion in October. The largest redemptions came on the day Mr. Gross resigned. Conversations about whether to replace the now $170.9 billion Pimco Total Return Fund entirely, add another bond-fund option or put the fund on watch are now taking place at definedcontribution plans, defined-benefit plans, foundations, endowments and other plans all over the world, says Timothy Barron, chief investment officer of Segal Rogerscasey, a consultant on defined-contribution plans. The full effect of those discussions may not be felt until next year. If defined-contribution plans do pull Pimco Total Return or significantly trim their allocations, it could put a big dent in the fund’s assets, a move some BARRON’S INSIGHT A Problem for Home Sales Just 33% of primary residences sold this year were purchased by first-time buyers, down from 38% last year to the lowest level since 1987, the National Association of Realtors said. The NAR says that the firsttime-buyer share of home sales has typically hovered around 40% since 1981. The headwinds facing young buyers are well known: higher student debt, rising rents and a weaker job market have made it harder for would-be buyers to save for a down payment and qualify for a mortgage, particularly in a lending environment where banks are much less willing to overlook credit blemishes or spotty incomes. Separate surveys, including one by the New York Fed this year, showed that insufficient savings or incomes were the biggest headwinds keeping renters from buying homes. Many households may also be less able to get help from their parents than in the past, because their parents’ home values have fallen. In addition, home prices have been rising in the past two years, making houses less affordable, especially for the marginal buyer, which in many cases is also the first-time buyer. The typical first-time buyer last year was 31 years old, while the typical repeat buyer was 53. Advocates of looser lending standards could point to the NAR’s latest survey to highlight problems on the mortgage mar- Entry-Level Weakness Share of ﬁrst-time home buyers (primary residence buyers only) 60% 50 40 42% 40 40 40 36 39 41 47 50 37 39 ‘11 ‘12 ‘13 38 30 33 20 10 0 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘14 Source: National Association of Realtors | WSJ.com financial advisers fear may harm its performance. U.S.-based defined-contribution plans held about $101 billion in the fund as of June 30, according to Pensions & Investments. —Daisy Maxey WSJ.com Home Depot Hack Detailed The hackers behind April’s massive credit-card breach at Home Depot got into the retailer’s systems by using a username and password they had stolen from a vendor, say people briefed on the investigation. The finding—which comes after more than two months of investigations by the company, law-enforcement agents and hundreds of security personnel— shows the retailer fell victim to the same type of infiltration tactics as Target, where hackers gained access through a refrigeration contractor’s electronic billing account and then made their way across Target’s networks to its payment terminals. Home Depot, which has said 56 million credit card accounts were compromised in the attack, now says the damage was wider than it thought, with 53 million email addresses exposed as well. —Shelly Banjo The Wall Street Journal A Manufacturing Revival While foreign manufacturers hunker down, U.S. factories are revving up. The Institute for Supply Man- Getty Images ket. But it’s worth noting that the share of first-time buyers didn’t increase during the housing bubble, when it was too easy to get a mortgage. That’s because home prices were rising. The share of first-time buyers fell to 36% in 2006, at the peak of the bubble, from 40% in the prior three years. Though credit was much tighter in 2009 and 2010, the share of first-time buyers jumped. Lower home prices helped, as did an $8,000 federal tax credit for first-time buyers, which expired in June 2010. The NAR also found that the median period a typical homeowner stays in one house rose to 10 years in the most recent survey, from six years in 2007. —Nick Timiraos agement said that its main gauge of the factory sector climbed to 59.0 in October from 56.6 in September. The improvement sent the index back to its August level, the highest since March 2011. A reading above 50 indicates expanding activity. American manufacturers reported an acceleration in new orders last month, while production edged up to its highest level since May 2004. The numbers suggest the U.S. economy is growing at above a 3% annualized rate at the start of the fourth quarter after a 3.5% gain in the third quarter. —Kathleen Madigan The Wall Street Journal Email: [email protected] INVESTING BASICS Jumping In as Others Are Bailing Out Estate Planning for Childless Couples BY ANDREW BARY Commodities are an outlier at a time of record or near-record prices for other major asset classes like stocks, bonds and real estate. With commodities so out of favor, it may be a good time for investors to allocate a portion of their portfolios to the sector. Investors can get direct exposure through exchange-traded products (ETPs) tied to single commodities like SPDR Gold Trust (GLD), iShares Gold Trust (IAU) and iShares Silver Trust (SLV), or broader indexes such as PowerShares DB Commodity Index fund (DBC) or iPath Bloomberg Commodity Total Return note (DJP). The diversified ETPs have different exposure to various commodities and sectors, notably energy. Most investors get commodity exposure through the shares of producers, such as Exxon Mobil or Newmont Mining. But there’s also a place for commodity ETPs that give pure commodity exposure and eliminate company-specific risks. Oil and gold, two key commodities, dropped to new 2014 lows last week with oil finishing around $78 a barrel, down 20% this year. Gold, at about $1,150 an ounce, is about 40% below its 2011 high. “Commodity investing is a little like buying insurance,” says Paul Christopher, the chief international strategist at Wells Fargo Advisors, the brokerage arm of the bank. “What will you do if inflation comes back? Higher inflation has tended to be accompanied by higher rawmaterials costs. If inflation hits equity prices, you’ll own something that is going up. ” His rec- BY CAROLYN T. GEER Commodity Plays Here are 12 ways to invest in the beaten-down commodities markets. Most of these exchange-traded products are down this year Exchange-Traded Product/ Ticker Thursday Comment Price SPDR Gold Trust / GLD $109.88 iShares Gold Trust / IAU 11.07 iShares Silver Trust / SLV 14.82 PowerShares DB Commodity Index / DBC iPath Bloomberg Commodity Index / DJP PowerShares DB Agriculture Fund / DBA ETFS Physical Swiss Gold Shares/ SGOL iShares S&P GSCI CommodityIndexed Trust / GSG United States Commodity Index Fund / USCI ELEMENTS Rogers Intl Commodity Index / RJI ETFS Physical Platinum Shares / PPLT United States Natural Gas Fund / UNG 21.88 33.84 25.30 112.05 27.25 54.30 7.28 116.10 23.16 Largest commodity ETP but below its peak of $75 billion. No. 2 gold ETP, has lower expenses than SPDR Gold Trust. Big silver ETP. Price is one-third its high from 2011. Tracks an index of futures. Has 50% weighting to oil. Tracks a more-diversiﬁed index: energy 25%, ag, 29% Largest weightings are corn, cattle, soybeans, and sugar. Trust holds gold in Zurich vaults. Expense ratio is 0.4%. Offers a play on energy, which is 71% of underlying index. Tracks SummerHaven index of 14 commodities. Tracks Rogers International index, about 40% in energy. Platinum down 10% in 2014. Expense ratio is 0.6%. This ETP rose 10% last week as gas moved above $4 per million BTUs. Source: WSJ.com ommended commodity allocation of 3% to 4% of a portfolio admittedly is low, but even that exposure is above that of many investors. The bear case on commodities is well advertised. The commodity-hungry Chinese economy is slowing and Europe is on the brink of recession. Japan continues to struggle. The new story line is that deflation, not inflation, is the bigger global risk. Yet the massive monetary stimulus provided by world-wide central banks in recent years ultimately could prove inflationary. And commodity prices often are self-cor- recting because lower prices tend to boost demand. Many institutional investors who piled into commodities during 2006 and 2007 have been getting out. Fidelity Investments last year scaled back the commodity allocation in its Freedom target-date mutual funds that are popular in retirement plans. The largest ETP, the SPDR Gold Trust, is down to about $27 billion of assets from a peak of $75 billion in 2012, Morningstar data show. Andrew Bary is a senior editor for Barron’s. For more stories, see barrons.com. Credit Cards for Service Members BY LINDSAY GELLMAN Veterans deserve plenty of bang for their buck. So to mark Veterans Day, CardHub.com TIP OF THE surveyed creditWEEK card options tailored to active military personnel and veterans. The best everyday rewards cards came in three flavors, according to the site. The justlaunched PenFed Defender American Express card offers 1.5% cash back on all purchases, with no annual fee, so it’s great for all-round use, says CardHub.com spokeswoman Jill Gonzalez. The PenFed Platinum Rewards Visa Signature card offers rewards focusing on gasoline and groceries. And the Navy Federal Credit Union Flagship Rewards card, available to current and former members of most military branches, offers rewards geared toward travel. CardHub.com says the PenFed Premium Travel Rewards American Express card offers the best airline rewards. The PenFed Defender American Express card has the lowest rates: a 6.99% introductory APR on purchases for the first 60 months, a 4.99% introductory APR on balance transfers for 12 months, a 9.99% regular APR, and no annual fee or balancetransfer fee. The Navy Federal Credit Union nRewards Secured card, with a $500 minimum deposit, is optimal for building credit, Ms. Gonzalez says. Recently I outlined a basic estate plan for a couple with children. Now, a reader in California asks: “What about marrieds without kids?” “My husband and I own our house, are retired, with a high six-figure nest egg. And no will or trust,” she wrote. “What is the minimum we need to do?” You have two main tasks. One is to decide what will happen to your property after you die. The other, arguably more important—and trickier—task is to specify who will handle your medical and financial affairs if you’re incapacitated. Without wills or trusts, state law dictates who inherits your assets—generally, your spouse if you have no children, then your spouse’s relatives after he or she dies (or the state if there are no living relatives). “This leaves the family of the first spouse to die disinherited and out of luck,” says Sharon L. Klein, managing director of family office services and wealth strategies at Wilmington Trust in New York. “The side that inherits depends on the random order of who dies last.” If you don’t want to risk disinheriting your relatives, or if you’d like to leave something to friends or charity, you need a plan. The simplest and most common approach is for you and your spouse to execute “sweetheart” wills, leaving everything to each other and outlining who gets what after you both die, says New Haven, Conn., estate-planning lawyer Lisa Nachmias Davis of Davis, O’Sullivan & Priest. Another approach is to transfer your assets, during life or at death, to a joint revocable living trust, which would spell out how the assets are to be distributed. This helps avoid probate, which in some states, such as California, is expensive and time-consuming, says Louis A. Mezzullo, an estateplanning attorney at Withers Bergman in Encinitas, Calif. Still, the surviving spouse can change his or her will (or the couple’s joint revocable living trust), so the estate’s ultimate disposition is really de- Rob Shepperson termined by whoever lives longer, says Ms. Davis. If you want more control over where your assets end up, you can create irrevocable trusts, either in your wills or in separate trust documents. On the first spouse’s death, that person’s share can be used for the surviving spouse’s benefit, but the document can “lock in” the beneficiaries who will inherit at the second death, she says. You also should sign general powers-of-attorney and healthcare documents empowering someone to make financial and medical decisions—including end-of-life decisions—on your behalf if you become incapacitated. (These include advance health-care directives and authorizations under the federal Health Insurance Portability and Accountability Act, or HIPAA, that allow your doctor, hospital and insurance company to speak with the people you designate.) “That’s where things become complicated,” says Mr. Mezzullo. Parents can appoint adult children, but “oftentimes people without children struggle to find someone they trust,” says Ms. Klein. Spouses can appoint each other, but Ms. Davis usually recommends having a “Plan B,” which involves naming another (preferably younger) person to serve simultaneously or in succession. “We have seen terrible results from people only naming their spouses,” Ms. Davis says. She cites the case of an elderly Connecticut woman who died caring for her incapacitated husband. Since she was the only one named on the husband’s power of attorney, the family had to go to probate court to get a successor appointed, which even with Connecticut’s relatively userfriendly court system cost several thousand dollars. In California there are professional fiduciaries that can be hired as agents under powers of attorney. Some geriatric care managers will agree to serve as health-care agents. Other possible candidates are trusted nieces, nephews, friends, neighbors, clergy, siblings and cousins. “Sometimes people are honored to be asked,” says Ms. Davis. Even so, she typically recommends paying them for their time up front so they don’t start feeling resentful and helping themselves to your money or possessions. She has clients, a childless couple, in the process of lining up people to serve as their financial and health-care agents, who plan to leave each one of them a small percentage of their estate “just for having been on call,” she says. Just think twice about revealing your intentions. “I’ve had cases where I was a little concerned the beneficiary might choose to accelerate the demise of the benefactor,” Ms. Davis says. [email protected]