Mish's Global Economic Trend Analysis

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Millennials Mired in "Wealth Gap" as Older Americans Gain; Housing Crash Continues to Overshadow Young Families' Balance Sheets Posted: 04 Apr 2014 10:52 AM PDT Thanks to Fed printing presses coupled with an extreme case of irrational exuberance, those over 40 years old have recovered losses from the great financial collapse. However, Millennials Remain Mired in Wealth Gap, as Others Recover. For households headed by someone 40 years old or younger, wealth adjusted for inflation remains 30 percent below 2007 levels on average, according to research by economists at the Federal Reserve Bank of St. Louis. Net worth for older Americans has already recouped the losses. Such a generational divide has negative implications for consumer spending, which accounts for almost 70 percent of the economy. Younger households tend to spend a greater share of their incomes in furnishing new homes and buying automobiles, in contrast to their older counterparts who save more as they inch closer to retirement. Homeownership rates for 35 to 44 year olds dropped 6.3 percentage points to 60.9 percent as of the fourth quarter 2013 from the end of 2007, Census data show. For households under 35, the rate dropped 4.2 points to 36.8 percent. Meanwhile, 71.3 percent of 45 to 54 year olds and 77 percent of those 55 to 64 own a home. The average value of housing on young families' balance sheets remains about 35 percent below its 2007 level, the St. Louis Fed paper estimates. "These changes going on with individual balance sheets could have impacts on the whole economy," said William Emmons, an economist at the St. Louis Fed who co-authored the study published in February with Bryan Noeth. "Maybe this is one of the reasons that it's been so hard to understand this weak recovery. Not enough people are looking at these." Weak Recovery Easy to Understand There is nothing hard to understand about the weak recovery. I predicted this outcome years ago. On May 22, 2008 I wrote "Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages." Many young kids are mired in student debt, working on jobs that should not even require a degree. Those kids postpone household formation, and in record numbers still live with their parents. Millennials had little to no assets for Bernanke to inflate in price. Housing Crash Continues to Overshadow Young Families' Balance Sheets And so here we are. For further analysis, please see the Fed report Housing Crash Continues to Overshadow Young Families' Balance Sheets. Here are a couple of charts from the report, followed by my comments. Real Net Worth Since 1989 real net worth of those under the age of forty is down 8.5%. Home Ownership Rates For all age demographics, home ownership rates peaked right as the bubble burst. However the steepest percentage increases in ownership at the time of the collapse was those under 40. Home prices have recovered much of their losses in many areas, but that has not done anything to alleviate the massive student loan problem. Worse yet, the home price recovery has a negative benefit for those still trapped living at home with their parents as well as those with a job but still mired in student debt, hoping at some point to buy. Until that dynamic changes, household formation will remain weak. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Nonfarm Payrolls +192,000, Unemployment Rate Steady at 6.7%; Economy Poised to Accelerate? Posted: 04 Apr 2014 08:17 AM PDT Initial Reaction Nonfarm Payrolls rose by 192,000 nearly matching the Bloomberg Consensus expectation of 200,000. Revisions to January and February added another 37,000 jobs. Private employment, which excludes government jobs, surpassed the pre-recession peak for the first time. Beneath the surface, this was a solid report for a change as the household survey shows a strong gain in employment of 476,000. March BLS Jobs Statistics at a Glance Nonfarm Payroll: +192,000 - Establishment Survey Employment: +476,000 - Household Survey Unemployment: +27,000 - Household Survey Involuntary Part-Time Work: +225,000 - Household Survey Voluntary Part-Time Work: +189,000 - Household Survey Baseline Unemployment Rate: +0.0 at 6.7% - Household Survey U-6 unemployment: +0.1 to 12.7% - Household Survey Civilian Non-institutional Population: +173,000 Civilian Labor Force: +503,000 - Household Survey Not in Labor Force: -331,000 - Household Survey Participation Rate: +0.2 at 63.2 - Household Survey Additional Notes About the Unemployment Rate The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data. In the past year the population rose by 2,253,000. In the last year the labor force rose by 1,128,000. In the last year, those "not" in the labor force rose by 1,134,000 Over the course of the last year, the number of people employed rose by 2,349,000 (an average of 195,000 a month) The population rose by over 2 million, but the labor force rose half as much. People dropping out of the work force accounts for much of the declining unemployment rate. March 2014 Employment Report Please consider the Bureau of Labor Statistics (BLS) March 2014 Employment Report. Total nonfarm payroll employment rose by 192,000 in March, and the unemployment rate was unchanged at 6.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment grew in professional and business services, in health care, and in mining and logging. Click on Any Chart in this Report to See a Sharper Image Unemployment Rate - Seasonally Adjusted Nonfarm Employment January 2003 - March 2014 click on chart for sharper image Private Employment January 2003 - March 2014 click on chart for sharper image Nonfarm Employment Change from Previous Month by Job Type Hours and Wages Average weekly hours of all private employees rose 0.2 hours to 34.5 hours. Average weekly hours of all private service-providing employees rose 0.2 hours to 33.3 hours. Average hourly earnings of private workers fell $0.02 to $20.48. Average hourly earnings of private service-providing employees fell $0.04 to $20.25. For further discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution? Birth Death Model Starting January, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I keep this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back. Table 15 BLS Alternate Measures of Unemployment click on chart for sharper image Table A-15 is where one can find a better approximation of what the unemployment rate really is. Notice I said "better" approximation not to be confused with "good" approximation. The official unemployment rate is 6.7%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6. U-6 is much higher at 12.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years. Labor Force Factors Discouraged workers stop looking for jobs People retire because they cannot find jobs People go back to school hoping it will improve their chances of getting a job People stay in school longer because they cannot find a job Disability and disability fraud Were it not for people dropping out of the labor force, the unemployment rate would be well over 9%. Synopsis This was a solid jobs report. Weather-related effects were taken back and then some. The only negatives were falling hourly wages and a rise in involuntary part-time employment. Finally, if people start looking for jobs, further declines in the unemployment rate will be difficult to come by, even if job reports are generally favorable. Economy Poised to Accelerate? Is the economy out of the woods and poised to accelerate? I don't think so. Global imbalances are still growing, Europe is generally a basket case and China is due for a rather hard landing. I did not believe the widely-held China decoupling theory in 2007, and I do not believe the widely-held US decoupling theory today. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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