Wal-Mart, the mega retailer has over 5,000 stores in the United States. We tend to think of Wal-Mart as the low price leader crushing prices to their rock bottom level by cutting costs at every corner. However, there is an even lower cost option and many working class Americans are turning to these stores. Dollar stores have seen a dramatic rise in numbers thanks to the ongoing effects of the recession. There are more than 11,500 Dollar General stores in the United States (twice the amount of Wal-Mart locations). The growth in dollar stores is reflecting the cash crunch many Americans are facing. We’ve mentioned this in the past but many dollar stores have suddenly become low cost grocery stores as people struggle to get by. This is a smart strategy to tap into the ever growing number of Americans on food stamps. It is expected that by 2016 over 30,000 dollar stores will exist in the United States.
Half of Millennials live at home with parents: The economy still feels like it is in a deep recession for millions of Millennials.
The Great Recession officially ended in the summer of 2009. That was a long time ago. Yet somehow along the windy road, Millennials are not feeling the love from this so-called economic recovery. Millennials continue to graduate with mountains of student loan debt coming out with an average of $30,000 per graduate. Millennials are struggling to find good paying jobs in a sea of low wage employment that in many cases is a mismatch for their degrees. You also have a large number of Millennials living at home with their parents unable to move out into a rental or to purchase a new home. Part of this stems from lower incomes but also the inflated cost of housing brought on by an artificially low rate environment and big investors crowding out regular first time buyers. In many ways, the recession is still very much here for Millennials and this is the next big cohort to move through the economic system.
The two income trap and the myth of high American wages: 50 percent of wage earners had net compensation of $28,851 or less.
If you can sum up the sentiment among the American public in two words it would be economic frustration. The public is frustrated that inflation is eating away at the quality of life many have come to expect. While families don’t need bankers or politicians to tell them about this, it is especially infuriating when the Fed and other policy makers jabber on that inflation is very low. From 2000 onward the cost of housing, healthcare, and education has far outstripped any true income gains. In other words households are feeling poorer because they are. And we are living under a two income household trap as well. The only reason people feel like they are keeping up is having dual lower wage earners. Social Security data highlights an economy that is doing a great job of producing low wage jobs. The two income trap is also magnified because little is discussed about the cost of raising children (it is extremely expensive when you factor in daycare and then try to save for college). The myth of US high wages is slowly taking a hit and the public is becoming more aware.
The two trillion dollar towers of student and auto debt: As Americans are unable to afford homes, many go deep into debt to finance their education and cars.
As Americans continue to see their income lag inflation, many are unable to purchase homes in a market driven by hot money and a crowding out effect brought on by investors. But people want to spend money, even money they don’t have. So instead of buying homes, Americans have been on a car buying spree and also going into deep debt for college. The end result is that we now have two trillion dollar towers of debt. Student debt outstanding is at $1.36 trillion and auto debt is now over $1.01 trillion. A large part of the rise in auto debt has come in the form of subprime auto debt. A car is not an investment. And with your typical new car costing $30,000 this is no tiny purchase given the median annual household income of $50,000. So Americans are doing what they do best and that is financing big ticket purchases to grasp at the illusion of being middle class. Let us look at what has changed in the last decade.
The drop in the labor force is coming from prime-age Americans, not aging retirees: Examining the 94.6 million Americans not in the labor force.
Those not in the labor force hit a record number in the last month. While the mainstream press tries to spin it as a retirement trend, the reality is most Americans are too broke to retire. The Atlanta Fed added some color to explain the big decline in labor force participation. As it turns out, the decline is coming from structurally problematic areas. We have many that are in the prime-age category (25 to 54 years of age) that simply say they don’t want a job. There is also a big jump in those on disability beyond normal population growth. And finally, we have a larger share of younger Americans going to college and loading up on mega amounts of student debt. Another contributing factor that is nicely left out is that we have many older Americans continuing to work into old age because as we have mentioned, many older Americans are too broke to retire. Let us look at the research more closely.
Renters are paying too much and their burden is only going to increase: How financial policies gouge working class Americans.
A recent report by Harvard University’s Joint Center for Housing Studies showed an absolutely dismal housing situation for Americans. Housing is unaffordable for most working class Americans. Sure you can take on a gigantic mortgage with a low interest rate and pretend all is fine but you are simply chaining yourself to the bank for 30 years if you don’t run your numbers correctly. In large part the homeownership rate has fallen because home prices are out of reach to Americans. Many are relegated to renting. The study from Harvard found that renters are being financially squeezed at unprecedented levels. How is this measured? The study looked at how much household income was being used to pay for monthly rents. As it turns out, Americans are paying an ungodly amount of money in rents per month and much of this is flowing to new corporate landlords thanks to banking friendly bailouts.
Labor force catastrophe with more than half a million dropping out of the labor force: Record 94.6 million Americans not in the labor force.
The latest employment report was a complete disaster. The only reason the unemployment rate remained unchanged was because a stunning 579,000 people dropped out of the labor force in one month. We now have a record 94.6 million Americans categorized as not being in the labor force. This massive drop cannot be explained by the weak narrative that many people are simply entering retirement. We’ve already gone into great detail how retirement is a pipedream for many and the new retirement plan for many older Americans is working until the wheels go flying off. To demonstrate how insane the stock market is, there was a surge because now market players sense that the Fed is going to continue its low rate policy that essentially keeps distorted interest rates going. What we are witnessing in the employment market is simply statistical shenanigans that even the public doesn’t believe anymore.