The United States now has 324 million people. Of that we have a large labor force. 70 million cannot work and most of those are children. But what about the rest? The media largely ignores a massive contingent of people. This group is made of those not in the labor force. Today we have a stunning 95 million Americans that are not in the labor force. So the unemployment rate looks healthier than it is because many of these people are yanked out when calculating the unemployment rate. It is still the case that we have 1 working person supporting 2 other Americans overall. This ratio seems to pan out when we break down the numbers. What are we to make of these 95 million Americans that are not in the labor force?
The American Dream has imploded with the Homeownership rate hitting another low: Most Americans too broke to buy a Home.
Owning a home is symbolic with having a piece of the American Dream. The stereotypical picket white fence with a nice lawn is easily conjured up in the minds of many. Yet for many, this is only a dream because it will never become reality. The American Dream has imploded with many other areas of the economy. We have hit another low when it comes to the homeownership rate. Americans are too broke to purchase homes even with record low interest rates. Home prices have increased hand and hand with the stock market but the problem is, most of the gains have gone to big investors and not families purchasing a place to live. The big bet from Wall Street was to convert many foreclosures into rentals and push rents higher. This is all interconnected like an intricate spider web and the public is the fly trying to break free. The only problem is the housing market has transformed into another trophy for big money investors.
The largest pension fund in the country CalPERs continues to underperform: Weakest return since 2008-09 financial crisis.
The two largest public pensions in the U.S. are Calstrs and Calpers and collectively they oversea $484 billion for public workers in California. Pensions have a hard time surviving in a low return world. For example, these pensions seek out a 7.5% annual return which is simply unrealistic to do in a market that is volatile (by definition, markets are meant to be unpredictable). Not only is the market volatile but we find ourselves in a low return environment. Pensions trying to seek out guaranteed returns are going to have a tough time finding a sure bet when bonds are producing such a low return. Unfortunately these guarantees become contractual and the shortfall needs to be closed by the taxpayer. It is no surprise that pensions have become a rarity in this market. The 401k model of investing was supposed to help workers transition from this guaranteed return to a more market based approach. The only issue with that is most people never save on their own and make bad investment moves. When you are dealing with high frequency traders and other advanced investment techniques, the regular family stands no chance. Recently Calpers posted a dismal return, the worst since the 2008-09 financial crisis.
Gallup Economic Confidence Index plunges while stock market near record: Stock Market decoupled from financial well being of average Americans.
Gallup releases an Economic Confidence Index which should reflect the overall sentiment of Americans as it pertains to the economy. With the stock market near record highs and the housing bubble market soaring, you would expect average Americans to be smiling from ear to ear with glee. But when you click on over to Gallup, the chart looks downright gloomy like finding out you just failed a midterm exam you studied so hard for. While Gallup may be stumped and scratching their head as to why this divergence is there, I feel we have touched upon a few points as to why this is occurring. First, half of Americans don’t even own one stock. Next, you have many U.S. companies making large profits abroad. Good for the company but that doesn’t translate necessarily into a better financial position for most Americans. Housing values being inflated only keeps Americans from buying as reflected in a generationally low homeownership rate. In other words, crony capitalism is working as it should.
With a recovery like this, who needs a recession: 62 percent of Americans don’t even have $1000 in savings.
The stock market just hit another record high. Yet only half of Americans actually own any stock. Real estate prices are ebbing closer to their previous bubble peak. Yet the homeownership rate is down. The unemployment rate is down dramatically but we have over 94 million Americans not in the labor force. This recovery seems so contradictory in many ways. One glaring example of this is by how little Americans have saved for a rainy day. Another survey was recently released showing that 62 percent of Americans don’t even have $1000 in savings. In other words, most people are one small emergency expense away from being on the streets. What this means is that many will simply rely on credit cards, friends, or family should an emergency arise. With a recovery like this, who needs a recession?
Those not in the labor force grows by 25,000,000 people from 2000 to 2016: During this same period those employed grew by 15 million and those unemployed grew by 6 million.
The unemployment rate looks dramatically better than it really is because of some funny accounting. Our labor force looks dramatically different from what it did in 2000. A large part of the low unemployment rate is coming from those not in the labor force. I’m fascinated with this aspect of the employment situation because it is rarely discussed and is largely an elephant in the room. Most pundits like to assume that most of the growth is simply coming from an older population. Even if that were the case, many older Americans need to work until they die since they have paltry retirement accounts. The figures have grown so disproportionately large that we have a shadow class of the population that is now voting for non-establishment candidates. The mainstream press tends to report on large sealed off metro areas that neglect most of the country. Let us look at the numbers here.
The math on income inequality: Average annual income of the top 1% is $1,153,293 while that of the bottom 99% is $45,567.
Part of the challenge with distorted income distributions is that it hollows out the middle class. The middle class in the United States is now a minority. We have more people making higher incomes and more people making way less and this group is growing much faster. Our economy has taken a bimodal distribution with extremes on both sides. We have a record number of people on food stamps but also a record number of higher income households. The only problem is that the low range of the ladder is growing much faster than that at the top. For every person that makes it into the upper income brackets you have three that fall out of the middle class and into the low income wage trap. Part of the political anger we are seeing in the US and other parts of Europe is that the elites are simply ignoring the needs of the masses. In many cases this purposeful ignorance is because their wealth is built on keeping many stuck on a perpetual hamster wheel where productivity gains only go to a small section of society.