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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you: carol@geraniumfarm.org

Monday, September 15, 2014

Personal Finances, the Great Recession and the Sluggish Recovery

We all keep wishing the economy would "feel better", don't we? that there could be a sense of greater confidence in jobs, in opportunities, in everyone's financial situations.  We wonder why the recovery from the recent Great Recession could be taking so very long.

Our last look at the economy, posted in late June, focused on the job market, and we promised then to talk again about possible reasons the current malaise has resulted in people dropping out of the labor force.   Very soon, the Census Bureau and the Labor Department will publish some detailed data for 2013 that hopefully will help us tackle that question.

Meantime, there is one area we can speak to, the condition of personal finances, a topic for which we already have a quantity of recent information.  One of the main causes of the Great Recession was that people borrowed lots and lots of money.  Much of the public commentary about that recession asserts that financial speculation and bankers brought on the crisis.  Clearly they were important, but it's also true that people took on more and more debt.  Bankers and traders did speculative things with that debt, but it all did start with the consumers who borrowed the money.  A key, then, to the resumption of stronger growth is likely related to the progress people are making in correcting this over-reaching.

Mortgages & Homeowners' Negative Equity
Mortgage debt expanded sharply from the middle of 2001 through 2006, over 13% a year.  The payments on that debt, so-called "debt service", surged from 5.9% of people's disposable income in 2004 to 7.2% at the end of 2007.  People who refinanced mortgages borrowed more than their existing liability during those years, decreasing the equity they had in their homes.  Overall, this home equity withdrawal amounted to almost $500 billion a year from 2003 to 2006.[1]

As people were stretching their personal financial conditions, interest rates began to rise in 2004 and people with adjustable rate mortgages or initially low "teaser" rates saw their mortgage payments go up sharply.  By late 2006, unusual numbers of borrowers started having trouble keeping current on their payments on those and regular mortgages as well.  The greater delinquencies hurt the lenders and the owners of bonds backed by the mortgages.  The climb in home sales peaked in 2005, and they began to decline.  Home prices started to fall in 2006; although those have finally begun to climb again, they remain well below their 2005/06 highs.  The result, even now, is that 17% of homeowners have a mortgage that is larger than the value of their home.[2]  Called "negative equity", that's actually an improvement from over 25% in early 2013 and almost 31% in mid-2012, but remains a heavy weight on people's approach to spending and their outlook on the economy in general.

Even now, after some recovery, housing and mortgage activity remain in the doldrums.  New home construction this year is running no more than half the pace of 2005, and sales of existing homes are still down some 30% from that year's pace.  The latest weekly report from the Mortgage Bankers Association shows a new recovery low last week in the volume of mortgage applications.  People are still staying back from mortgage debt.

Credit Card Debt Got Big Too
Another consumer debt issue is credit cards.  From the spring of 2006 through early 2008, credit card balances accelerated; from very modest growth of about 2% year-over-year in early 2006, they were expanding at a 10% rate by late 2007.

Average credit card balances reached what are, to us, astounding levels:  in 2007, households in the middle 20% income bracket owed $6,300 and those in the next rung down, $4,900.  Balances were higher, of course, in higher brackets, so the average over the entire income span was $8,200.[3]  If these were charged interest at a common credit card rate of 1-1/2% a month, the interest add-on each month would have been $120!  Delinquency rates on credit cards in those years hovered around 9% and rose rapidly during the recession; they reached 13.74% by the spring of 2010.[4]

Credit card usage did slow.  By last year, the middle income bracket's average had fallen to just $4,900 and the overall average to $5,700, this latter a reduction of 35% from its peak.  People are paying larger portions of their bills each month too; from 19% of their balance each month in 2006, people in recent months have been paying almost 25%.[5]  The lower balances have obviously accompanied more sluggish spending growth.  In the 2004-2007 period of big increases in credit card balances, spending was expanding at rates of 6 and 7% a year.  It declined outright in 2009 and has had a modest, uneven pattern since then.  In 2013, people increased their outlays on categories of items that might be charged to a card by just 3% and this year's second quarter was up 3.6% from a year earlier, half the pace during the "spree".[6]

There are numerous reasons for the currently mediocre performance of the U.S. economy, and one of them is surely this restraint on credit use.  Some of this might be banks turning down applications, but as we note with the mortgage information, people are not even applying in much volume in the first place.  In view of the excess of the 2004-2007 period, this caution is quite appropriate.   Importantly, it is helping to improve credit quality; credit card delinquencies in the second quarter were back down to 2.25%, and those on mortgages are down from a peak of 8.9% in early 2010 to 3.4% in the latest period.

The better delinquency situation is laying the groundwork for renewed spending growth on a much sounder basis.  Recent retail sales reports suggest this might be happening.  Also, we do note that people are buying cars these days and obviously borrowing to do that.  After a long hiatus, many people's cars and SUVs have simply grown old and need replacing, so it is not surprising to see this.  It is the only category of ordinary consumer borrowing with much vigor.

People May Still Not Be Saving Enough.  Are You?
At the same time, there are two issues still to grapple with: student loans and saving.  Student loans are a whole topic on their own and we will return to talk about them and the "worth" of incurring big, long-term debt to pay for college.  Saving has improved since the Crash and recession, but continues as a matter of concern.

The saving rate, that is, the amount of personal income not spent, got as low as 2% during the debt-spree years, reached a band of 6-7% in 2011 and 2012 and recently was 5.3% in the second quarter.[7]  So it's clearly up off the lows, but not "high".  Also what isn't "high" is the number of people who actually have a cautionary stash of emergency cash under their mattress (or in a safe bank account somewhere) .  A special Federal Reserve survey of people's economic well-being taken during 2013 asked them about this:  "Have you set aside emergency or rainy day funds that would cover your expenses for 3 months?"  Only 39% of participants said yes.   Further, younger people have a lower positive response: only 33% of households headed by 18-44 year-old people said yes.  There is no history of this for comparison, so we don't know how low that number would have been during the spending-spree era.[8]

So we are not surprised that the economy remains relatively sluggish; we believe some of this reflects the extension of a rebuilding effort for people's own financial standing.  There are lots of other issues, but that is certainly one that had not impacted previous business cycles so deeply or pervasively.  We've illustrated some progress, though, and look forward to further improvement.  Meantime, stick a little cash under your mattress every paycheck until you think you can cover three months' worth of expenses!

__________
A new book, published just in May, encouraged us to give these ideas some extra emphasis.  House of Debt, by Atif Mian and Amir Sufi, explores mortgage borrowing by zip code around the country, highlighting the role of the debt itself in generating the severe recessionary conditions throughout the economy, not just in the housing sector.  The book's subtitle is "How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again."  Hmmm. 

We also consulted Stephan Whitaker's "The Evolution of Household Leverage during the Recovery", an Economic Commentary of the Federal Reserve Bank of Cleveland, dated September 2, 2014.  Whitaker has calculated household debt/income ratios for census tracts around the country.  http://www.clevelandfed.org/research/commentary/2014/2014-17.cfm

__________
Footnotes cover specific data sources.  Most of our actual data references come from these sources as presented in the databases of Haver Analytics.

[1] Federal Reserve Board, Financial Accounts of the U.S.  Equity withdrawal amounts are taken from calculations made by Haver using those Federal Reserve data.

[2] Zillow, Inc. "U.S. Negative Equity Falls to 17 Percent", Press Release, August 26, 2014.  http://zillow.mediaroom.com/2014-08-26-U-S-Negative-Equity-Falls-to-17-Percent.

[3] Federal Reserve Board.  2013 Survey of Consumer Finances.  Issued September 4, 2014.  http://www.federalreserve.gov/econresdata/scf/scfindex.htm

[4] Federal Reserve Bank of New York.  Household Debt and Credit Report.  2nd Quarter 2014, August 14, 2014.  http://www.newyorkfed.org/microeconomics/hhdc.html#/2014/q2

[5] Payment rates on credit cards from the Standard & Poor's Ratings Services' U.S. Credit Card Quality Index (CCQI).

[6] Data on consumer spending from the Department of Commerce, Bureau of Economic Analysis (BEA), in the "national income accounts", that is, the same dataset as GDP and its other components.  We calculated a "credit card spending subtotal" by taking total consumer spending and subtracting off housing services, education, health care, vehicle purchases and other broad spending categories that aren't likely to be paid for by charging to a credit card.

[7] The saving rate is also taken from the BEA's national income accounts.

[8] Federal Reserve Board.  Report on the Economic Well-Being of U.S. Households in 2013.  "Savings Behavior", pp. 17-18.  July 2014.  http://www.federalreserve.gov/econresdata/2014-economic-well-being-of-us-households-in-2013-household-economic-wellbeing.htm

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Sunday, August 17, 2014

A Remembrance of Robin Williams

We have an article in process on consumer finances and their role in the broader economy.  Even as we are working on that, we recognize that these days are full of heavy-weight events in the world.  In the last few weeks, we have written of praying for peace (July 18) and we have offered internet links to aid for the child immigrants in Texas (July 11).  Now, we also need to pause and remember a prominent man who has passed, Robin Williams.

There is much we could say about Williams.  We could choose the serious side of his passing, including his illnesses and the manner of his death.  But in this moment, we choose to be light-hearted and remember the fun he brought us.  For Episcopalians, perhaps the easiest and most sentimental expression of this is a recitation of the gift he gave to us in particular, "The Top 10 Reasons for Being Episcopalian", which he presented during an HBO special in 2002.  These have been making the rounds this past week and you may have seen them already.  There's even a tee shirt, which you can find here: https://www.episcopalbookstore.com/product.aspx?productid=3171.

The Top 10 Reasons for Being Episcopalian:
10. No snake handling.
9. You can believe in dinosaurs.
8. Male and female God created them; male and female we ordain them.
7. You don't have to check your brains at the door.
6. Pew aerobics.
5. Church year is color-coded.
4. Free wine on Sunday.
3. All of the pageantry - none of the guilt.
2. You don't have to know how to swim to get baptized.

And the Number One reason to be an Episcopalian:
1. No matter what you believe, there's bound to be at least one other Episcopalian who agrees with you.

May Williams help us to laugh at ourselves, which we need to do often and especially right now! 


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Tuesday, July 22, 2014

"The Courage to Grow Old"

Last year in this country, there were 19.5 million people over age 75.  This group made up 6.2% of the total population.  By 2026, just 12 years from now, Census Bureau projections indicate there will be about 10 million more of these elderly residents and they will be more than 8% of the population, growing another 10 million through the subsequent nine years to almost 11%.

So Barbara Crafton has written a book on growing old.  We know we don't need to justify any particular choice of topic for her writings, and her own reason for writing on this seems to be that she herself feels she is beginning "to grow old", as is evident in the Preface and Chapter 1 of the book.  Still, and perhaps too obvious to deserve mention, this is a topic of broad general interest, and her comments on several issues and her impressions of this time in our lives are significant for many people and their publication significantly timed, as illustrated by our data above.

Some of the topics are practical: among others, how do you convince your father that he shouldn't drive a car anymore?  How do you handle really elderly parents who want to live at home or in your home?  How do you conduct yourself on a date?[!]  Also, quite logically but with great feeling, how do you imagine approaching death and dying yourself?

So we have taken a step right here in what Barbara wants us to do.  We're talking about this.  We've already taken a courageous step.  See what she says on page 8:

In order to help those who love me deal with my death, I must come to terms with it myself.  It will help to think about death in advance.  Trust me [she says], this gets easier to do with practice – those things of which we refuse to think don't disappear meekly in response to our refusal:  they go underground.  There they grow in apparent size and virulence, becoming larger and more unthinkable than they really are.  What will happen to me in my death is that I will join the billions of human beings who have died; everyone who has ever lived has managed to do this.

We have already had experiences in our lives like this: major losses, traumatic events.  We realize that in order to function more fully as time passes, the best way to handle those experiences is to face them head on.  Our own death is no different, apparently.

One chapter talks about pain, and Barbara is quick to distinguish between acute pain and chronic pain.  Acute pain sends a signal:  oops, your finger is too close to the candle flame.  Ouch!  Then you take action to stop it.  Chronic pain is different.  You have to learn to live with chronic pain and counteract its source or compensate for it.  For instance, maybe your knees won't let you genuflect in church?  Then bow instead [that's what we ourselves have to do!].  She says these strategies take courage too; from page 35:

I think chronic pain teaches courage.  Real courage, I mean, not bravado – it teaches the kind of courage that looks unwaveringly at the way things really are, rather than the strutting, noisy kind that asserts power it doesn't possess and control over events that human beings don't really run.  No, the courage chronic pain can teach us is the slow kind, the patient kind – maybe "maturity" is a better term for it than "courage."

One more notion, an impressionist metaphor: "The Two Baskets".  We are in a basket that is nested in a bigger basket.  Page 80:

Baskets are woven, of course: strips of grass or straw or wood thread intricately over and under one another again and again . . . . But there is space between the strips, however tightly they might be woven.  You could peer out one of those spaces, if you wanted to. . . . Yup, there's something out there all right.  But you can't see it very clearly through that tiny opening.  Besides, who cares?  This basket is beautiful.  It contains everything you need.

One day, though, the smaller basket begins to fall apart . . . .

So you get the idea of where that image is going.  Barbara helps us understand that we have been inside the bigger basket all along.

In addition to Barbara's two baskets, we realize that we've actually seen a third basket.  A friend who lately became a grandmother showed us a picture of her grandson smiling at us – from the womb.  The wonders of ultrasound let us see inside and there was little Luke, inside the basket inside the basket inside the basket . . . .

Barbara Crafton's book The Courage to Grow Old is published by Morehouse, an imprint of Church Publishing, Incorporated.  It is available from Amazon and Barnes & Noble, in both paperback and Kindle or Nook editions.



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Friday, July 18, 2014

Praying for Peace: It's All We Can Do

The Rev. F. M. Buddy Stallings, Rector of St. Bart's on Park Avenue in Manhattan, is an Associate of the Geranium Farm; his pieces run on the Farm's website page "A Few Good Writers".  This morning, what he emailed sounds exactly like what we feel about the two simultaneous awful-nesses that are impacting the world right now, the shooting down of the plane in eastern Ukraine and the fighting in Gaza.

We mourn the loss of some AIDS scientists who were traveling on the plane, as well as a member of the Dutch Senate, a nun returning to a teaching job in Sydney after a study sabbatical in Europe, and the numerous others traveling to Asia.  We learned that Ukraine was, until yesterday, on a major flying route from Europe to Asia; planes are apparently now being rerouted over Turkey.  How will the conflict over that region be reconciled?

We also wish over and over that the terrorism and the Arab/Israeli distresses could be eased.  We were in the World Trade Center on 9/11, so this is a very personal notion.

Those thoughts prompt us to respond here on Ways of the World, and we take the liberty of copying Buddy's comments so our own readers may see them.  
Nothing I had planned to write today seems weighty enough in light of the events of yesterday: the shooting down of the Malaysian airliner and Israel's ground operation into Gaza. . . .
And yet, each of us is required to have some sort of public reaction -- not a position piece for sure, but some orientation or perhaps world-view through which we process such events. Over the years I have in some ways hidden from many of the hard conversations about conflict and turmoil in the world by claiming that my positions are theological not political: peace over war, non-violence over violence, negotiation over action. Though lofty and pious, they also are not, as I have been told with some regularity, particularly practical or easily reduced to logistics about how we actually are to live together on an ever- shrinking globe. I almost envy the bellicose, who at every turn say in a million ways "there is going to be hell to pay for this; let's go blow somebody up," and the equally certain, who seem to know in every case the absolute moral decision to make.
I pray for peace; and though that seems pretty weak and small, it is all I have. Though God may clearly expect more, I am not sure what it is and at this point can only wait until I have further light.

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Friday, July 11, 2014

Links for Helping with the Immigration Crisis in South Texas

Not your usual Ways of the World essay.

We are as many of you are, too, probably very concerned about the throngs of Central American children coming across the Texas border.  Yesterday, July 10, the Presiding Bishop of the Episcopal Church, Katharine Jefferts Schori, called our attention to the work on this crisis issue by various bodies of the Church.  Her specific emphasis was on advocacy and policy.  She also certainly feels compassion for the kids themselves, and she urges us to pray and give as well.

As we read her published statement in a daily email from Episcopal News Service, we were moved to check on the website of Episcopal Relief & Development for possible news of actual relief efforts.  As many of you know, the Geranium Farm are long-time supporters of ER-D's work.  Sure enough, they are helping get resources to the relief center being run in McAllen, Texas, right on the border across the Rio Grande from Reynosa, Mexico, and between Brownsville and Laredo.  St. John's Episcopal Church is pitching in at the center, which is located at Sacred Heart Catholic Church and being managed by Catholic Charities.  At least one of the local Baptist churches is also participating and possibly other churches.

Here is a link to Episcopal Relief & Development, where you can make a monetary donation to that work: https://www.episcopalrelief.org/press-and-resources/press-releases/2014-press-releases/responding-to-central-american-migrant-crisis.

If you want to send supplies directly to the center, here is information from Sacred Heart Church: http://sacredheartchurch-mcallen.org/immigrant-assistance/ .  This includes the address of the drop-off center and an itemized list of what they need; it's pretty basic daily-living stuff for adults and little kids.

Here is a link to the Diocese of West Texas, which has posted pictures of the work and in-kind donations that are being provided.

Finally, today's New York Times ran a strongly worded op-ed by an unlikely group of immigration reform advocates: Sheldon Adelson, CEO of the Las Vegas Sands Corporation, Warren Buffet, CEO of Berkshire Hathaway, and Bill Gates, Chair of the Bill and Melinda Gates Foundation and a founder of Microsoft.  These three, who begin with the disclaimer that they don't have common political perspectives, strongly urge the Congress to get its act together on immigration reform legislation.  This presently appears unlikely to happen before the November election as everyone wants to run away from the hot-button issue before constituents vote.  But those little kids down there in Texas and the adults who sent them need some clarity.  So too, as Adelson, Buffett and Gates argue, do the graduate students from abroad working hard at our universities, and others anxious to come here legally or to regularize their current status as residents of our country.  Contact your Representatives.  While the Church's advocacy work helps, constituent contact will count too.

Please respond somehow.

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Tuesday, July 08, 2014

The First Generation of Americans

Each year at the anniversary of American Independence, Ways of the World visits that historical era with an eye to the key role of ordinary people.  The American Revolution was more than battles and big documents; it marked dramatic changes in the structure of society, in people’s relationships and in their day-to-day interactions with one another.

We sought this year to see how this reordering played out as the new country and its culture developed.  Recognizing that we had not read a classic statement of this, Tocqueville’s Democracy in America, we thought that might be the way to go.  Our seeking brought us instead to a prelude of the years right before Tocqueville’s trip, which began in 1831.  So we focus on Inheriting the Revolution: the First Generation of Americans by Joyce Appleby.  She is professor emerita at UCLA and a former president of the American Historical Association.  The book is based largely on her study of people born from 1776 to 1800, sourced from autobiographies, contemporary press reports and other primary sources.

Originality and newness and flexibility are the main themes.  There had been a big war and the older people were conditioned by the necessary defenses they had had to put together.  The new, younger generation faced no such constraints; they were looking forward.  Their new orientation became manifest in some surprisingly basic aspects of living, as Appleby explains.

In these annual July-4th exercises, we never cease to be amazed at the historic reach of the American Revolution.  Here follow six significant kinds of changes that emerged early after it.  They concern a fundamental shift of power, influence and benefits from a limited predetermined elite to a vast populace exercising initiative.  At the same time, we will have to conclude with some comments about some people who were largely left out of all this.

1.  Politics and the popular press
By the 1790s, many more people were learning to read, and newspapers were expanding rapidly.  As marks affairs today, inquisitive reporters and commentators got into the workings of government and of leaders.  The process of governing was now out in the open, no longer conducted in closed rooms, hidden from the population at large; information was now available to almost everyone.  Appleby highlights the election of Jefferson in 1800 as a demarcation of the social ramifications of what was happening.  Social and political power were now uncoupled.  "[T]he colonial belief that authority should be exercised through the uncontested leadership of a recognized cadre of families” was "drowned in a tidal wave". [Appleby, page 6]

2.  Enterprise and expansion
The Industrial Revolution along with the end of the American Revolutionary War meant people could focus on going new places and making new things.  They were no longer preoccupied with military issues and could explore the vastness of the North American continent.  Agriculture and the family farm remained the primary way to make a living, but commercial interests developed to a substantial extent.  Steam engines and machine tools led to the growth of industry; as the variety of goods available increased, retailing expanded and all this needed financing, so banking spread as well.  Many new kinds of jobs opened up.  Extending the theme of spreading leadership, business ventures could be undertaken by anyone, not just members of certain favored families or those with government connections.

3.  Careers
Indeed, individuals could now make many basic choices about the course of their own lives.  “Where once sons had achieved manhood by emulating their fathers, more and more they were esteemed by carrying a torch into uncharted territory.” [page 21]  Notably, the very word “career” took on a new definition.  The Oxford English Dictionary shows that in 1580, it meant “a race course”.  But by 1802, it had come to describe “a person’s progress through life”.  [Cited by Appleby, page 270]

4.  Societal distinctions
“Mobility” now meant several things: movement away from the family home, geographic mobility even to another region, changing one’s profession, participating in and gaining influence in governing.  The product of these processes came to be known as the “middle class”, encompassing people with origins in both ends of the economic spectrum and generating a new emphasis on peer groups.  “Status”, “merit” and “virtue” were still important, but they took on whole new contexts.

5.  Intimate relationships
“The collapse of venerable hierarchies and the scattering of families” [page 22] meant people no longer had a pre-existing emotional support system; they had to be conscious of their emotional needs and seek out relatives and friends with some deliberateness.  In another sphere of intimacy, religious revivals imparted to church and worship an emotional character not generally experienced before in more formal worship settings.

6.  Voluntary associations
Society, of course, continued to be plagued with various problems.  Individuals who cared about specific issues of the day began to form volunteer groups to address them.  Appleby emphasizes temperance and urban charity among more secular issues, while the evangelical revivalist movements sent people on mission work.  These missions were sometimes foreign, perhaps to India, and some more local, such as to the Cherokees and the Chickasaws.  Anti-slavery organizations were formed.

So the young country grew and prospered with broad-based participation in leadership roles unknown in history before.

“Participation” was, of course, still not universal:  women and blacks were still restrained.  Women's roles evolved somewhat, though.  Many became literate, with some making writing careers.  Others became active in church-work or other voluntary groups; they became aware that they wanted and should have choices, not necessarily tied automatically to the men in their lives. 

Appleby is careful in many places to specify that the main beneficiaries of the constructive societal changes were "white men".  Blacks (many from the West Indies as well as Africa) were largely emancipated in the North, could own property and even vote in some locales.  But the Southern culture was different, remaining staunchly pro-slavery and retaining other hierarchical characteristics.  Part of this is tied to dependence on labor-intensive cotton-growing as European demand for the fabric expanded.  Without more study, we don't want to go on about this at length, but Appleby makes clear that the seeds of conflict over these racial differences were sown very early in our history as a nation.

We want to leave you with two thoughts in this July 4th Season of 2014.  First, much of the news of our day highlights failures and misgivings people feel about our government and society.  But we urge you to stop and put this in perspective.  The US has fostered a flexible, open lifestyle focused on mobility.  It's distinctive in millennia of history, that we have come, 238 years after Independence, to want to assure opportunities for everyone, whatever their background.  People who were prospering in 1800 were already starting to figure out how they could spread this prosperity.

Secondly, this spirit of widespread initiative and prosperity is readily evident to other people all around the world.  Some of them seem to hate us for it and plot our destruction.  But many others want to come and join in it.  We see the massive border problems of this moment and we struggle mightily over how to handle the hordes of illegal immigrants.  Surely this whole situation is being badly mishandled and the President perhaps did not anticipate the volume of people who would respond to his unilateral move in 2012 to let young people stay who arrived in the U.S. as dependent children.

But look at the statement those young people and their families are making.  What you and I have as lives here in the United States, flawed though our situations may seem to us, looks so great compared to what those families have now that they are willing to risk everything to come and be a part of it or send their children in the hope they can have a better future.

* * * * *
Joyce Appleby.  Inheriting the Revolution: the First Generation of Americans.  Cambridge, MA: The Belknap Press of Harvard University Press.  2000.

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Tuesday, June 24, 2014

Unemployment Down -- But Not for Good Reasons

The US economy has grown only sluggishly since the Great Recession, but the unemployment rate has come down fairly sharply.  It was 6.3% in May, compared to 10.0% at the worst of the recession in mid-2009.  But the share of the population with jobs, the "employment rate" has hardly moved, hovering in a narrow range of 58.2 to 58.9%.  If "unemployment" is falling, shouldn't that be because "employment" is rising?  The incongruity here prompted us to look at what's going on the labor market.  There's one broad answer and also some other factors, all of which together give some explanation, but mainly serve to highlight the current clouds over the U.S. economy.

Who Counts as "Unemployed"?
The broad answer to our conundrum is not an encouraging one.  The main reason for a nearly 4 percentage point drop in the unemployment rate from the depth of the recession in mid-2009 to April and May this year is an almost parallel decline in the so-called labor force "participation rate".  In the Labor Department/Census Bureau monthly Current Population Survey, people who respond that they have a job or are actively hunting one are called "participants" in the labor force.  As we noted, the number of people who have jobs has increased only sluggishly since mid-2009.  Many of the people who do not have jobs have stopped looking for work.  The Labor Department's terminology only calls you "unemployed" if you are actually out looking for work and can't find it.  If you haven't been out looking for work in the past four weeks, you're "not in the labor force" and thus not "unemployed".  The number of persons not in the labor force is growing and has risen from 34.3% of the population in mid-2009 to 37.2% in recent months.  The opposite ratio, the "participation rate" has thus dropped from 65.7% to 62.8%.  The last time it was that low was in the late 1970s, just the time when the share of women moving into the labor force reached 50%.
 
The recent pattern of more labor force dropouts is surprising; it is the opposite of what usually happens after recessions.  Traditionally, as the economy begins to grow, people start to look for work again, the participation rate goes up and the unemployment rate increases early in a recovery period until the new jobs emerge; then the unemployment rate falls.  But such an increase in participation did not occur in this cycle.  If the participation rate had even remained at its recessionary level instead of falling, the reported unemployment rate now would be about 11.0%, not 6.3%. 

One fundamental factor in the lower unemployment rate is the simple aging of the population.  Baby Boomers are entering and passing through their 60s.  Many of them are retired, of course, so the general level of their participation is low.  But a good number of older people are still working, and this age group actually increased its employment rates in recent years.   The net result is a favorable downward push on the unemployment rate, albeit a small one, for the right reason: a larger share of these people have jobs.

Teens Pull Back . . .
At the opposite end of the age spectrum, we have some opposite trends, and these are problematic.  Teenagers.  About 20 years ago, 54% of the teenage population, ages 16-19, were in the labor force.  Yes, they had high unemployment rates, but even so, about 44% of them had jobs.  As recently as 2006, not quite 44% were in the labor force and 37% had jobs.   But just lately, only a third of these kids even try to find work and just 27% have jobs.  There's concern in our tone here for both the kids themselves and for the health of the economy going forward.   A large portion of these young people are missing the early work experience and training almost half of the rest of us grew up with.  Press reports suggest that some kids might do volunteer community service, although subsequent job-hunting feedback seems to be less successful for those kids than for ones who have worked for money.

. . . And So Do Adults
We make specific comments about the oldest and the youngest workers, but we also have to note that labor force participation is down among the core group in the middle.  The older workers are largely retired and the younger workers are mostly in school, while that mid-range are people who ordinarily are "working for a living".  But the mid-range, ages 20-64, have seen their participation rate fall from 78.4% in mid-2009 to 76.1% recently.  So we can't explain away the overall decline in participation by attributing it to teens and retirees.  Something is discouraging people from hunting for work.

So yes, the unemployment rate is "down", but we'd rather have a higher reported number and see more people out pounding the sidewalks to get jobs.  We obviously have to delve more into causes about why people aren't doing that.   Meantime, we can address one substantive job market issue.

Are Jobs Available?
Yes, there are some.  A separate Labor Department monthly survey of companies and governments shows 4.46 million job "openings" at the end of April.  This is up 289,000 from the month before; it is approaching the peak range around 4.6 million just before the recession started in late 2007 and compares to a recession low of 2.15 million openings in July 2009.   The openings are spread across the whole span of business sectors, with about 850,000 each in retail and other trade and in professional and business services.  The trade sector, of course, tends to be low-paying, while professional and business services are up the scale considerably.  Manufacturing job opportunities are running about 270,000 openings; while not so large they are also well above their recession lows of 75,000-95,000.  Health care and hospitality sectors, as well, show sizable needs for new employees, with accommodations and food services, especially, having 625,000 openings at the end of April, three times as many as at the bottom of the recession.

While we present a fairly positive description of these developments in job openings, it is true that almost five years after the economy turned upward and supposedly started to grow again, the number of openings remains below prerecession levels.  Similarly, the total number of jobs reported by employers, 138,463,000 in May, only just in that month recovered its prerecession level of September 2007.  So it's hardly surprising that people still have a subdued opinion of economic opportunity and might not be as enthusiastic about job hunting as they have been historically.  There must be more to this story and we'll continue to pursue it.

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