A new report released by New York City comptroller Scott Stringer is prompting the rest of the country to take a closer look at how the Millennial Generation will affect the country’s economy in the years to come.
More than any other study on the same subject, Stringer’s report – titled, “New York City’s Millenials in Recession and in Recovery” – managed to effectively flesh out the financial travails of Millenials all over the country and reiterate the fact their plight will make a huge impact on the nation’s economy.
First off, just who are the Millenials?
There are no specific dates for when this generation was (for lack of a better word) spawned. Various studies tag them as the people born between 1980 to 2000.
With around 80 million members, the Millennial Generation has already surpassed the Baby Boomers as the largest living American generation. Economists estimate that they collectively spend $600 billion annually. “By 2020, they could account for $1.4 trillion in spending or 30% of total retail sales,” noted Laura Shin in her Forbes article, “How the Millennial Generation Could Affect the Economy Over the Next Five Years.”
In her 2015 report, Beth Ann Bovino, Standard & Poor’s U.S. chief economist, theorized, “If the economy continues to strengthen, as Standard & Poor’s projects, there’s potential that Millennials could start making big-ticket purchases that contribute to economic growth. On the other hand, their student loan debt could keep them from spending and not buying houses, costing the economy.”
“Two-thirds of GDP (gross domestic product) is consumption, so we rely on people spending money,” added Bovino.
Then again, Millenials’ spending power may continue to be hampered by several factors that are specific to their generation.
The New York Case Study
Stringer may have presented New York City’s Millenial crowd as a case study, but his observations apply to the entire country’s Millenial population. He wrote, “From 2007 to 2009, the nation suffered the worst recession since the Great Depression. During the same period, children of the Baby Boomer generation — a large population cohort known as the Millennials — began their working lives. Not since their grandparents or great-grandparents’ generation have young people entered adulthood during such adverse labor conditions.”
Jen Kinney, in her article, “New York City Has a Millennials Problem,“ presented an in-a-nutshell overview of the scenario that Stringer referred to. She noted: “The U.S. economy lost over 8.7 million jobs between 2008 and 2010, jobs not regained until early 2014. During those six years without net job creation, over 22 million Millennials entered their working years nationwide.”
Stringer pointed out that “the lingering impacts of the recession on this large group of young workers – and the national and local policies adopted to address their unique challenges – will reverberate through the national economy for decades to come.”
By the Numbers
As a result of the recession back in 2007 to 2009, many Millenials — even those with college degrees — were driven to take jobs in the so-called “low-wage industries.” It’s a trend that has persisted.
A report released by the Economic Policy Institute (EPI) explained, “Despite officially ending in June 2009, the recession left millions unemployed for prolonged spells, with recent workforce entrants such as young graduates being particularly vulnerable.”
EPI then revealed that for 2016’s college graduates, the unemployment rate is currently 5.6 percent and the underemployment rate is 12.6 percent.
Meanwhile, for young high school graduates, the unemployment rate is 17.9 percent and the underemployment rate is 33.7 percent.
EPI explained that “the high share” of unemployed and underemployed young college graduates and the share of employed young college graduates working in jobs that do not require a college degree “stems from the weak demand for goods and services, which makes it unnecessary for employers to significantly ramp up hiring.”
Bovino also warned that “continued low wages for Millennials could reduce U.S. GDP by as much as $244 billion through 2019, or $49 billion a year, relative to our baseline scenario.”
Further complicating Millenials’ economic predicament are their massive student loans.
As Bovino stated out in her commentary on Fortune: “Millennials are the most educated generation in American history, but it has come at a cost ranging in the hundreds of billions of dollars. Indeed, many of Millennials’ spending and saving habits can be attributed to this debt – a major determinant of current and future spending ability, given the length of loan maturities and weak post-recession wage growth to date.”
An online survey conducted online in February 2016 by research agency TNS on behalf of Citizens Bank revealed that Millennials “have an average student debt of $41,286.60.” This is higher than the national average amount of debt for college graduates, which the Department of Education determined as $29,400.
The survey also highlighted the fact that “59 percent of those polled have “no idea” when they will be able to pay back their student debt.”
What the Future May Hold
Although it may seem that Millenials have a lot of economic hurdles to deal with, there is still hope for some relief. “In the end, while the burden of student debt will eat into the purchasing power of many young Americans for some time, we expect the continuing recovery in the U.S. economy to afford this generation the eventual opportunity to transition into the traditional definition of full adulthood — and, in a virtuous circle, begin to buy the houses, cars, and other big-ticket items that will further stimulate economic growth,” Bovino said.
Millenials themselves should also be proactive and urge lawmakers to come up with national policies that will give them a much needed boost out of the economic rut that they’re in. In this endeavor, the fact that they are “the largest living American generation” could be their most valuable asset. They can be a formidable political force. In this case, there is strength in numbers.
Trump Says Economy ‘Roaring Back’ in June As 4.8 Million Jobs Added
The economy added back 4.8 million jobs last month, according to the government’s June jobs report released yesterday. That handily beat the 3.7 million jobs forecasted by economists and dropped the unemployment rate down to 11.1%.
After the report was released, President Trump said the economy was “extremely strong” and “roaring back” after the country has regained more than 7.5 million jobs in the last two months. Trump added that the economy will keep growing unless voters elected Democrat Joe Biden in November. He said Biden would raise taxes and hurt the economy and the stock market would “drop down to nothing.”
Of the jobs added back in June, bars and restaurants hired – or rehired – 1.48 million workers. This comes as many reopened for outdoor dining in the early phases of the reopening. They brought back a similar number of workers in May. It happened after shedding more than 6 million jobs due to the pandemic.
The retail sector regained 740,000 jobs, healthcare added back 358,000 workers, and manufacturing saw 356,000 jobs added.
The energy sector continues to be battered by low oil prices amidst the economic slowdown. Additionally, that industry shed an additional 10,000 jobs last month.
The return of lower-paying jobs like those found in the restaurant and hospitality industry dragged down the average hourly wages for the second straight month.
Many are cautioning against reading too much into reports like average hourly wages while the economy is in such turmoil.
Stephen Stanley, chief economist of Amherst Pierpont Securities, says, “The wage figures will be pretty much useless for a long while until the labor market gets back to some semblance of normality.”
Andrew Chamberlain, chief economist of the job site Glassdoor, also gave an explanation. He added, “Today’s positive jobs report does provide a powerful signal of how swiftly U.S. job growth can bounce back and how rapidly businesses can reopen once the nation finally brings the coronavirus under control — a reason for optimism in coming months.”
Unfortunately for many of the workers recently rehired to work in bars and restaurants, the recent spike in new coronavirus cases could lead to those jobs quickly being lost for a second time. Bars in many states are being shut down again in an effort to curb the growing number of cases.
The unemployment rate fell for the second straight month. However, the Bureau of Labor Statistics is trying to fix a reporting error that, if corrected, would increase the unemployment rate by 1%.
The problem is how households respond to the monthly survey that is used to calculate the unemployment rate. The jobless rate would have been 1 point higher if not for continued problems in how respondents answer the question about their employment status.
What many consider the “real” unemployment rate, which is the U6 rate, includes workers who can only find part-time jobs. It also includes those who’ve become too discouraged to look for jobs because so few are available. Using that measurement, the unemployment rate stands at 18% in June, down from 21.2% in May.
Trump Favors Larger Stimulus Checks, Says ‘Tremendous’ Market Crash if Biden Wins
In a wide-ranging interview with Fox Business News, President Trump mentioned his support for another round of stimulus checks and says should Joe Biden win the election in November, we should expect the stock market to crash “a tremendous amount.”
On Stimulus Checks
Speaking with Blake Burman, the president says he is in favor of another round of stimulus checks, but wants to make sure that there is a financial incentive for Americans to return to work.
“I support it, but it has to be done properly. I support actually larger numbers than the Democrats, but it’s got to be done properly. We had something where it gave you a disincentive to work last time. And it was still money going to people, and helping people, so I was all for that. But we want to create a very great incentive to work.”
Trump also mentioned he wants the checks to arrive quickly and spent quickly, without the Democrats adding complications.
“I want the money getting to people to be larger so they can spend it, I want the money to get there quickly and in a non-complicated fashion. And they wanted to make it too complicated, also it was an incentive not to go to work,” said Trump.
Returning to work is what hard-working Americans are looking forward to, says Trump, and he wants there to be a financial incentive to do so.
“You’d make more money if you don’t go to work. That’s not what the country is all about. And people didn’t want that. They wanted to go to work but it didn’t make sense because they make more money if they didn’t… we want people to get out and we want to create a tremendous incentive for people to want to go back to work.”
On Biden and Taxes
When asked about Joe Biden’s recently announced plans to raise corporate taxes if he becomes President, Trump said “You’re going to crash the market. 401(k)s will be down the tubes, the wealth of the country will be down.”
He added “That will kill the market. It will kill everything we are doing, it will kill jobs, and it will be very bad. Frankly, the stock market is doing well, but it’s an overhang. If he got elected, and they say this, that’s an overhang over the market, because the market would crash. Would absolutely crash.”
When asked what he means by crash, Trump responded, “Markets would go down by tremendous amounts. He’d raise taxes, he’d raise regulations. Look, one of the biggest things I’ve done is I’ve cut regulations more than any President in history. We still have regulations, but they’re much less. His people, the people around him (Biden) are radical left. They’re going to raise taxes, they’re going to raise regulations, and they’re going to put everyone out of business. It would be a disaster.”
Fed to Keep Rates At Zero, Worried About Market Crash Later This Year
The Federal Reserve will keep rates at near zero percent for the foreseeable future. Also, a few members feel worried about a second wave of the coronavirus crashing the markets later this year. These are according to the minutes of the June 9-10 meeting.
Federal Open Market Committee members voted to keep the benchmark short-term borrowing rate in a range of 0%-0.25%. They also said that, until the economy “had weathered recent events,” they would keep it there. Without providing specifics, the notes also mention that “a number” of members believe there is a high probability of additional “waves of outbreaks” of the coronavirus.
This worry over additional outbreak waves and the economic damage it could bring led the FOMC committee to downgrade their economic outlook from the April meeting. The said meeting had predicted a more benign baseline forecast.
The members also indicated that they will begin providing the markets with stronger guidance about future interest rate moves. However, Fed watchers don’t expect the committee to begin providing this guidance any earlier than the September meeting.
“In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency [mortgage-backed securities] as more information about the trajectory of the economy becomes available,” the minutes said.
Milestones and Metrics
The committee also discussed what milestones they will use to determine an appropriate time to start raising interest rates. When they did, the metrics proposed has split the committee.
In 2012 for example, the Fed said it would keep rates at zero until the unemployment rate fell below 6.5%. Alternatively, they also said it would keep zero rates until the inflation goes above 2.5%.
In June’s meeting, a “number” of members said any interest rate increases should be tied to the Fed’s 2% inflation target. Meanwhile, a “couple” favored using the unemployment rate. A “few” members suggested the committee set a specific date.
The FOMC also released its expectations for GDP over the next few years. The median GDP projection for 2020 was a contraction of 6.5%. A 5% increase in 2021 and a 3.5% in 2022 will follow this. However, they acknowledged “that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook.”
Trump on Powell
Meanwhile, there’s a bit of good news for Federal Reserve chairman Jay Powell. It appears he has slowly won over his most vocal critic, President Trump.
During an interview on Fox Business News, Trump said Powell has “stepped up to the plate” and he’s happy with Powell and Treasury Secretary Steve Mnuchin for the work they’ve done to help the economy recover.
“I would say that I was not happy with him at the beginning, and I’m getting more and more happy with him, I think he’s stepped up to the plate. He’s done a good job, he’s had to liquify a little bit, let us liquify, put out the money that you needed, and I would say over the last period of 6 months he’s really stepped up to the plate.
“I can tell you I’m very happy with his performance, and Steve Mnuchin, I think they’ve both done a very good job, they’re working together very closely.”
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