Good Times! or Good Times?

Consumer sentiment is high, according to the University of Michigan survey. Unemployment is low, the lowest it has been since 2000 says the New York Times. The stock market continues to peak. Yet, what you read and see in the media, and what you hear from most politicians are things are bad...maybe even awful. What is the reality? Could this be both the best of times and the worst of tiimes?

The reality is consumer sentiment is a pretty good predictor...of consumer sentiment. It is a snapshot of current feelings, which can change on a dime (just look at what happened before the Great Recession. 

Unemployment is different now than it used to be with an unemployment rate of 4.1% but an underemployment rate of...well, much higher (accurate statistics for underemployment are difficult to come by). The problem is the headline number, 4.1%, tells us something, but not everything.

Participation in the stock market is still very low. Only when you get to household incomes of $200,000+ do you see more than 50% of households participating in the stock market, according to the St Louis Federal Reserve.

For many Americans, especially millennials, these numbers tell only part of the story.

Look at the lifestyle of most millennials. First, at least on the coasts, the idea of buying into the American Dream, having a house in the suburbs and living an upwardly mobile life by your parents' standards seems out of reach.

Many millennials (most?) are unable to afford rent, much less purchase a house. Based on current market conditions, LA Times, a median-priced house in Southern California runs $500,000. Factor a $100,000 down payment (yeah, that does not seem realistic does it?), then the monthly payment will be around $1,900 on a 30-year mortgage. To comfortably afford that, someone would need to earn $70,000 per year. Not unrealistic, but certainly not that easy given where median wages are for most young adults.

Now, factor in the thought of saving for that $100,000 down payment. If you are renting the median one-bedroom apartment in LA, you are paying $1,949 per month, according to Smart Asset. Yes, that is more than your hypothetical $1,900 median monthly house payment. How crazy is that?Talk about being squeezed.

Then, there is job security or job anxiety. A large number of millennials are underemployed. According to Forbes, "For recent college graduates 22-27, the numbers have been rising steadily, with the underemployment rate rising to 44% in 2012.." While that number is a little out of date and may be subject to some criticism, it is a huge number from a reputable source.

Young adults are the canary in the coal mine, or the poster child, for the US economy. This age group tends to be optimistic, sometimes unrealistically optimistic. Young people define the times and the state of the economy (e.g. the Baby-Boomers of the '60s, the Gen Xer of the '80s, the Millennials, now).

The young generation of the day represent the burgeoning consumers, so it is healthy to watch and sense what they feel. After all, consumer spending makes up nearly 70% of all economic activity, again, the St Louis Fed. If millennial consumption is constrained over the next 10-20 years because of low, or underperforming, earnings, high student loan debt, and unaffordable housing stock, then the future of the economy may be sluggish.


So, what can we reasonably conclude from this good news/bad news economy? First, it seems reasonable to say that jobs are out there, but they are not the type of jobs many young people want, need, or expect. When college graduates cannot find secure full-time upwardly mobile career position that allows them to afford a house, then the basic premise of the American Dream is gone...or at least very different than it has been for the past century.

Second, the current economic boom (and it is a boom for many) is a tale of two cities, or in this case, a tale of multiple demographics. As you hear from various news outlets, and Bernie Sanders and others, the wealthy are seeing great dividends from the values of their real estate and investments, while blue-collar and young adults are struggling to get high-paying career opportunities. 

Regardless of your red or blue political bias, the facts are clear. This has been a great run for older wealthier individuals, as well as start-up entrepreneurs. There is no shame in that, but there are many who have been shut out of this particular economic boom. 

Finally, what does this mean for the future? Buy bitcoin! JUST KIDDING.

In the US, typically, the "trend toward the mean" has almost always won out overall. This seems a little like the 1920's, where vast amounts of wealth were concentrated with a small number of individuals.After that, the analogy becomes murky. It seems unlikely that the US is headed toward another Great Depression because there are simply too many controls in place to let that happen. 

Also, it seems unclear whether or how the US Government could intervene to break up the monopolies of today (Apple, Facebook, Google, Amazon). 

So what can you do as an individual? One thing is to be smart with your choices. Pursue a career that is intrinsically rewarding, but also offers decent compensation and security.  

If you pursue a college degree, and there is plenty of evidence to suggest you should. Consider the cost and return on investment. Is $100,000-$300,000 worth it? Will you be in debt for 20 years (remember, the average is 21 years)? 

And finally, find joy and support from others...not pain and misery from politicians or the media.

This feature is being brought to you by Oak Valley College, which offers a debt-free personal Christian liberal arts education, focusing on business and designed to provide students with the financial freedom and flexibility to pursue their dreams Live. Learn. Grow. Oak Valley College.