Economy | timiacono.com

Middle-Aged and Back with Mom & Dad

This LA Times story about Californians in their 50s and 60s moving back in with their parents has been making the rounds over the last day or so and for good reason – it’s yet another indication that, despite rising stock prices, rising home prices, and an improving economy, something is still seriously wrong here in the good ‘ol US of A.

It would seem the most surprising thing about this is that people actually agree to be interviewed on the subject like Debbie and Ron Rohr below who were photographed at the Salinas home of Debbie’s mother (at least Debbie had the good sense, apparently, to take down the Peter Frampton Olivia Newton-John posters from her old room).

At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.

For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents’ homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.

The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.

“The numbers are pretty amazing,” Wallace said. “It’s an age group that you normally think of as pretty financially stable. They’re mid-career. They may be thinking ahead toward retirement. They’ve got a nest egg going. And then all of a sudden you see this huge push back into their parents’ homes.”

Many more young adults live with their parents than those in their 50s and early 60s live with theirs. Among 18- to 29-year-olds, 1.6 million Californians have taken up residence in their childhood bedrooms, according to the data. Though that’s a 33% jump from 2006, the pace is half that of the 50 to 64 age group.

At first, this seemed like one of those stories where you’ve got a huge increase to a small number and that makes for a sensational headline and story, but the simple fact that there is now only an 8-to-1 ratio between 50-64 year olds and 18-29 year olds who live with their parents (and not as caregivers) seems pretty disturbing, at least to me.

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Saving vs. Spending

This new Gallup survey is kind of surprising – I thought the nation was slowly headed back to its spendthrift ways with the official savings rate having dipped back into the low single-digits after a brief sobering up period following the financial crisis. Apparently not.

These results are downright un-American.

Of course, it bears repeating that us ‘Mericans often say and do two very different things as evidenced by the repeated divergence between measures of consumer confidence and consumer spending over the years. This may be another one of those cases.

While the nation continues to develerage after decades of overborrowing and overspending (as is clear when looking at the ongoing decline in outstanding credit card debt), maybe the operative word in the survey above is “enjoy”. Maybe we just don’t get the same pleasure from spending as we used to because an increasing share of that spending goes to meet basic needs rather than to buy trinkets and such.

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Consumer Debt Increase Fastest Since 2007

This New York Fed report(.pdf) showing aggregate consumer debt jumped $241 billion to $11.5 trillion in the fourth quarter, the biggest increase since the third quarter of 2007, has received a lot of attention today and was welcomed news by those who think that buying things you don’t need with money you don’t have is how the U.S. economy should operate.

Now, one could argue about whether you need a college degree these days, but there’s little question that few have the money to pay for it as evidenced by the bulging red bar segment in the lead graphic from the report below. According to this item by Wolf Richter, that red bar is enslaving an entire generation and, if so, that can’t be good.

The New York Fed’s Liberty Street Economics blog noted the dramatic rise in outstanding debt by said enslaved generation in this story earlier today.

I suppose when student loan debt  really becomes a problem, someone will let us know.

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The Demise of U.S. Economic Growth

In Northwestern University economist Robert J. Gordon’s latest paper on why growth will slow “The Demise of U.S. Economic Growth: Restatement, Rebuttal and Reflections(.pdf)“, four factors are cited for why the red curve is likely to stay below the green curve in the graphic below – demography, education, inequality, and repaying debt.

Later in the paper, just after the discussion on debt and how the Congressional Budget Office is hopelessly optimistic about the return of stronger growth that will ease the burden of that debt, the red line is projected to the right and ends up at an uninspiring $86,000.

Gordon on Growth

Note that it is GDP per capita that is used here rather than GDP (per nation, if you will). The latter grossly distorts the underlying health of an economy simply because it is heavily influenced by population growth. In the U.S., population growth has slowed from almost two percent to less than one percent over the last half century, reason enough to doubt any return to four percent annual real growth as some still fancy.

Also note that the impact of technological innovations on growth is not now and will probably never be as profound as that seen many decades ago. The introduction and widespread use of electricity, automobiles, and the like during the left portion of the chart above were far more significant than anything seen in recent decades and, absent the arrival of friendly aliens willing to share, we probably won’t see anything like that again.

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