Checking the Health of the Economy
Modern society lives with Big Data and statistics, but every statistic has a story behind it. Though the United States economy is improving, there are some numbers or statistics emerging that may indicate the country is on a financially unsustainable path without changes in existing laws and consumer behaviors. Currently, the statistics indicate a soaring national debt, growing student loan debt, increasing credit card debt, high unemployment rates and a low labor participation rate. Following is a review of these issues.
First, taking a macro view, the Bureau of Economic Analysis reported a decrease in U.S. GDP in the first quarter of 2015 of -.2%. Seven years after the Great Recession, the U.S. economy contracted after experiencing only tepid growth. The shrinkage is attributed to declining exports and business investments, plus an increase in local and state government spending.
One of the indicators of the health of an economy is the national debt. As of June 30, 2015, per the Treasury Direct website, the total public debt outstanding was $18.1 trillion. The federal debt is only frozen at this point in time because Congress passed an $18.1 statutory debt limit in March 2015. The federal government debt is now 74% of GDP. Last year the Congressional Budget Office wrote that current projections indicate the debt will be 106% or higher of GDP by 2039. The negative impact of high debt include increasing government interest payments covered by higher taxes and lower spending on government services and benefits. Unsustainable? Yes.
Will Work for the Economy
The official unemployment rate is another misleading number. The unemployment rate has declined to 5.3% as of June 2015, per the Bureau of Labor Statistics News Release USDL-15-1274. However, given some key facts this number has little meaning. The Department of Labor does not include discouraged people who have stopped looking for work. The estimate is that over 30 million Americans are out of work or severely unemployed. The labor force participation rate per June 2015 was 62.6%, meaning 37.4% of the people who should be working are not employed and not actively looking for work. The unemployment rate may have declined, but so has the labor participation rate. Per the Bureau of Labor Statistics (BLS), the rate was 66.2% at the end of 2008 compared to the current 62.6%.
What about the young college graduates (ages 21-24) unable to find a job that pays a living wage? The Economic Policy Institute’s article, The Class of 2015, discusses the fact the unemployment rate for this group is 7.2%, and the underemployment rate is 14.9%. The net effect is a generation of workers who have been unable to start their careers and build a base for personal financial growth and dragging down the economy at the same time. The wages for young college graduates are 5% lower today than they were for the graduates in 2000. That is not progress, and will negatively impact the U.S. economy for the next 40 years.
The BLS defines the U-6 unemployment rate, which is closer to the truth, as “total unemployed, plus all marginally attached workers plus total employed part-time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.” As of June 2015, there was a labor underutilization rate or U-6 rate of 10.8%.
Price of Education and Taking Care of the Household
Exacerbating the situation, the college graduates are leaving school with staggering loan debt. In the Federal Reserve Bank of New York’s Quarterly Report of Household Debt and Credit – May 2015, student loan balances stood at $1.19 trillion as of March 31, 2015 – a $78 billion increase from one year ago. The average debt now exceeds $30,000 per student, and approximately 11.1% of their loans are delinquent.
The number taken out of context seems to show improvement since the Federal Reserve reports a decline in the student loan default rate of .2% from Q4 2014. However, read the footnote closely and discover the “…delinquency rates for student loans are likely to understate actual delinquency rates, because about half of these loans are currently in deferment, in grace periods or in forbearance, and therefore temporarily not in the repayment cycle. This implies that, among loans in the repayment cycle, delinquency rates are roughly twice as high.”
The private debt households are carrying is also increasing. In the same Federal Reserve report USDL-15-1274, credit card balances totaled $684 billion and auto loan balances totaled $968 billion. A CardHub survey indicates consumer credit card debt will increase by more than $60 billion, or 5% in 2015. Per the Federal Reserve statistical release Financial Accounts of the United States, household debt grew by 2.2% Q1 2015, but consumer credit grew 5.6%. Debt is rising, but the wage rate is stagnant, dragging down the economy. Since 1979, wage rates have barely exceeded the inflation rate.The domestic non-financial outstanding U.S. debt was $41.7 trillion as of March 31, 2015, and household debt accounted for $13.6 trillion of it or almost a third.
These are just a few of the financial issues the United States needs to address. There are others, like a Medicare fund expected to be depleted by the year 2030 and a Social Security fund in which expenses have been exceeding revenues since 2010. These and other issues await Congressional attention.