Revenge of the Millenials
A couple of months ago we wrote about The Millennials. https://www.greenportcapitaladvisors.com/single-post/2018/05/10/The-Millennials We enjoy weaving a little humor into our write-ups, so we dedicated the first couple of lines to lightly teasing our younger friends. Based on feedback, it appears our wit was more appreciated by the folks of our generation than theirs. One millennial nicely explained to us that, “old guys like you are stuck in the past. You don’t understand our generation. We don’t need things to be happy.” We admit it, we like things. You know things like, houses, cars, and kids. The economy also likes things. Actually, it relies on people having kids and then buying things like cars, houses, and lots of other stuff to support their family and kids. Younger people fuel economic growth because they are in the accumulation phase of their lives. Whereas old guys like us are buying and spending less as we age. Downsizing is a frequently used term among the baby boomers. Demographics are an important factor in economic growth. Economies need younger people. Japan has the oldest population in the developed world and their economy has been paying the price for a long time. China reversed their one-child policy because of the negative impact it was having on economic growth. Our economy needs young people of today to behave like we all did in the 80’s and 90’s. Those wonderful decades of greed and excess. For us old guys to retire we need the current millennials to get jobs and pay into the system, primarily Social Security and Medicare. That’s why a certain part of this month’s job report was troubling to us. While overall the job market continues to improve, a deeper dive into the jobs reports finds a troubling trend for the economy long-term.
Millennials are people born between 1981 and 1997. So today they are 21-36 years old. Ages that represent the youngest potential full time workers in our domestic labor supply. We mentioned in our last millennial write-up that millennials are not getting married and reproducing like prior generations. This has led to a steady increase in single vs. married people. In July of 2017 single people outnumbered married people for the first time in our nation’s history. The married population is now 51%, vs. 38% in 1977. The divorce rate has remained steady around 19% for the last 30 years while the “never married” rate has risen from 22% to 31%. The never marrieds are the reason for the increase in single people. Even when millennials do get married it is much later in life than previous generations. Over the past 20 years the average age for men to get married rose from 26.8 to 29.5 years and from 25.0 to 27.4 for women. In 1946, when the soldiers returned home from World War II, the marriage rate was 16.4 per 1000 people. Last year it was 6.8 per 1000 people.
So what business is it of ours if millennials would prefer be “selfies”? From a judgmental standpoint it’s none of our business. From an objective standpoint, we wonder what impact it will have on the economy. The economy has always relied on the next generation to fuel economic growth. Today’s millennials don’t care for the traditional work model. There not like us. Working the 9-5 grind in a stressful environment in the hopes of being promoted from junior to senior ranks. Eventually you get to retire and have a few enjoyable years of freedom before you die. What’s not to love? Thanks to Wi-Fi millennials can now work whenever and wherever they like, and they do. They enjoy this easy-going lifestyle and are willing to accept relatively lower pay and small pay increases in exchange for the freedom it brings them. This is yet another reason why wage inflation remains low. Here’s an anectdote; We were interested in hiring someone to help us out with some administrative work as well as update our website and a few other things. We found it difficult to find someone willing to come to the office everyday. One of our potential hires counter offered us. “How about instead of being your employee I’ll update your website remotely?" Sounds good to us. That’s a dramatically cheaper way of solving our needs. The millennial is happy to have his freedom and we are happy to have needed work performed for far less than the cost of a full time employee. The Labor Department further breaks the labor force into many sub-categories. One category is PWAM, Prime Working Age Males. Of all the sub categories, PWAM’s have had the most dramatic shift in labor force participation. Labor force participation rate for US PWAMs, who are 25-54 years old, has declined significantly. Following WWII, it was around 96%-98%. Since the recession of 2008, it is around 88%-90%. PWAM’s who are not in the labor force (PWAM-NILF’s) rose by 1.70 million from January 2008 to a record high of 7.40 million during April 2014.
Fed Chairman Jerome Powell has repeatedly expressed his hope that PWAM-NILFs will come back into the labor force. We hope so too. If so, this is yet another reason why there is more slack in the labor market than suggested by the low jobless rate. Yet another reason why inflation is not an issue and the Fed does not need to continue raising rates at their current rate. We are going to take a more detailed look into why PWAM’s are dropping out of the labor force and get back to you on that. Our thesis of additional slack in the labor force is based upon the low participation rate being a millennial choice, therefore temporary. Some economists argue this trend is permanent and they make a strong argument. They correctly point out; There is a rapid increase in disability claims among young people. Many PWAM’s lack the skills to compete in today’s economy. Government programs pay more than a job would for the lower end of the labor force, therefore there is no incentive to rejoin the labor force. Our guess is millennials are just taking a little longer to get serious than prior generations. We are not very confident in our guess. Perhaps those of you who are millennials or the parents of millennials will give us your opinion? We’d love to know what you’re thinking. Thanks The GreenPort Team