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By Jonathan Levin
There are two Americas in 2024: the one for people with jobs, homes and stock portfolios, and the one for everyone else. The latest example of the two-track economy comes via this week’s Job Openings and Labor Turnover Survey, which revealed that US hiring fell in March to one of the weakest rates in the past decade. That’s making a bad situation worse for a generation of young people just starting to build wealth.
Unemployment has stayed low at 3.8 per cent because companies aren’t firing workers and very few are quitting. But at 3.5 hires per 100 current employees, the anemic rate of onboarding is closer to what the US experienced a decade ago during the long “jobless recovery” from the global financial crisis — an uninviting prospect for those struggling to rebound from a round of layoffs or entering the labor market for the first time (including forthcoming or recent Generation Z graduates).
That’s just one of the many ways that the post-pandemic economy has created haves and have-nots. For all the challenges that inflation and the pandemic have presented, many middle-age and older American asset owners have made out just fine. They may well feel stuck in inexpensively financed homes or jobs they’re scared of leaving, but many have done quite well financially.
From 2019 to 2023, household net wealth ballooned by around $37 trillion to $147.1 trillion as the value of homes and stocks surged, with baby boomers, Generation X and millennials sharing in the windfall in that order. The people most likely to have missed that boat are young adults, the poorest and the unemployed, who seem to be getting the short end of every stick.
They’re stuck paying high rents and are effectively locked out of homeownership by 7 per cent mortgage rates. And if they have any money to invest going forward, they would be deploying it into a market rally that some strategists see reaching exhaustion. Even without wading into the very serious debate around war and peace in the Middle East, it should be no wonder that angst is spreading on college campuses. The Generation Z cohort that’s graduating college today keeps hearing how low unemployment is and how hot the stock market has been running, but they’re getting no part of it.
Some of this may help explain the sour economic mood reflected in many surveys. The Conference Board’s gauge of US consumer confidence weakened in April to the lowest since mid-2022, with the share of participants expecting more job availability in the next six months falling to the lowest since 2011.
Among those under 40, expectations of not being able to make minimum debt payments in the next three months are at the highest since the start of the Covid-19 pandemic, according to the Federal Reserve Bank of New York's Survey of Consumer Expectations. An Oct. 24-Nov. 5 Pew Research Center survey showed about 57 per cent of young adults ages 18-24 live at home with their parents, up from 53 per cent three decades ago, and around half report getting help from their parents with household expenses such as groceries. Meanwhile, social media is full of rage-filled posts about the situation (like this one).
So what are policymakers to do? The first task is for the Federal Reserve to finish the job on inflation so that, with time, policymakers can lower interest rates to more palatable levels. The pandemic and the ensuing inflation are the root causes of most of the trouble, and it’s imperative that our elected leaders give the Fed room to tame price volatility. That may seem obvious, but a recent story in the Wall Street Journal — citing unnamed sources — said that Donald Trump’s allies were “quietly drafting proposals” that could curb the Fed’s independence and may, in an extreme scenario, give the former president a role in interest rate policy. That sort of Fed politicization would destroy its credibility and seriously hurt its ability to achieve its goals, prolonging the suffering.
Second, President Joe Biden must keep pushing for near-term fixes to the housing affordability crisis. As Biden discussed in his State of the Union speech in March, the administration should encourage compassionate tax credits to first-time homebuyers (even in the face of an intransigent GOP). He should also use his pulpit to push for a rollback of nonsensical zoning practices to boost urban density, increase housing supply and keep a lid on prices. As I wrote at the time of Biden’s proposals, there are no easy solutions to a problem created by years of residential underbuilding and exacerbated by the pandemic’s unique market dynamics, but it’s imperative that our politicians at least try to mitigate the problem until market forces can help with the rest.
If those things happen, the situation is bound to improve. Stock market fortunes, of course, can change in the blink of an eye. A drop in mortgage rates and a streak of targeted housing construction could turn things around for would-be buyers. And odds are that the labor market won’t stay in this strange state for an extended period of time. But at the moment, it clearly feels like the economy isn’t working for some Americans — especially the young — and acknowledging as much is the first step to assuaging their suffering. Beyond that, we have to seek ways to mitigate the problems and avoid making the situation worse.