Survey Will Capture Losses

Very interesting news from the National Opinion Research Center, which fields the Federal Reserve Board's Survey of Consumer Finances (SCF). NORC reports that--for the first time ever--it will retake the survey this summer, interviewing the same households that were included in the last round in 2007. 

The 2007 results were released only a few months ago, revealing the financial status of households on the brink of the most severe economic downturn in at least a generation. Because the SCF is taken only every three years, the next survey would not be fielded until 2010 and the results released in 2012. In an effort to provide timely data on the rapidly changing financial status of American households (the SCF is the only nationally representative source of information on household wealth), the Board of Governors of the Federal Reserve has deemed this downturn of such historic importance that they want to capture its effects.

Kudos to a government data collection system that is nimble enough to respond to once-in-a-lifetime catastrophic events. The Census Bureau did a similar maneuver when Hurricane Katrina swept through New Orleans and the gulf coast, capturing through the Current Population Survey's monthly data collection system the before and after. Those results are available here. 

Cliff Diving and Curb Jumping

Take a look at any economic indicator lately, and you're likely to swoon as the trend line veers into a vertical plunge. This is called cliff diving. It is a common sport in economics, but rare in demographics. Demographic change is slow and steady. Demographic trends rarely dive off cliffs, but they occasionally jump off curbs. Case in point: the latest geographic mobility statistics.

Last week the Census Bureau reported that only 11.9 percent of the population moved from one house to another between 2007 and 2008--the lowest proportion ever recorded in data that has been collected since the late 1940s. The number of people who moved--35 million--was the smallest since 1959-60.

Given the dire situation in the housing market, these numbers are not surprising. Homeowners are stuck and even renters aren't moving around as much as they once did. In 2007-08, only 5.4 percent of homeowners moved, down from 6.6 percent the year before and 7.4 percent in 2000-01. Among renters, 27.7 moved between 2007-08, down from 29.3 percent a year earlier and 30.3 percent in 2000-01.

State-to-state migration has been severely curtailed. The number of people moving from one state to another fell by 39 percent between 2000-01 and 2007-08, shrinking by 3 million.

By age, the largest proportionate drop in mobility has occurred among people aged 60 to 61--an age group once filled with retirees. In 2007-08, only 4.7 percent of 60-to-61-year-olds moved, down from 7.6 percent in 2000-01.

If you really want to know how the priorities of Americans are changing, then take a look at their reasons for moving and how those have changed over the past few years.

• Not buying: The number of people who moved because they wanted to buy a home fell by 48 percent, from 3.9 million in 2000-01 to just 2.0 million in 2007-08--the largest decline among all reasons for moving. While there probably is some pent up demand for buying a home, it is possible that many Americans are reconsidering the importance of ownership now that they know the risks.
• Moving closer to work: The number of people who moved to shorten their commute increased by 80 percent between 2000-01 and 2007-08, rising from 1.2 to 2.2 million--an 80 percent rise and the largest increase among all reasons for moving. This is bad news for the far-flung suburbs, which will be last in line for any economic recovery.
• Delaying retirement: The sharp drop in the mobility of 60-to-61-year-olds is reflected in the 38 percent decline in the percentage of people who moved because of retirement between 2000-01 and 2007-08. Retirement savings have been decimated and the age of retirement is rising, which is why state-to-state migration has plunged. This trend could gut destination retirement areas.
• Staying closer to home: The data show an ominous decline in the number of young adults who moved to attend or leave college, with the figure falling by 26 percent between 2000-01 and 2007-08. This decline is occurring as a growing proportion of students opt for less-expensive in-state public schools and is yet another warning sign for the nation's overpriced private colleges.
• Downscaling expectations: The percentage of people who moved because they wanted cheaper housing climbed by 35 percent between 2000-01 and 2007-08. At the same time, the percentage who moved because they wanted a better home or apartment fell by 29 percent.

Americans are dropping out of the housing market, delaying retirement, and downscaling their expectations for college and home. These trends may be temporary, but the best way to survive them is to assume they are permanent.

Why Aren't More Upset about Shoddy Health Care Coverage?

Where are the pitchforks? Where are the "tea parties" to protest our broken health insurance system? A look at the demographics of health insurance coverage reveals the answer: The percentage of adults who must make do with the ludicrously expensive and inadequate private health insurance system is relatively small. Here is the breakdown for 2007, the latest data available:

Total population: 299 million
Medicaid: 40 million
Medicare: 41 million
Military health care: 11 million
Uninsured: 46 million
Children with private health insurance: 44 million
Elderly with private health insurance: 13 million

Subtract all those people as potential constituents for health insurance reform, and that leaves 105 million--or just 35 percent of the population--who are struggling. And the percentage is even smaller if you also subtract the few who have top-quality private health insurance--such as teachers, senators, and congressional representatives. Little known fact: each member of Congress receives health insurance for life after serving only five years in office. This goes a long way toward explaining their "What, me worry?" attitude.

So, only about one-third of Americans are experiencing the full force of the broken health insurance system. Good luck with that.

Retirement Confidence Plummets

Percentage of American workers who are "very confident" they will have enough money to live comfortably in retirement: 13.

Source: Employee Benefit Research Institute, 2009 Retirement Confidence Survey

The American Nightmare

Millions of Americans cannot believe what is happening to them, and with good reason. Most of the nation's working-aged population (anyone under age 45) has never experienced a recession this bad, including many of the business executives who have steered their companies into bankruptcy. The last severe economic downturn--at least equivalent to what we are experiencing today--occurred in the early 1980s. Consequently, too many Americans thought the good times would just keep on rolling: the value of their home would only increase, the stock market would be a safe place to park their college and retirement savings, and there was little chance they would lose their job.

The results of a 2009 MetLife survey reveal the grim consequences of that kind of magical thinking. The survey finds that many Americans have no safety net, so confident were they in a prosperous future. An astonishing 28 percent of currently employed workers say they would not be able to pay their bills after less than two weeks of unemployment. Within a month, half of American workers say they would be unable to meet their financial obligations.

This lack of a Plan B explains why the country is in such a panic. The 56 percent majority of the employed are concerned that they could lose their job in the next year, according to MetLife. Fifty-nine percent of the employed fear that if they lose their job, they might have to file for bankruptcy. An even larger 64 percent of employed homeowners are afraid that a spell of unemployment will mean the loss of their home. Overall, three out of four respondents admit that they lack an adequate safety net. Welcome to the American Nightmare.

Although the pundits often scold Americans for being too deeply in debt, in fact debt is not the problem. The average household owes a relatively modest amount, according to the Federal Reserve Board's Survey of Consumer Finances. The problem is the precarious income stream that keeps so many families afloat--an income stream now threatened by the deepest recession in a generation. If the stream dries up, as it is for many, then debt becomes a problem because there is no backup plan.

Are we finally learning a lesson? Will we be humbled by the hard times? Not likely. The freewheeling cowboy culture is too deeply ingrained in the American psyche. To see it in all its glory, take a look at a new study from the Economic Mobility Project. This organization, which tracks the economic mobility of the American population, fielded a survey in late January and early February--a time when you might think the public would be chastened by events. But you would be wrong. Rather than rethinking the rules of the game, most Americans are still cheerleaders for the American Dream--even as it turns into a nightmare. When asked to define the Dream, the top three qualities mentioned by survey respondents were the freedom to accomplish anything (74 percent), the freedom to do what you want (68 percent), and children being better off financially than you (64 percent). Huh? Aren't those the same Anything Goes, Me First, and Bigger is Better ideals that got us into this mess?

Even now, Americans overwhelmingly credit success to individual characteristics rather than structural factors. Hard work and ambition are the top two factors behind success, say 89 to 92 percent of us. Fewer than half think people get ahead because they are born into the right family, know the right people, or are just plain lucky. And what about the poor wretches on whom hard times have fallen? They should not look to their fellow Americans for sympathy. The largest share of the public, including both conservatives and liberals, say the downward mobility so many are experiencing is due to "poor life choices." In other words, it's not the economy, stupid.

Another Baby Boom?

In 2007, a record 4,317,000 babies were born in the United States. It took exactly 50 years to break the old record of 4,308,000 established in 1957. So the answer is no, we are not in the midst of another baby boom. Here's why.

For one thing, the U.S. population has almost doubled since 1957, climbing from 152 million to 302 million--yet only now have American women managed to produce slightly more babies than they did half a century ago. The average woman of 1957 could expect to have 3.77 children in her lifetime. Today, the average woman will have only 2.12.

The fertility rate of 1957 was 122.9 births per 1,000 women aged 15 to 44. Today the fertility rate is just 69.5. Granted, today's figure is higher than the all-time low of 63.6, which we hit in 1997, but the increase is due more to the changing demographic composition of American women than it is to a new baby boom.

Hispanics account for a growing proportion of women aged 15 to 44, and Hispanic fertility is far above average. In 2007, the Hispanic fertility rate was 102.1--not far below the average fertility rate of 1957. Among non-Hispanic whites, in contrast, the 2007 fertility rate was just 60.1. Hispanics account for one in four births in the United States today. Of the 52,000 additional babies that put us over the top in 2007, 44 percent were Hispanic, 27 percent were Asian, 19 percent were black, and 7 percent were non-Hispanic white.

Generational Change

Percentage of Americans who say there is nothing wrong with
sexual relations between two adults of the same sex, by age

18 to 29: 52%
30 to 39: 48%
40 to 49: 35%
50 to 64: 34%
65 or older: 18%

Source: 2008 General Social Survey

Internet 2, Newspapers 3

Percentage of people who get most of their news from

1. Television: 48 percent
2. Internet: 22 percent
3. Newspapers: 20 percent

Source: 2008 General Social Survey

Another Look at Who Is to Blame

In a recent online poll, Time magazine asked its readers who was most to blame for the current economic crisis. Readers rated the guilt of 25 different people on a scale of 1 (innocent) to 10 (guilty). On that scale, the American Consumer rated an 8--even guiltier, according to the public, than George W. Bush or Alan Greenspan. "We've been borrowing, borrowing, borrowing," explained Time, "living off and believing in the wealth effect, first in stocks, which ended badly, then in real estate, which has ended even worse."

But is the American Consumer guilty as charged? Just in time to shed some light on the matter, the Federal Reserve Board has released the long-awaited results of the triennial Survey of Consumer Finances. The latest survey, taken in 2007, reveals the economic status of the average American household at the peak of our supposed profligacy. The survey results turn out to be a friendly witness, presenting evidence not of our guilt, but of our innocence. Yes, the results show our 2007 net worth swollen by inflated housing prices and they reveal the rush of money into real estate. But as in previous years, the results disprove the notion that the average household is deeply in debt.

Let's hear the evidence.

Exhibit 1: For the average household, debt is modest. The median amount of outstanding debt for households with debt (77 percent of all households) stood at $67,300 in 2007. This figure includes mortgage debt.

Exhibit 2: Most debt is mortgage debt. Seventy-five percent of the debt owed by the average household is the mortgage on their primary residence. Even this debt is not overwhelming. The median ratio of mortgage debt to housing value stood at 53.3 percent in 2007. Only 1 percent of homeowners had mortgage debt greater than the value of their primary residence.

Exhibit 3: Home equity loans are not common. Only 18 percent of homeowners had a home equity line of credit, and an even smaller 12 percent had an outstanding balance on a home equity loan. This proportion has not changed since 2004.

Exhibit 4: Few gambled in the housing market. The percentage of households with debts for "other residential properties" (second homes, rental units, investment properties, etc.) climbed between 2004 and 2007, rising from 4.0 to 5.5 percent. According to the Federal Reserve Board, this was the largest increase in the prevalence of debt among all types of debt, evidence of the rush to real estate during the housing bubble. Yet 94.5 percent of households did not drink the Kool-Aid.

Exhibit 5: Credit card balances are modest. Only 46 percent of households carried a balance on a credit card in 2007--a figure that was unchanged from 2004. The median outstanding debt for those with a credit card balance was just $3,000. Among households with bank-type credit cards, 55 percent say they pay their balance in full each month. The average credit card bill last month? Just $250.

Exhibit 6: Only a handful are in trouble. Only 14.7 percent of debtors owed more than 40 percent of their income, up slightly from the 12.2 percent of 2004. Despite this increase, the percentage of debtor households that were 60 or more days late in making a payment fell from 8.9 to 7.1 percent between 2004 and 2007.

The evidence proves that the average American household was on solid financial footing as of 2007. Consumers did not cause the financial crisis. The widespread belief that overconsumption is responsible for the meltdown is rooted in several factors such as falling prices for clothes, electronics, and many other goods (allowing people to buy more with less) and the presence of the large baby-boom generation in the peak spending lifestage.

But the saga continues. Although the Survey of Consumer Finances was taken in 2007, the Federal Reserve Board's analysis examines the impact on households of the financial collapse through October 2008. Housing values took a hit. The home equity of homeowners with mortgages fell from $91,000 in 2007 to $71,600 as of October 2008. The median ratio of mortgage debt to housing equity among homeowners with mortgages climbed 5 percentage points to 58.5 percent. The median value of the stock held by households fell from $35,000 to $22,500 between 2007 and 2008. Net worth also fell. In 2007, median household net worth stood at $120,300. By October 2008, the figure was down to $99,000, according to Federal Reserve estimates.

The sky has not fallen--yet. Note that even after the decline, the net worth of the average household is still very much positive--higher, in fact, than it was in 1998 after adjusting for inflation. But if in its soul searching the American public fails to place the blame for the financial crisis squarely where it belongs--on the financial institutions and government regulators who did not do their job--then consumer confidence will continue to fall, the recession will deepen, more will lose their jobs, and household wealth will plummet. The sky will fall.

Is Homeownership Declining?

Yes, the homeownership rate is down. According to the the latest numbers from the Census Bureau, 67.8 percent of households owned a home in 2008, down from 68.1 percent in 2007--a small decline, considering all the ink that has been spilled over the housing crisis. The 2008 homeownership rate remains close to the record high of 69.0 percent reached in 2004 and still exceeds the 67.4 percent of 2000.

Homeownership fell in most age groups, but not by much. The biggest decline occurred among householders aged 30 to 34. Many were first-time homebuyers who bit off more than they could chew during the housing bubble and have been forced to give up the dream of homeownership for now.

The biggest lesson to be learned in the statistics on homeownership is the comforting stability of demographics, which offer a way to approach the future that is resistant to "black swans" (unanticipated radical change, a term popularized by Nassim Nicholas Taleb in his book The Black Swan). In the absence of natural disasters such as Katrina, demographic trends offer a stability that is sorely needed as Americans confront a chaotic economy.

The Tchotchke Index

Between 2000 and 2007, the Tchotchke Index fell 33 percent, after adjusting for inflation. What is the Tchotchke Index? It is the amount of money spent by the average household on "decorative items for the home," one of the detailed categories of household expenditures examined by the government's Consumer Expenditure Survey.

The Tchotchke Index, it turns out, is an excellent gauge of the economic wellbeing of American households. Spending on tchotchkes--a.k.a. trinkets, junk, yard sale detritus, and the raison d'etre of the self-storage industry--rises when Americans are feeling flush and falls when they are feeling pinched. Spending on tchotchkes tracks the economy's ups and downs with the precision of other, better-known measures such as the the Consumer Confidence Index, the unemployment rate, and the Dow Jones Industrial Average. If only more of the experts--especially those in the financial services industry--had been paying attention to the Tchotchke Index, then they would have known to run for cover three years ago. The index has been falling since 2005.

The Tchotchke Index peaked in 2000, along with the dotcom boom. In that year, the average household spent $230 (in 2007 dollars) on decorative items for the home. Spending on tchotchkes fell to a low of $147 in 2003 following the bursting of the dotcom bubble and the trauma of 9/11. It clawed its way back up to $207 by 2005--coincident with the housing boom. Now that the housing bubble has burst, spending on tchotchkes is down again. By 2007, average household spending on decorative items for the home had fallen to $155--a 25 percent loss in just two years, after adjusting for inflation.

The Tchotchke Index is a measure of the fluff in America's household budgets. It is pure impulse spending, and the first item cut when times get tough.

Lunch Time

The chart above shows the percentage of construction and food service workers on the job during each hour of the day, based on 2003-07 data from the American Time Use Survey. Note how the percentage of food service workers on the job (blue line) peaks at noon, just when the percentage of construction workers on the job (red line) plunges as they break for lunch.

Source: Bureau of Labor Statistics American Time Use Survey

Avoiding the Doctor

Percentage of people aged 18 or older who have not visited the doctor in the past year, by health insurance coverage status, 2007...

Private health insurance: 17

No health insurance: 46

Source: National Center for Health Statistics, Summary Health Statistics for U.S. Adults: National Health Interview Survey, 2007  

Two Million Artists

Two million Americans are trying to make a living as artists, according to a new report by the National Endowment for the Arts. Every decade or so the NEA updates its profile of people whose primary employment is in the arts. The latest report, Artists in the Workforce, 1990-2005, finds 2 million workers who identify their primary occupation as actor, announcer, architect, fine artist, art director, animator, dancer, choreographer, designer, entertainer, musician, singer, photographer, producer, director, writer, or author. The 2 million figure excludes another 300,000 workers whose secondary employment is in the arts.  

Artists have a median age of 40. Most are college graduates. Among those who work full-time, median personal income was $45,200 in 2005--below the $52,500 median income of all professional workers. 

Architects have the highest median income ($63,500 among full-time workers), and actors have the lowest ($31,500). One in three artists is self-employed. Not surprisingly, women artists make less than their male counterparts. Another NEA report, Women Artists: 1990 to 2005 details the differences. 

Many Renters Use Only Cell Phones

Conveniently, every six months the federal government updates the nation on how many households use cell phones only. The latest survey, taken January to June 2008, finds that 16 percent of Americans aged 18 or older use only cell phones. 

Age is the most important factor in determining cell phone only use, with young adults most likely to spurn landlines. Among 18-to-24-year-olds, 31 percent use only cell phones. Among 25-to-29-year-olds, the figure is an even larger 36 percent. 

The demographic segments dominated by young adults are also the ones most likely to use only cell phones. A hefty 34 percent of renters, for example, are cell phone only users (compared with a paltry 9 percent of homeowners). Among Hispanics, 22 percent use only cell phones (versus a smaller 15 percent of non-Hispanic whites). Among unrelated adults who live together (many of them cohabiting couples), the 63 percent majority are cell phone only. 

Source: National Center for Health Statistics, Wireless Substitution: Early Release of Estimates from the National Health Interview Survey, January-June 2008

They Should Have Seen It Coming

The empty cash registers finally got their attention. Businesses large and small are in a panic, wondering where their customers went. Last week the Census Bureau reported that November 2008 retail sales were 7.4 percent below November 2007 sales--a record decline. More than a few captains of industry are expressing surprise at the severity of the downturn. But anyone with an Internet connection, a calculator, and a modicum of curiosity could have seen this coming. Middle Americans are in trouble and so are the businesses that have long ignored them.

Easy money. Entitlement. Short-term thinking. All go a long way toward explaining why businesses are hurting. During the credit expansion of the bubble years, companies grew complacent and lost touch with Middle America. Even as conditions worsened for the average American, there was money to be made by selling bigger houses, bigger cars, and bigger televisions to the small fraction of the population that was living large. A handful of businesses did not abandon their roots, such as Wal-Mart and McDonalds. Their focus on Middle America never wavered. That explains why November sales were higher than expected at Wal-Mart (same-store sales up 3.4 percent) and McDonalds (up 4.5 percent) while almost everyone else reported sharp declines. Now businesses are playing catch-up. They must reacquaint themselves with Middle America, and fast.

American Business, meet Middle America:

• Where men's earnings have been declining for more than two decades. The median earnings of men who work year-round, full-time peaked in 1986.
  
• Where household incomes are shrinking. Median household income fell 1 percent between 2000 and 2007, after adjusting for inflation.
  
• Where, between 2000 and 2006, the average household had already cut its spending on restaurant meals, clothes, new cars, kitchen appliances, outdoor furniture, toys, newspapers and magazines, and a long list of other items.
  
• Where the average home was worth a modest median of $191,000 in 2007, according to the American Housing Survey--and it is worth even less today.
  
• Where, the percentage of people who moved fell to an all-time low of 13 percent in 2006-07 as the housing market seized up.
  
• Where the much vaunted American entrepreneurial spirit is all but dead. The percentage of workers who are self employed fell to an all-time low of 7.1 percent in 2007.
  
• Where the American dream of a college education is fading. The number of students enrolled full-time in four-year colleges fell 4 percent between 2005 and 2006 (the latest data available), according to the Census Bureau.
  
• Where the return on a college degree is shrinking. The median earnings of men and women with bachelor's degrees who work full-time peaked in 2002 and has fallen by 3 to 4 percent since then, after adjusting for inflation.
  
• Where the out-of-pocket cost of health insurance has climbed 27 percent since 2000, after adjusting for inflation.
  
• Where people are scrimping on health care. The number of physician visits fell 6 percent between 2005 and 2006 (the latest data available), according to the National Center for Health Statistics.
  
• Where 60 percent of workers do not have a 401(k) or an IRA, according to the Employee Benefit Research Institute.
  
• Where a growing proportion of older workers cannot afford to retire. The labor force participation rate of men aged 65 or older climbed 3 percentage points between 2000 and 2007.
  

Falling incomes. Rising costs. Spending cuts. Long before the 2008 economic meltdown, Middle America had assumed crash positions. If businesses had been paying attention to their customers rather than their cash registers, they could have positioned themselves for the crash as well. Now all they can do is pick up the pieces.