• New Year’s Sale! Get A Free Month Of Hedgeye

    New Year's Resolution? Leave Wall Street in the dust. Get a free month of any Hedgeye investing product. Win this year.

NEWSWIRE: 5/6/19

  • A new report about OECD countries outlines the struggles facing the middle class, or those making between 75% and 200% of the median national income. As higher-income groups have thrived, the fortunes of the middle class have stagnated or declined amid soaring costs and flat incomes, creating the perfect recipe for political turmoil. (OECD)
    • NH: The "middle class"--pretty much however you define it--has recently been shrinking as a share of the population throughout nearly all of the developed world and in most EMs as well. One way to define middle class is everyone situated within a certain percentile band of income or wealth. As inequality rises (as measured, say, by the income Gini coefficient), the share situated in this band necessarily shrinks. In this OECD study, the authors chose an income band that roughly corresponds, for all developed countries, to everyone between the 30th and 91st percentile of household income. Pew has chosen the same income definitions for its own detailed studies of middle-class membership in the United States.
    • Another way to define middle class is subjective: Just ask people whether they feel they belong to it. The OECD study shows that this survey definition varies by country--and that the variation is roughly correlated with the objective definition. Most Western and Northern European countries, for example, are over 60% middle class by the objective definition; and roughly 75% or more of their citizens consider themselves middle class. The United States, by contrast, shows objectively the smallest middle class of any high-income nation--only 51%--and a relatively small share of Americans considering themselves middle class (60%).
    • As in all such studies, the researchers find that the size of the middle class is shrinking in most countries, from 64% in the mid-1980s (the OECD average) to 61% today. In America, the shrinkage has been greater. Rises in real household income over time, predictably, have been fastest for the highest percentiles and slowest for the lowest percentiles. Ominously, the study also finds a large and growing gap in middle-class membership by age. Throughout the OECD, 68% of Boomers are objectively middle class, versus 64% of Xers and 60% of Millennials. In America, all the numbers are lower--but Xers are much closer to Millennials than to Boomers.
    • The OECD does not measure changes in subjective "middle class" over time. But the few measures of change that we have in the United States show a parallel trend. In the four years between 2008 and 2012, Pew found a significant decline in Americans who described themselves as middle class (from 53 to 49%) and an even greater rise in those who described themselves as "lower" or "lower-middle" class (from 25 to 32%). By age, this last number actually went down slightly for seniors age 65+, but leaped upward from 25 to 39% for adults under age 30. GSS data offer a much better annual U.S. time series going back to the 1970s. It confirms that both college and noncollege Americans have been steadily less likely to call themselves middle or upper class.
    • One final point. Growing income inequality in America over the last 30 years has been disproportionately driven by declines at the very bottom (the lowest decile) and rises at the very top (the highest decile). See next-to-last chart below. What's more, economists on the left like Paul KrugmanThomas Piketty, and Emmanuel Saez often insist that the growing average income of the merely affluent (those above the middle class), comprised mostly of the top decile, masks a much larger rise in the incomes of the top 1.0% or 0.1%. See last chart below. This may complicate any policy response. According to one recent historical study, the wealthy as a class are the least likely to favor any income redistribution when the wealthy themselves are experiencing rising inequality--i.e., are themselves experiencing "status anxiety."

The World's Imperiled Middle Class. NewsWire - May5 chart1

The World's Imperiled Middle Class. NewsWire - May5 chart2

The World's Imperiled Middle Class. NewsWire - May5 chart3

The World's Imperiled Middle Class. NewsWire - May5 chart8 

The World's Imperiled Middle Class. NewsWire - May5 chart4

The World's Imperiled Middle Class. NewsWire - May5 chart5

  • Former Stanford dean Julie Lythcott-Haims, who made headlines for her 2015 book about overparenting, now thinks we should go easier on young people today. Addressed to “Generation Z” (see: high schoolers and younger), her new essay states that the prosocial activism on display during the March for Our Lives movement was what sparked her change of heart. (Pacific Standard)
    • NH: Four years ago, Lythcott-Haims wrote an anti-helicopter manifesto on raising teens that clearly struck a chord with Gen-X parents. The book sold very well, despite its nearly exclusive focus on affluent families. Maybe its subtitle should have been, "Free-Range Parenting for the Ivy-League Bound." (See: “Former Stanford Dean of Freshman Discusses Millennials’ Parents Excess Involvement on Campuses.”) Here, in this essay, she changes her tune. Instead of scolding today's graduating teens, she chooses to exalt them--largely as a result of her admiration for #neveragain activism.
    • My take? First, today's 18- and 19-year-olds are late-wave Millennials. Despite Pew's dating scheme, I am confident that with the passage of time the cut-off between Millennials and post-Millennials (whatever you want to call them) will be drawn at a later birth year. What's more, judging a generation--bad or good--is always a mistake, as is the claim, so often heard, that the latest generation is utterly different than any before it. She claims Gen Z possesses "a humility and humanity unparalleled in prior generations," before adding that "maybe it’s on us to accept that both despite us, and because of us, this generation is very different from any set of humans we've ever known."
    • This is nonsensical. In fact, as we have pointed out (see: "A New Generation Takes Aim in the Gun Debate"), the anti-shooting movement exemplifies several salient traits of late-wave Millennials--including those she used to criticize. Let's start with risk aversion: These kids want much safer schools, even though school deaths have been declining, not growing, over time. They want more rule-enforced protection--unlike young Boomers and Xers, who wanted less. (See "Are Kids Overruled?") They avoid open confrontation with political leaders and earnestly plead with them to do the right thing. Older generations, when young, were more likely to throw a brick through a window. Most striking, these Millennials (and some Homelanders) come to these protests arm-in-arm with their parents. They are generally well-behaved and self-deprecating. They want to mobilize the community. And their main object is to build a solid public consensus.
    • Yes, all this is very generational. It reflects, first cohort to last, exactly where the Millennials have been trending. Many of these qualities are admirable. They are certainly refreshing, given where America has been in recent decades. But do they represent the emergence of a new and strikingly different generation? Are we looking at a fresh species of humanity? No, and no.
  • New research shows that Generation Xers are the least happy, least engaged, and most stressed generation in the workplace. As in other spheres of their lives, many Xers feel like the neglected middle child at work; the phase-of-life effect also plays a role in this generation’s unhappiness, as many Xers have both children and elderly parents to provide for. (MarketWatch)
    • NH: April was National Stress Awareness month. Miss it? Well, that's something else you can stress about. In honor of the occasion, LinkedIn did a survey on work stress (covered here) that tags Xers as most stressed at work--and stressed in a negative way, not in a wow-isn't-this-exciting way. This finding is consistent with much other recent research, including surveys from Gallup, MetLife (see: "Xers the Least Happy at Work"), Donohue Learning (see: "Xers are Stressed in the Workplace"), and Robert Half, which finds that Xers are twice as likely to say they're "unhappy" at work. To quote from the Half report, "Workers between the ages of 35 and 54 are the least happy, most stressed, and least interested in their work."
    • Why? Some of it may be phase of life: Workers close to or entering midlife may always experience more stress, due to increased responsibilities at work and the mounting "sandwich" burdens of family, children, and aging parents. We don't have data going back far enough to know if this is true. Some say that the most stressful position is middle management (high enough to have responsibility, not high enough to have control) and that senior management is less stressful. Notably (see chart below), the LinkedIn report did not find this. The higher the position, it reports, the higher the stress. This supports a phase-of-life explanation for why Xers are more stressed at work than Millennials.
    • I suspect, though, that much of it is generational. Gen Xers have a uniquely unfavorable economic location in history (see: "St. Louis Fed Economists Highlight The Varying Fortunes Of Different Generations") and may manifest the most unequal distribution of income (together with the largest immigrant share) of any of today's generations. They also have a love-hate relationship with free-agency that has not always served them well. More than other generations, Xers came of age wanting to start their own company and be their own boss. But as they grow older, many find themselves stranded in a dead-end gig economy that offers no future. As we have pointed out (see: "Xers Rely on Gig Work Income"), Xers are by far the most likely to rely on gig work as their sole source of income (they are for example the biggest generation of Uber drivers)--and these Xers are by far the most likely to say they're struggling financially and are unhappy in their work.
    • One last point for those who follow these sorts of "stress" studies. For several years running, the American Psychological Association has found that Millennials are the "most stressed" generation. (See: "The Young and the Anxious.") But this is overall stress, not just workplace stress. Here (as with loneliness), a phase-of-life effect is certainly at work. Quite simply, young adulthood--a time when career, marriage, family, etc., are still all up in the air--is supposed to be stressful. Here again, though, generational effects are at work: As Millennials put off these adult rites of passage, they are extending that phase of uncertainty to ever-later ages.

The World's Imperiled Middle Class. NewsWire - May5 chart6

  • Marriott is starting its own home-rental business, which will launch in 100 markets across the United States. The service, designed to compete with the likes of Airbnb, is an acknowledgement that the home-rental model is a legitimate threat to hoteliers’ bottom lines. (The Wall Street Journal)
  • The recent deaths of John Singleton and Luke Perry are a reminder that strokes are not just for the old. In fact, the number of young adults hospitalized following a stroke has risen 44% over the past decade, while 15% of all ischemic strokes occur among young adults and adolescents. (MarketWatch)
    • NH: The risk of having a stroke rises roughly 100X between age 40 and 80. So most stroke victims are elderly. But because strokes are such a common cause of death and disability--they are the fifth leading cause of death in the United States and perhaps the leading cause of serious long-term disability--they afflict a significant number of young adults. Consider: Each year, roughly 600 Americans age 25-34 die from a stroke. That number rises to 1,800 for age 35-44; and to over 5,000 for age 45-54.
    • Over most of the last fifty years, both the incidence and mortality rate from stroke has declined steadily among all age groups. Researchers attribute this to much better management of high blood pressure, less smoking, regular aspirin use, and better health generally among the most recent cohorts of seniors. That's the good news. The bad news is that, over the last 25 years, the incidence of stroke among younger adults has been rising even while the rate for older adults continues to fall. And the divergence is dramatic. Since 1995-96, the stroke hospitalization rate has doubled for all age groups under 55. And in the most recent period, since 2003-04, they have risen by 27% for 18-35, 36% for 35-44, and 20% for 45-54. (Meanwhile, there was no rise for age 55-64 and continued declines over age 65.)
    • Some suspect that the greater rate of hospitalization reflects better screening and detection. There is some support for this when we look at death rates for all forms of cerebrovascular disease--which has continued to drift modestly downward for all young-adult age brackets. But it doesn't explain why older age brackets have seen no rise in hospitalization nor why seniors have experienced a much more rapid mortality decline. At some level, we're looking at a fundamental change in underlying health between older and younger birth cohorts.
    • Suspect drivers? Rates of obesity, diabetes, and lipid disorders. These are all highly correlated with each other and with stroke risk. And their age-adjusted prevalence is rising for younger cohorts--basically among Americans born since the early 1950s (late-wave Boomers and beyond). Even hypertension may be rising among younger adults. That pretty much explains why the threshold in stroke trends was about age 60 in 2011. True enough, cigarette smoking has been falling steadily by birth cohort. But apparently rising obesity is more than offsetting that advantage. Here is one more bit of evidence that younger generations, including Millennials, may be less healthy than older generations at the same age. (See also Older Millennials Less Healthy Than Xers Were at the Same Age” and "Millennials at Higher Risk of Obesity-Related Cancers.")
  • McDonald’s is teaming up with AARP for a nationwide hiring campaign for its breakfast and lunch shifts. In the large pool of Boomers putting off retirement, the company sees an opportunity to find workers who are more available and more willing to show up to work at 5 AM than teens. (USA Today)
    • NH: At a time when unemployment rates are hitting record lows and wage growth is accelerating, this McDonald's campaign makes eminent sense. Very large Boomer cohorts are moving into their 60s and early 70s, and--at every age--their labor force participation (LFP) rates are rising. (See: Why Are Seniors Flipping Burgers?”) The only headwind is the differential LFP by education and skill level: The biggest leap in LFP has been among Boomer professionals; the mildest rise has been among less affluent, less educated seniors. The latter tend to suffer more from chronic illness and disabilities--so any special effort by Micky Dee to accommodate its senior workers would be well rewarded.
    • Sure, all the major fast-food chains are starting to introduce robots. But these tend to be labor-augmenting rather than labor-replacing. McDonald's, for example, is taking the people saved from taking orders and putting them to work serving tables. Perfect job for well-socialized seniors with people skills.
  • With houseplants becoming the new pets among Millennials, U.S. sales have soared almost 50% over the past three years to $1.7 billion. The craze has given rise to dozens of startups with something unusual in common for this day and age: Thanks in part to the nature of their product, most only sell through brick-and-mortar stores. (Bloomberg)
    • NH: Many Millennials want to be pet moms or dads, but just can't find the money, space, or time. So the logical alternative is to be a plant mom or dad. (See: Millennials Get Green Thumbs.”) Fueled by Instagram and other social media, the demand is mostly helping sales at a myriad small brick-and-mortar stores, though eBay and Etsy are also benefiting. Amazon, always quick to ride anything trending, has just opened a special Amazon Plant Store.
  • A new piece documents the rise of risk aversion worldwide among young adults born in the 1990s. From Japan to Western Europe, young adults across the globe who watched their parents struggle during the financial crisis have learned the value of frugality—which poses a problem for glitzy consumer brands. (Bloomberg Businessweek)
    • NH: As those who grew up mostly during or after the GFC begin to come of age--we're talking late-wave Millennials and Homelanders--we need to pay special attention to their spending and saving behavior. By all indications, these young people are starting to save for retirement at a higher rate than Xers or Boomers did at the same age. As this article points out, they are also more habituated to take frugality for granted. Witness the rise of the sharing economy, "thrift shop" chic, renting (not buying) textbooks, and living with mom and dad just to save money.
    • Among economists, there has been a long debate over how the expectation of rising or falling living standards affects savings. The mainstream ("Ramsay") model says rosy expectations suppress the saving rate--since people will spend more now by borrowing against their future affluence. The heterodox ("Duesenberry") model says the opposite: Rising incomes are accompanied by higher savings rates--because people are not yet habituated to higher consumption rates. IMO, the empirical evidence--think, for example of China in recent decades--supports the Duesenberry hypothesis.
    • However, James Duesenberry may be only correct until the next generation comes of age. After that, the mainstream model may take over. Chinese young adults who have no memory of privation are saving at much lower rates than their parents or grandparents. And this is now pushing down the overall personal savings rate in China. In the high-income countries, by contrast, younger birth cohorts who cannot recall an expectation of rising incomes will eventually pull their national savings rates higher.
  • The official Census numbers on 2018 voter turnout are here, and they’re even more impressive than previously estimated. Fully 53% of eligible voters cast a ballot, and while turnout rose in basically every demographic group, the biggest increase occurred among 18- to 29-year-olds, from 20% to 36% (a rise of 79%). (U.S. Census Bureau)
    • NH: These official numbers simply add an exclamation point to our finding last fall that 2018 witnessed a historic jump in midterm voter participation. (See: "The 2018 Midterms: A Tale of Two Americas.") The total turnout rate in 2018 was a quarter higher than in 2014. According to the United States Election Project, it is indeed true that voters as a share of the voter-eligible population hit its highest rate (50.3%) since 1916--over a century ago. We were also correct to point out that the voting-rate rise among young adults age 18-29 (+15.7 percentage points) far exceeded the rise in any older age bracket. All of this, needless to say, is good news for Democrats--since an astounding 67% of these young voters pulled the lever for a Democratic candidate.

The World's Imperiled Middle Class. NewsWire - May5 chart7 

  • Spain’s far-right Vox party made inroads at the ballot box, winning 10% of the national vote and earning 24 seats in Congress. Vox’s surge came at the expense of Spain’s conservative Popular Party, which has now lost more than half of its congressional representation since 2016. (Associated Press)
    • NH: A fascinating election. With a bang, Spain now has a right-wing nationalist party, unrelated to the mainstream center-right party (People's Party). Back in 2016, the emergence of Podemos gave Spain a left-wing progressive party, similarly unrelated to mainstream socialists (Spanish Socialists Workers Party). Spain is now experiencing the same sort of ideological splintering as the rest of Europe. Both leaders of the new parties are young. Santiago Abascal, the leader of Vox, is 42. Pablo Iglesias, the leader of Podemos, is 40.
    • The results solve none of Spain's immediate political challenges. Between the two mainstream parties, the Socialists won big and the conservative People's Party lost big. But that gain for the left was approximately cancelled out by the rise of Vox and big gains for Cuididanos ("Citizens" party), which has been steadily moving toward conservatism and nationalism. The Socialists may still be unable to form a government without inviting in one of the separatist Catalonian parties. Which puts the Socialist leader, Pedro Sánchez, right back where he was when he called the election.


Global Citizens Down on Democracy. We’ve written about how U.S. Millennials are increasingly frustrated with democracy. (See: “Are Millennials Giving Up on Democracy?”) New research shows that they’re not alone. According to Pew Research Center, most people worldwide (51%) now say they’re dissatisfied with the way democracy is working in their country. Much of this dissatisfaction stems from frustration with politicians and the political system in general. Just 35% of people say that elected officials in their country care what ordinary people think. Fully 60% say that, no matter who wins an election, things do not change very much. Across the globe, dissatisfaction with democracy is correlated with a pessimistic view of the economy. All this negativity is a boon to populism: In Sweden, 57% of those dissatisfied with democracy have a favorable view of the far-right Sweden Democrats, compared to just 17% who have an unfavorable view. Germany’s AfD party and France’s National Front party enjoy similar margins of support among dissatisfied citizens.