• 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: 5/28/19

  • The U.S. headline unemployment rate hit a 49-year low in April—yet many recent graduates are struggling to find work. How can this be? Among college grads, underemployment remains well above its pre-recession lows and wage gains are still slow: “There’s so many opportunities, but yet there’s not.”(MarketWatch)
    • NH: OK, if you're a graduating Millennial, please take a deep breath and repeat after me: It's really not so bad. The report on which this article was based ("Class of 2019: College Edition") was authored by the left-leaning Economic Policy Institute (EPI). As such, it suffers from the worsening confirmation bias now afflicting both red-zone and blue-zone think tanks--which, in EPI's case, means that everything happening during Trump's presidency must be terrible. EPI does good work, and this report is worth reading. But the report's bottom line, full of "yes but" warnings, does exaggerate.
    • So what is the bottom line? EPI looks over the years at Americans age 20 to 24 with four-year college degrees and no plans to pursue a higher degree. While it does find that the unemployment rate of this group is much lower in 2019 (5.1%) than several years ago during the post-GFC Obama years, it also finds that it still isn't quite as low as in 1996 or 2000 or 2006 (closer to 4%) when labor markets were really hot. In other words, it's really good but not quite as good as it's ever been.
    • Point taken. But why frame this in dire language? What's more, the EPI does not adjust for the fact that a steadily rising share of this age group has a four-year college degree. And EPI deliberately omits the rapid rise in those who are attaining graduate degrees. So maybe we should just congratulate how well this swelling tide of baccalaureates is doing. At one point the authors do refer to the share of this age bracket having four-degrees, only to point out that whites are graduating more than nonwhites. That's perversely negative commentary. They could have mentioned, instead, that nonwhites are improving relative to whites--and that overall gains in college completion are occurring despite the rising share of nonwhite youths.
    • EPI also notes that the "underemployment rate" for this group, while falling, remains historically high. Underemployment includes not just the officially "unemployed" but also those who would like to work more than part-time or "marginally attached" workers who would like to work but have not been looking in the past four weeks. Here, the authors are on better ground: The rate does remain high. This may indicate slack in the job market. Or maybe not--if youths are simply getting pickier about waiting for the jobs they really want. And why might they be getting pickier? Maybe due to growing parental support such as housing which gives them a backstop. (See "Trendspotting: 3/25/19" and "Trendspotting: 7/2/18.") The persistently higher rate of both unemployment and underemployment of young men (versus young women) may point to the same choosiness: Some researchers observe that men consistently demand more (especially pay) from a potential employer. (See also "Trendspotting: 4/29/19" and "Trendspotting: 10/23/17.")
    • Finally, the EPI gives only two cheers to today's college grads because their average real wages haven't been growing much over time. With salaries weighing in at $20.74 per hour, they've gained only 13.9% since 1989 in real dollars and almost nothing since 2000 or since 2007.
    • Here, I totally agree. We've got a real problem. The roots of this wage stagnation are partly rooted in macro forces affecting all age brackets--like disappointing productivity growth and the decline in worker compensation as a share of GDP. And they're partly rooted in feedback effects that are tilting the whole economy increasingly toward the old and away from the young. Consider that, over the same 1 period, the average real incomes of Americans age 65+ have grown by just over 50%.
    • Sure, we can quibble about the numbers. Average wages don't include benefits (which may have grown somewhat faster). But, on the other hand, today's college grads are paying back the debt on the cost of their own education--a burden that precious of today's seniors ever bore.
    • Maybe a more interesting generational change is how fast these newly hired grads are expected to contribute. In today's automated, Gen-X managed, everybody-pulls-their-own-weight firm, new hires no longer get a year or two of easy "entry-level" gofer jobs. They get pushed a lot sooner into the employer's core enterprise--seeing customers, fixing problems, designing new products. So even if these 20somethings aren't paid much more, they sure are bored a lot less.

Trendspotting: Despite Hot Job Market, Many New Grads Struggle to Find Work - May 28 chart2

Trendspotting: Despite Hot Job Market, Many New Grads Struggle to Find Work - May 28 chart3

Trendspotting: Despite Hot Job Market, Many New Grads Struggle to Find Work - May 28 chart4

Trendspotting: Despite Hot Job Market, Many New Grads Struggle to Find Work - May 28 chart5

  • Japan’s recent succession ceremony inadvertently highlighted a problem looming over its royal family: There are only three heirs to the throne left. The shrinking pool has revived calls to include women in the line of succession, a change that conservatives have long resisted but may prove to be inevitable. (The New York Times)
    • NH: In most societies and in most eras, the decision to violate tradition is driven by expedience. In 16th-century England, the crown had passed to eligible males since time immemorial. Until 1558, that is, when no male heir was available--due not to demographics, but to the very deliberate and ruthless policy of earlier Tudor kings (especially Henry VIII) to eliminate any possible rival claimants. So the only available candidate was Elizabeth, who became Gloriana and ruled for an impressive 44 years. Gee, see how easy that was! England thereafter went back to its preference for kings, the sole exceptions being Anne, Victoria, and Elizabeth II. Only in 2011 did Parliament give women an equal claim to the throne--though currently the first three in line (Charles, age 70; William, age 36; and George, age 5) all just happen to be male.
    • The same thing, I expect, will happen in Japan. The new Emperor Naruhito has only a daughter, Princess Toshi (born in 2001). After she was born, the government briefly considered changing the line of succession to include women. But once his brother Prince Akishino had a son, such discussion came to an end. Now the Emperor has two younger male successors, his brother and then his nephew.
    • It is often argued that Japan should open the succession to women to keep up with the times. I'm not sure tradition is really open to such arguments. It is true, as the article reminds us, that Prime Minister Shinzo Abe is trying hard to make employment easier and more equitable for women. His efforts are widely supported on utilitarian grounds: Japan needs more working women to boost GDP and also, a bit more counterintuitively, to boost fertility
    • But a woman emperor? Not really any utilitarian argument here. After all, if costs and benefits were the issues--or keeping up with the times--the most sensible reform would be to abolish the emperorship altogether. In fact, Japan today remains one of the most intensely traditional societies on earth. Japan's very adaptability to the modern, even its fascination with novelty, rests on its severe attachment to unchanging mores. Yes, if there is no male heir, the Japanese will surely bend the rules--there have been several empresses in bygone centuries. That's how customs work. To paraphrase Edmund Burke: It is only by adapting that a tradition manages to preserve itself.
  • According to a new study, Millennials have had much more “contact” with police as young adults than Gen Xers at the same age, even though Xers committed more crimes. The authors link the growing disconnect between contact with the criminal justice system and actual criminal conduct to the crime crackdown of the ‘90s, which widened the criminal justice system’s reach to include far more low-level or non-offenders. (RSF: The Russell Sage Foundation Journal of the Social Sciences)
    • NH: The authors are correct about the facts. From the Gen-X youth era to the Millennial youth era, the violent crime rate has declined dramatically. Meanwhile, the frequency of youth interaction with police has increased--due both to greater routine police surveillance of youth (such as "stop, frisk, and search" policies) and to greater enforcement of low-level laws (following the so-called "broken windows" theory of criminal deterrence). This means, in turn, that while the violent crime rate has dropped steeply, the decline in lesser types of crime such as non-aggravated assault or shoplifting has been less steep. And the decline in the arrest rate has been the gentlest of all.
    • The lessons the authors draw from these facts, however, are tendentious. They claim that this "great decoupling" of the trend in police enforcement from the trend of youth criminality points to a sort of authoritarian plot to oppress lower-class youth. (This line is being pushed by some 2020 Democratic candidates; see “The Next Big Thing:The Politics of Falling Crime.")
    • Not true. Rather, they point to the utter failure of earlier enforcement policies to stop rising rates of criminal violence and, by the late 1980s and early 1990s, an overwhelming public consensus (among both Republicans and Democrats, whites and nonwhites) that enforcement be ratcheted up. They also point to a broad consensus among parents at the time that their rising Millennial children live more supervised lives--at home, at school, and on the streets. With their growing aversion to personal risk-taking, most Millennials themselves went along with such policies with few objections.
    • Yes, as the authors point out, nonwhite youths who commit no crime were a lot more likely (roughly 3x) to be arrested in 1997 than they were in 1979. But a similar jump occurred for white youths who commit no crime. In 1997 we were entering a new era, defined by a new generation of youth. It has been accompanied by much greater interaction, both wanted and unwanted, between young people and police. But I doubt that many Americans would really want to trade the crime situation today with what we had back in the early 1990s--when a teenager was five times more likely to be murdered, raped, beaten up, or robbed.

Trendspotting: Despite Hot Job Market, Many New Grads Struggle to Find Work - May 28 chart6

  • In the decade leading up to 2017, global meat consumption rose an average of 1.9% per year. With the appetite for meat and dairy products remaining relatively unchanged in Western countries, the growth is being driven by new sources like China, India, and sub-Saharan Africa, where livestock populations are expected to soar. (The Economist)
    • NH: For nearly all of human history, a society's ability to raise and eat livestock has been an unambiguous sign of prosperity, overflowing with positive feedbacks. First, it meant that the society's agricultural productivity was high enough to afford the wasting of grain calories by feeding livestock. (Farming societies near starvation have to slaughter their animals and eat all the grain themselves.) Those livestock, in turn, not only further increase productivity (e.g., by plowing and manure), but more importantly improve the health and vitality of the farmers themselves by providing them with protein. Plentiful protein is associated with lower mortality and morbidity, greater adult stature, and increased stamina and strength. This too increases productivity as well as adds to general welfare. The renowned economic historian Robert Fogel calls this the "techno-physio evolution" of humanity in the modern era.
    • Sure, at some point, further nutrition no longer adds to health. It detracts from it. And that point has been reached in nearly all high-income societies and many EMs like China. But for the billions who live in economies under $5,000 per capita--especially in South Asia and sub-Saharan Africa--the nutritional barrier is still very much operative. And it is from these regions that the official UN projections expects virtually all future net additions to global population.
  • Millennial favorite Urban Outfitters is the latest retailer to enter the hot clothing rental market, which has been growing at a rate of more than 20% annually. Subscribers will be able to rent six pieces for $88 a month—a win-win for the environment and for all those Instagram posts that demand a new outfit. (The Wall Street Journal)
    • NH: We've had high-end apparel rentals like Rent the Runway for awhile. But the proliferating emergence of mid-level ("everyday") rental is a promising innovation. It successfully bridges the gap between fast and slow fashion. It's "fast" because it enables customers to wear trendy new outfits. And it's "slow" because it will encourage the fabrication of longer-lasting clothing that retailers/rentals can recycle through many customers.
    • Rentals appeal to Millennials who typically have limited living space and hate storing stuff--and who are less put off by the yuck factor of wearing clothes previously owned by others. They also promise much larger margins to retailers who lock in steady monthly subscriptions and no longer have to pay as much for new inventory. Plus, you get these customers habitually onto your websites and into your stores, which encourages them to make further purchases.
  • McDonald’s is rolling out AI-powered menus that will update based on factors such as weather, time of day, and traffic. McDonald’s hopes that “predictive ordering” will speed up transactions and boost customer satisfaction, giving the company a leg up in the low-margin fast food space. (MediaPost)
    • NH: I'm dubious here. This could turn out to be about as effective as Nest's so-called "smart thermostat." The only way Mickey Dee's algorithm can save time is by jumping to conclusions about what customers are asking for--which in turn means lots of ordering mistakes. Believe it or not, most customers prefer a dumb human or robot that actually gives them exactly what they want.
  • Contributor Seth McLaughlin believes that Joe Biden’s candidacy is “setting up a generational showdown,” with Boomers and the Silent on one side and Millennials on the other. While Biden’s establishment candidacy appeals to older voters, most Millennials are looking for someone more progressive who will take on issues like climate change and education reform. (The Washington Times)
    • NH: As I've said before (see "The Next Big Thing: The 2018 Midterms: A Tale of Two Americas"), the Democratic Party faces a great deal more generational tension than the GOP. That's because the GOP is getting more of its elected representatives--and voting support--from late-wave Boomers and Xers, cohesively clustered in their 40s, 50s, and early 60s. The Dems, on the other hand, are more split between "liberal" early wave Boomers and Silent and "progressive" Millennials. They've got one presidential candidate (Pete Buttigieg) born in 1982 and two others (Joe Biden and Bernie Sanders) born in 1942.
    • As the example of Bernie suggests, however, it's not just about the age of the candidate. Bernie is an effective "gray champion" who knows how to channel the energy and purposeful idealism of Millennials--probably even better than Buttigieg. Biden is not. He's old school in both his program and his mannerisms. He's like the 2020 stand-in for Hillary Clinton, the one-more-time nightmare these young Berniacs thought was forever behind them.
  • Customer loyalty in the food delivery market is hard to come by: The share of customers who only use Grubhub, the top service, fell from 88% to 62% in just two years. While meal delivery has become a big business, the increasingly crowded field and ever-deepening discounts suggest it’s a race to the bottom. (Second Measure)
  • Few 18- to 29-year-olds feel positively about Boomers politically, with low shares agreeing that Boomer elected officials (16%) or voters (18%) care about them. Millennials may not be breaking out the pitchforks, but they’re clearly unhappy; as one of the researchers behind the poll put it: “About 1 in 5 people we surveyed liked Donald Trump, but only 1 in 7 trusted Boomers.” (The Boston Globe)
    • NH: A striking recent development in national politics is the emergence of overt generational animosity, mostly between "Boomers" and "Millennials." (Xers, as always, like to duck and let the other two bash each other.) It's certainly not a personal animosity. First-wave Millennials are personally very close to their (mainly) Boomer parents. Indeed, a record share live with them and make sure they talk to them every day. But it's fair to say that many Millennials feel palpable disappointment with how Boomers, as a group, have performed (or failed to perform) as civic and political leaders. The survey cited in this story was conducted by the Harvard JFK School's Institute of Politics.
    • That said, we should always beware of polls asking generic questions. People usually respond a lot more favorably to a question about a particular Democratic candidate they know than to a generic question about "Democratic candidates." Ditto for questions about age. Over a third of Americans in both political parties say they would not vote for a "generally well-qualified candidate" from their own party who is over age 70. Really? I don't think that's going to stop many Republicans in 2020 from voting for Trump--or Democrats from voting for Warren, Biden, or Sanders.
    • Ditto for generations. A label like "Boomer" or "Millennial" often brings to mind stereotypes that are neither accurate nor balanced. I'd wager that the majority of those Millennials who say they don't trust Boomers in politics are going to end up voting for someone over age 58 in 2020.
  • A new NYT piece offers a time-machine tour through the formative years of Gen X. Of all the Gen-X touchstones mentioned in the piece, from Twin Peaks to Nirvana to Keanu Reeves, perhaps nothing rivals the generational significance of the Sony Walkman: “Suddenly, you could tune out parents, teachers, bystanders—the rest of the human race, basically.” (The New York Times)
    • NH: Wow, Gen Xers are getting nostalgic. They're putting together kaleidoscopic retrospectives of their life experiences ("journey" would be too purposeful a word). I helped provide background commentary for an early version of this, a six-part documentary on Generation X produced by National Geographic. (I think the host was Christian Slater.) Someday, like the hero in Ernest Cline's sci-fi novel Ready Player One, an aging Xer tycoon will transform this pop-culture story into a vast VR world, intended to entertain post-apocalyptic humanity. However many times you watch it, it always ends up looking like some gigantic accident.


    America First—to a Point. Is President Trump’s “America first” foreign policy hitting the mark with voters? According to a new report from the Center for American Progress, the answer is yes and no. When asked to identify their top foreign policy priorities, voters were most likely to choose protecting the nation from terrorist attacks (40%) and promoting good jobs for American workers (36%). Globally-oriented objectives, such as promoting international trade (13%), were much less popular. In addition, most Americans across generational and party lines strongly support more attention to domestic issues. So the isolationist side of Trump's approach is resonating. The hawkish side, on the other hand, is not. Most voters also want to cooperate with foreign governments to solve problems, favor diplomatic action over military action, and balk at the idea of increasing military spending by cutting other services. This is particularly true among Millennial and Xer voters, who are far less enthusiastic about military spending (by a margin of 20+ percentage points) than Boomer and Silent voters.