I previously wrote about how this time is not different how there are systemic problems with the US economy and the economy at large. I wrote how there is the economic equivalent of faulty wiring in a building. You don’t know exactly when the building is going to burn down but it is only a matter of time.
One of the three main reasons why an economic conflagration is on the horizon and why it makes sense to start preparing now through alternative investments is the real economy is weak.
There are a variety of metrics that show the real economy is weak. I’d like to look at two: labor force participation and stagnant wages.
Labor Force Participation is Down
I don’t like looking at the unemployment rate for two reasons. 1) If people give up looking for work then that lowers the unemployment rate 2) The unemployment rate doesn’t look at the quality of jobs. If a person loses one high paying full time job but then they get 1 or even 2 part time jobs that pay less and have fewer benefits, that in and of itself, does not impact the unemployment rate, even though the person might be working lower paying jobs outside of their previous field.
The labor force participation rate is by no means perfect either, but it is in my view a more useful metric in today’s economy.
The civilian labor force participation rate is at a level not seen since the 1970s.
And no, it’s not because the baby boomers are retiring. The labor force participation rate amongst those 64 and older has been steadily climbing even as the the labor force participation rate at large has been declining.
The civilian labor force participation rate amongst those in their prime working years, 24-54, has not regained the levels seen before the great recession nor the dot com bubble, despite rising steadily for decades, it’s been trending down since the peak in the late 90s.
Not only are a smaller percentage of people are in the workforce but those that are working face stagnant wages. According to a PEW Research study, when adjusted for inflation wages have barely budged since the 60s.
However, I’m sure that the inflation adjustments used understate the rate of price inflation. If that is the case then real wages have actually fallen.
Fewer People are Working and They are Getting Paid Less
In summary the real economy is weak. A smaller percentage of people are working and they are getting paid less. The labor force participation rate is on par with levels from the 70s and at best people are not making any additional money and quite possibly making less money on average than in decades past, depending on how much trust you have in the official price inflation numbers.
On top of these factors debt has increased dramatically at the Federal, State, and personal levels. More on that next week.
This is not a consequence free environment. The real economic weakness in the US economy is one of the reasons I think that the US economy (and probably global economy) is due for a large correction. It might not happen this year or even next year, but such a correction is long overdue and it makes sense to take some basic precautions through alternative investments.
More on that in the coming weeks.