The African-American employment to population ratio has been increasing through time, closing a 5 point gap to just 2 points before the pandemic, and squeezing it to less than 1 point most recently.
Context Since March, 1990 Peak Overall Rate
4 point decline before the pandemic. 1.5% pandemic hit. Almost 50% recovery.
3 point decline for prime age workforce, but 2 point improvement at the end of the prior economic recovery period. 2 point pandemic hit. More than 3/4ths recovered.
6 point slide before pandemic. 1.5 point pandemic hit. Perhaps 1/3rd recovered.
Up 3 points. Down 3 points. Up 3 points. Down 2 points. 80% recovered.
Context: History and Trends Through 2015+ Were Negative or Unclear for African-American LFP
Size, growth and share all matter. Black workers may have quietly reached a “critical mass” where they face less obstacles and benefit from more positive network effects.
Black men have worked full-time schedules about the same as all men, while Black women have worked full-time more often than other women.
Context: The Labor Market
Real wages are up for African-Americans.
From 1975-97, African-American unemployment rates were 10% or higher. They briefly found the 7-8% level at the end of the Clinton presidency/expansion. They popped back up to 10% and recovered to about 8% before the “Great Recession”. They jumped up to 17% and then slowly declined to 10% by 2015. The extended recovery brought them down below 7% in 2018 and to a record low of less than 6%, briefly during 2018-19. The pandemic flirted with 17% rates once again. Instead of taking a decade to recover, unemployment rates have recovered in 2 years.
For each comparison, I’ll focus on the pre-pandemic Feb, 2020 numbers, the effective bottom rate in Jun/Jul, 2020 and today’s rate at May, 2022, about 2 years later.
The overall labor force participation rate dropped by 2 points from 63.4% to 61.4% and has recovered about half-way to 62.3%.
While many hope for a faster recovery, this 1% increase in 2 years is faster than from prior recessions. It is also taking place in the context of a long-term decline from 2000 to 2015, followed by a plateau and a bit of an increase in 2019 as the recovery from the “Great Recession” moved into a record length with record low unemployment.
The Hispanic rate generally followed the overall rate since 2000. However, the rate increased by a full 2 points in 2019. Hispanic labor force participation encountered a larger drop of almost 3 points, but has recovered one-half of the decline.
The Asian LFP rate follows the same general decline and flattening, with a somewhat higher rate in 2018-19 than the minimums from 2014-16. It dropped a little less than the overall average during the pandemic, by 1.7% and has fully recovered to the pre-pandemic level!
Black Americans showed the same general decline after 2000 to a minimum of 63% in 2015, with a significant and maintained increase to 64% in 2016 and a further 1% increase in 2019. Black labor force participation fell by a little more than 3 points to just 60%. It quickly added 1 point and in the last 6 months has added 2 more points, returning to its pre-pandemic 11 year high!
The White rate followed the overall pattern, but remained at the 63% plateau through the middle of 2019 before inching up by one-half percent. The participation rate was 1.8% lower in Jun/Jul, 2020. It did not change materially through the 3rd quarter of 2021, and has since added 0.4%. The White rate has recovered only 30% of the lost participation rate.
Women had added about one point of participation between 2016 and the beginning of 2020. Their participation declined a little less than men, at 1.8%. Women were slow to return to the work force during 2021, but have now closed one-half of the gap.
The Male participation rate remained flat from 2014 through the end of 2019. Note that male participation has been declining for 70 years. 2.1% of men left the labor force by Jun/Jul, 2020. The return during 2020-2021 was slow. The more recent increase has 40% of the absent men returned to the workforce.
Black men did not see a major participation rate increase in 2019. They experienced a 2.6% decline from the pandemic, followed by a 1% increase in the next year and a dramatic improvement in 2022 to a participation rate above the pre-pandemic level.
About 1.5% of Black Women were attracted into the labor force in 2019. Their pandemic decline was a very high 3.9%. They have added 2.7% of participation, so are about 3/4ths recovered.
Hispanic men did not show a clear participation increase in 2019. Their rate fell by a large 2.8% in the pandemic. It has rebounded by 2%, so is about 2/3rds recovered.
An additional 3% of Hispanic women entered the labor force during 2018-19. Their participation rate fell by 3.3% and remained low through the third quarter of 2021. It has grown by less than 1%, leaving it at a one-fourth recovery level.
White men did not increase their engagement during 2019 and recorded a 1.8% participation decline. There has been no significant recovery at this date.
Looking at the long-term trend, it may be that the 2015-19 rates were just a “pause” in the long-term decline. This topic warrants a separate article.
A smaller percentage of White women were drawn into the labor force during 2019, less than 1%. Their participation rate declined by 1.4% by Jun/Jul, 2020 and by 2% total in mid-2021 before beginning to recover. They have recovered by one-fourth to one-third of their decline.
Teenagers were least impacted by the pandemic, returning to prior work levels in less than a year.
College age young adults added almost 2 points of participation during 2018-19. They dropped a stunning 5.3% during the pandemic. They have recovered a solid 2.8%, so are a little more than 50% back.
The 55 and older group didn’t add many workers in 2019. Their participation declined by 1.1% and then by 1.7% total during 2021. They have recovered about one-third of the maximum decline.
The prime age (25-54) work force participation rate dropped 3 points, from 84% to 81%, between 2000 and 2015 in periods often decried as “jobless recoveries”. This group added 2 points of participation during 2016-19 as the recovery was extended, jobs added and unemployment reduced to record lows. Participation dropped by 2.1% in the pandemic. It has recovered 1.5%, so it is about three-fourths back to the elevated pre-pandemic level. The monthly increase rate looks very solid.
Prime age men added almost 1% of participation from 2016-2019 before losing 1.5% in the pandemic. They have added 1 point of participation, so are two-thirds recovered.
Prime age women added almost 3 points of participation from 2016-19, but experienced a 1.7% reduction during the pandemic. They have added 1.4% to their participation rate, reaching 80% of total recovery to the high pre-pandemic level.
The even simpler ratio of employment to population shows a near total recovery in the prime age population. The steepness of the curve indicates that this will continue, at least in the short-run, even though the peak ratio was only 80.2%, 80.2% and 80.5% in 3 prior economic expansions. In 1999, the recent record was 81.9%.
Summary
From 2000 to 2015, the overall, male and white-male labor force participation rates declined by 4%, 5.5% and 5%. These rates bottomed out from 2016-18, with small increases in 2019. The recovery from the pandemic is fighting long-term trends that result in lower labor force participation (lower and later marriages, declining/flat pay for lower-skilled workers, increased disability claims, increased criminal, drug and alcohol records, social acceptance of not working, electronic entertainment options, etc.). Minority groups saw stronger 1-2% participation rate increases in the last years before the pandemic.
Hispanics, Blacks, teens and college students experienced pandemic dropout rates much higher than the 2% average from Feb, 2020 to Jun/Jul, 2020.
Overall, one-half of the decline has been recovered, but there are significant differences among the groups. Adults 55+ have remained close to their reduced rates. White men (a big share of the labor force) have made little progress returning to the labor force. Less than one-fourth of Hispanic women have returned. Two-thirds of the Hispanic male decline has been recovered. Three-fourths of the Black female gap has been closed. Teen participation has recovered (90%). Asian participation has fully recovered. Black male participation is above the pre-pandemic level.
The prime age group (25-54) has regained 1.5% of its 2.1% decline and the recovery trend looks solid in spite of the slower recovery groups.
Labor force participation has not increased quickly in prior periods. Based on the significant increases in the last 6-months, a continued increase in the participation rate through the end of the year is likely. I estimate that the pre-pandemic participation rate of 63.4% will be reached in the 1st quarter of 2023.
For each measure of produce prices, I’ve provided a 5- or 10-year framework of annual inflation AND a 5 year view of prices indexed to Jan, 2020 before the pandemic began. We did have 2% inflation before the pandemic.
This traditional measure of ongoing inflation pressures peaked at 7% annual rate in 4Q, 2021. In total, just 12% in 2+ years.
Grand total PPI reached 10% annual inflation by the end of 2021 and has remained at that level. This provides pressure for CPI to be higher than 7% for a few more months.
Commodities pressure has been strong only recently, so the total PPI is just 3% higher than the measure excluding the volatile components.
Annual commodity inflation rocketed from 0% in Dec, 2021 to 20% by Jun, 2022 as the global economy was recovering from the pandemic and the extraordinary increase in durable goods demand was registered in supply chain purchasing decisions. Commodities are historically most volatile, but this increase in demand and prices was historic. Note this is way before the Ukraine invasion.
Energy prices were below the pre-pandemic level as late as Jan, 2021 (-3%). They increased exponentially to 50% higher by Apr, 2021. Energy prices have continued to increase at 35-40% annual rates as increased demand, mothballed assets and the Ukraine invasion effects combined to change the global markets. This is one measure where continued very high inflation is possible.
Food prices were a little slower to accelerate. Zero increase at Dec, 2020. 4% annual inflation at May, 2021. 13% inflation at Aug, 2021. Again, this is pre-Ukraine. The 13% ish inflation rate has continued, supported by Ukraine issues. Historically, food prices do not remain elevated for long periods.
Another subtotal, excluding 2 more volatile sectors shows 8-9% inflation peaking.
Business services inflation has remained tame, supporting the notion that cost-push inflation due to wage increases is not yet a major threat.
Transport and warehouse prices were also slow to “take off”, remaining below pre-pandemic level through Feb, 2021. Energy prices drive the transportation sector, so these prices also increased. The 20% annual increase seems to have peaked.
Wholesale and retail trade also lagged a bit, still at the historical average 2.5% inflation rate as of Mar, 2021. But, inflation grew to 10% by Aug, 2021 and a peak of 18% in Mar, 2022. The annual rate of inflation has receded to 15%, but that still offers some risks to the CPI for the next 6 months.
Six of the nine measures have peaked or are declining. The other three remain at worrying levels without clear signs of retreat. The “core” PPI inflation measure at 7% is not accelerating, so CPI should be able to decline in the second half of 2022. On the other hand, commodities inflation, mostly driven by energy inflation, remains very high without evidence of a meaningful decline in the near-term. Historically, energy and commodity prices fall back after a sharp increase. The general weakening in the global economy also points to a somewhat softer market for energy and commodities.
There is no evidence yet of labor-based cost-push inflation or accelerating/spiraling/self-reinforcing inflation.
“Price gauging” claims are always in the eye of the beholder/customer/politician. When I see relatively low historical price increases, followed by sharp increases, I imagine that business leaders are taking advantage of the situation to drive price increases that were impossible to propose and make stick during the less dynamic past. These can be spotlighted during a period of high inflation, but appear to be more reasonable across the whole business cycle. The food and energy price changes look similar to historical levels of volatility so are less easily questioned.
Big picture, IMHO, this looks like a global commodities “squeeze” due to the faster than expected recovery from the pandemic, especially the 50% growth in demand for durable goods as in-person services were less attractive and available. Loose fiscal and monetary policy in the US and other nations may have been a significant driver of the faster than expected global recovery, but this does not look like a classic case of excessive fiscal and monetary stimulus.
In hindsight, the slow response of the US Federal Reserve Board to the very rapid change in price levels from Jan, 2021 to Jun, 2021 looks like malpractice. Market prices quickly adapted to the current and expected disconnect between supply and demand.
Producer and consumer price increases are likely to remain in the 7-8% range during the 3rd quarter of 2022, but should begin to drift back to the 5-6% range in the 4th quarter of 2022, and still lower in 2023, especially if the Fed increases interest rates by the expected 3-3.5% and businesses slow their inventory, hiring, project and capital spending decisions accordingly.
The May YTD deficit for fiscal year ending in September, 2022 was $426B, down 79.4% from the $2,064B level of FY 2021. The total FY 2021 deficit was $2,772B, so the same percentage reduction for the whole year estimates a $572B deficit for FY 2022. Visually, the year-to-date pattern most closely matches 2017 which ended with a $666B deficit. In fiscal years 2018 and 2019, the additional deficit for the last 4 months of the year was $245B and $247B, respectively. That gives us a forecast of $672B for FY 2022. DC insider, Wrightson ICAP, recently forecast a deficit of $600-700B.
The conservative forecast of $700B deficit for FY 2022 is 2.8% of the CBO estimate of FY 2022 GDP at $24,694B. The CBO forecast Deficit/GDP ratios of 3.8% and 3.9% for the next 2 years, roughly the same as the pre-pandemic 2018 rate.
Good News: Government Fiscal Stimulus is a 3.5% Annual Drag on the Economy
The reduced federal deficit and state/local deficits compared with history provided a very large drag on first quarter GDP, but the economy recovered in the second quarter and is forecast by the CBO to deliver 3% overall real GDP in FY2023 after a very strong 4.4% in FY2022.
Revenue increases are not sustainable, coming in as much as 2% of GDP higher than trend or expectations. The 2021 economy was very healthy, resulting in spillover tax receipts in 2022 that will not continue.
Our economy has operated effectively for the last 4 decades with a federal budget deficit averaging 2.5% across the business cycle. Starting with 2.8% in 2022 is an unexpectedly good place. Congress and the president will struggle to maintain this level without significant spending or revenue changes in the next budgets.
North Dakota, Wisconsin, Oklahoma, Kansas, South Dakota, Minnesota and Nebraska form a low unemployment core in the Great Plains area. Utah, Idaho and Montana represent the Rocky Mountains. Vermont and New Hampshire lead in New England. Alabama leads the South, while Indiana leads the Midwest.
Jan, 2016: 4.8% through Feb, 2020: 3.5%. 4 years “below full employment”.
Estimates of Natural (Non-accelerating Inflation) Rate of Unemployment (NAIRU) Have Been Biased Upwards and Influenced by One Period of High Inflation and Supply Chain Disruptions
In retrospect, the period before 1976 (oil, trade, inflation shocks) should have used a 4.5% NAIRU for policy decisions. The jump to 6% in the late 70’s and early 80’s is supported by history. The NAIRU was deemed to be 5% or higher as late as 2010, but could have been pegged lower. Based on the lack of inflation during the teens, the rate probably should have been set at 4% or lower.
Macroeconomic Theory
Classical economics asserted that labor markets will naturally find equilibrium wages and quantities of labor employed at the individual labor market (micro) and total economy level. The Keynesian view, embraced by 90% of professional economists, is that there are market imperfections at both the individual market level and total economy level. Most importantly, wages are “sticky downwards”. Currently employed workers resist “losing” wages by accepting pay cuts when demand is lower. Aggregate supply (production) does not automatically create an equal amount of aggregate demand in the short-run, as businesses, individuals, banks and governments often choose to save more during economic downturns or periods of greater risk. Hence, a downturn in the economy caused by any source may result in a prolonged negative spiral, rather than automatically delivering lower prices in product, money and labor markets, which could help to recover these markets.
Microeconomic Theory: Why is There Any Unemployment?
Economists point to frictional and structural factors. Frictional unemployment occurs because labor market information and decisions are not perfect and instantaneous. As with other markets: housing, commercial real estate, offices, bank loans, farm fields, airport gates, container ships, utilities, R&D, IPO’s, private equity, M&A, retail inventories, etc, labor markets are imperfect. It takes time for equilibrium to be found. Given the increased concentration of labor in major metropolitan markets and internet-based recruiting systems, frictional unemployment has decreased in the last 20-30 years.
Structural unemployment occurs because of mismatches between the current skills possessed and skills demanded in a given place or due to legal or regulatory limitations. Binding minimum wages have been a smaller factor in the last 40 years but may have greater impact in the future. Regulatory requirements for professional licensing have increased significantly in the last 50 years (with some “liberalization” seen in recent years), slowing the ability for individuals to move between professions.
The overall labor force participation rate increased for many years as women entered the workforce, but has declined significantly in the last 20 years for men and for women. I’ll provide a detailed analysis of these factors next week. For our purposes, focusing on short-term changes, recent history shows that the labor force participation rate can be 1-2% higher overall. Some workers have not returned from the pandemic challenges. Some early retirees may return to the labor force. Teens and college students may join the labor force at recent wage rates. Marginal groups (elderly, long-term unemployed, handicapped, drug/alcohol recovery, crime history, minorities, limited language skills, inexperienced) may be considered for more positions.
The media tends to emphasize the increased specialization and technical content required for modern jobs. This has resulted in greater structural unemployment, especially among lower-skilled individuals who held and lost manufacturing jobs between 1970-2000. It has also reduced movement between industries which require a core base of knowledge to be effective, with health care being a prime example.
On the other hand, modern corporations that worked through a dozen post-WW II business cycles eventually adapting to the “business cycle”. First, based on Japanese manufacturing, TQM or lean six sigma manufacturing principles, they reduced their operating leverage. Companies devised factories, offices, distribution centers, product lines and national businesses that could be equally profitable from 70-95% of capacity, rather than 85-95% of capacity. Second, they reduced their unavoidable “fixed costs” by importing goods, outsourcing business functions (manufacturing, IT, accounting, legal, marketing, distribution, sales, R&D) and employing temporary labor. Third, businesses systematized their processes so that core production processes could be operated by individuals with limited specialized or tribal knowledge, including managers and support staff. Fourth, businesses increasingly used matrix and project structures to effectively redeploy staff to any areas of need. So, while variable production staff is a smaller share of employment, the remaining “fixed cost” support staff can be more flexibly deployed. Fifth, after 40 years of process re-engineering, data warehouses, activity based costing and balanced scorecard reporting, companies deeply understand variable costs and incremental benefits driven by sales, production, product lines, facilities, territories and projects. “Knee-jerk” reactions to business cycle downturns are less common as firms better understand short-term incremental profits and medium-term costs of hiring and training. Sixth, firms have improved their ability to define “critical success factors” for every position. This has eliminated many irrelevant experience, degree, culture, personality and other factors from hiring screens. Seventh, firms have increasingly rotated staff through line and staff roles, allowing talented individuals to move between these roles and function effectively. Eighth, firms are more strategically oriented, growing profitable product lines and territories and dropping or “selling off” marginal channels. This means that the incremental positive value of most positions persists, even in an economic downturn.
Overall, firms have learned their “applied intermediate microeconomics” and clearly defined the marginal benefits and costs of every position. They understand exactly what incremental profit can be delivered from each position. Hence, the demand for labor services is significantly greater than it was historically, including through the downside of the business cycle. That means that the natural unemployment level is lower than in the past. Firms can profitably put more people to work than ever before.
Economists, Forecasters and Pundits are Reluctant to Predict Unemployment Below 3% Because it Was Rare Historically.
Lobbyists, Journalists, Politicians and Analysts Highlight the Downsides to “Very Low” Unemployment
From a firm’s perspective, a low unemployment labor market causes increased recruiting, hiring and training costs. It results in less well-matched staff to job roles resulting in lower initial productivity. Companies might even, aghast, inadvertently hire some staff with marginally negative profit results. Hence, very low unemployment rates will increase labor costs, reduce profits, reduce demand for labor and possibly bankrupt previously functional firms.
Trade-off Between Unemployment and Inflation: The Phillips Curve
In the 1970’s fight between Keynesians and Monetarists/Classical Economists/Rational Expectations teams, the Keynesians emphasized the historical existence of a short-term trade-off between unemployment and inflation, especially when unemployment was very low due to a high level of aggregate demand. The conservative side noted that the historical data was inconsistent. The “rational expectations” camp emphasized that unexpected increases in inflation would lead to increased wage demands by labor. In the long-run, there is no such thing as a “free lunch”, so effective real wages would return to the level determined by the “marginal productivity of labor”. Based on recent data (pre-pandemic), it appears that the US economy can run at 3.5-4.0% unemployment without triggering significant upward wage pressures. In the post-pandemic world, the “natural” unemployment rate (NAIRU) is unclear. The labor supply has basically recovered to the pre-pandemic level. Wages are up 5% in nominal terms but are down 2% in real terms (see below).
There are Many Unemployment Measures. They Move Together.
Underemployed individuals provide the logical next best full-time employees. The current slack measure is 3.5%, (7.1% – 3.6%) on the low side, but not so low that conversions from this underemployed group to full-time employment cannot be expected.
Jun, 2020 – Jun 2022. Nominal wages up 4.7%/year. CPI up 6.1%. 1.4% real wage decrease.
Dec, 2020 – Dec, 2021. Nominal wages up 4.9%. CPI up 7.3%. 2.4% real wage decrease.
May, 2021 – May, 2022. Nominal wages up 5.2%. CPI up 7.9%. 2.7% real wage decrease.
Nominal wage rates have increased by 5% annually in a period of 7% inflation. Employers have been able to economically justify these increases while adding 7 million people to the labor force.
Beveridge Curve: Job Openings Versus Unemployment Rate.
Historically, there was a well-defined relationship between the national level of job openings as a percent of the labor force and the unemployment rate. Job openings were a low 2-2.5% of the labor force at the beginning of the business cycle, accompanied by higher (6-10%) unemployment, but improved to 4% openings and 4% unemployment. The current labor market has far more job openings, up to 11 million, almost twice as many job openings as unemployed workers, but the unemployment rate has only fallen to 3.6% so far. This is uncharted territory. There are more voluntary quits, so employees are switching jobs at a faster rate. The labor force participation rate has increased with these jobs and higher wages offered. But firms have not found enough acceptable hiring matches to significantly reduce the open positions level. Through time, they are likely to achieve their hiring goals, driving the unemployment rate down below 3%.
The demand for labor already exists. 11 million open positions is 7% of the labor force. We have enough active demand for ZERO % unemployment.
The supply of labor increased by 7 million people since the depths of the pandemic. The rate of monthly additions has slowed from 500-600,000 to 300,000, but that is still 3.6 million jobs added on an annual basis. We only have 6 million total people unemployed!
3. The labor force participation rate is only 62.5%. There is room for millions to return to the labor market. Before the “Great Recession” in 2008 it was at 67%. Many metro areas, large and small, enjoy labor force participation rates above 65%.
4. The underemployed population can provide up to 3% of the total labor market’s full-time jobs.
5. Frictional unemployment is minimal in the internet age. Structural unemployment may be lower than described in the media, as firms have been adapting to the “information age”, high technology and the service economy for 40-50 years.
Finally, many states and metro areas currently have unemployment rates in the “twos”. Nebraska and Utah stand at 1.9%. Minneapolis (1.5%), Birmingham (1.9%) and Indianapolis (2.0%) demonstrate that otherwise unremarkable (!!!) metro areas can function with very low unemployment rates.
Africa 25%. Middle East 25%. Afghanistan $5B, Israel $3B, Jordan $2B, Egypt, Iraq, Ethiopia, Yemen, Colombia, Nigeria, Lebanon $1B each. Top 10 $16B, one-third of total.
Criticisms of Foreign Aid
Limited evidence that specific country investments provide political returns
Limited evidence of anti-terrorism campaign effectiveness (counterexamples)
Weak administrative structure and oversight at all levels
Direct evidence of individual country economic growth due to aid is limited
Some autocratic governments have benefitted from aid
Some aid is diverted to corrupt governments and individuals
Specific high priority countries have provided weak returns (Egypt, Pakistan, Afghanistan, Iraq)
Higher returns could be gained from investing in Western Hemisphere, Eastern Europe.
Health measures, disease rates, lifespans. Global health. Economic development results globally and in individual countries. US trade benefits from developing trade lanes. Global education. Increased number of democracies, commitment to mixed capitalist economies. Lower cost of defense. Terrorism activities thwarted. Improved strength of US alliances. Improved flow through NGOs, multilateral organizations improves effectiveness. Dollar allocation provides US policy leverage.
6-month time limit. A dozen or less bipartisan dignitaries. Retired ambassadors, investors, CEO’s, federal reserve presidents, etc. Make Mitch Daniels the chair.
Assign 2 projects. One to cut government waste. The other anti-inflation policies. No more than a dozen recommendations in each half. Presented to congress for simple yes/no vote, without major amendments allowed.
2. Spend Less Government Money
Fiscal spending is too expansionary for the current situation. Back off. Reduce infrastructure spending for now, spend it in the next recession. Reduce marginal defense programs that only have political reasons. Cut state government spending by 3%, which is budgeted to increased by 9%.
Increase immigration to improve labor supply. Cut tariffs to reduce supplies costs. Lean on local regulators to reduce zoning restraints and one size fits all building codes. Strategically require a higher share of affordable housing and multifamily permits annually in each metropolitan region. Phase-out the mortgage interest tax deduction for second homes.
Loosen regulations for 5 years to encourage increased “all of the above supplies” energy through drilling, coal, oil and nuclear. Suspend federal gas tax for 3 years. Negotiate oil price minimums/maximums between US/Europe/Japan and OPEC.
Reducing inflation is a complicated policy area. The solutions proposed by “experts” are rarely politically appealing. Competing political parties hesitate to provide “wins” to the other. However, 8% inflation after a 2-year pandemic while the US faces Russian war actions is a “national emergency”, worthy of an FDR like approach to “try a few things”. It is an opportunity to overcome individual industry opposition to things that make sense for the country. It is an opportunity to try some left and right solutions.
Setting aside turnout ratios, the growth in actual voters has been strong for a century. 40-48M voted in FDR’s elections. Kennedy and Nixon fought over 69M voters. Clinton and Bush, Sr. attracted 105M voters in 1992. But, Biden vs. Trump shattered records with 158M casting ballots.
Midterm voting rates (as % of eligible voters) soared at 65% in the 19th century. They dropped to 50% at the start of the 20th century and then down to 45% for most of the 30’s to 60’s. They settled down to 40% thereafter. The 2018 election reached 50%, a full 13% points above the all-time low in 2014.
The slightly different measure, percentage of voting age population, shows the same pattern. 49% voting from 1978-94. Just 46% from 1998-2010. Record low of 42% in 2014, followed by an 11%-point climb to 53% in 2018.
Younger voters increased their turnout by 14 points (18-44), while older voters increased by a solid 8%. High school or less educated voters increased turnout by 7 points, while college educated voters added 12 points.
Long-term presidential and midterm voting (% of eligible voters) follows the same pattern. 80% turnout in the 19th century, dropping to 59% by 1912, then averaging 60% in the 30’s to 60’s. Further decline to just 55% for the 70’s-90’s. Minor increase to 60% in the oughts and teens, followed by 67% in 2020.
The more recent percent of voting age population shows 64% from 80-88, a one-time spike to 68% in 1992, decline to 59% from 96-200, slight increase to 61% for 04-16, and then a big jump to 67% in 2020.
Turnout was up in all categories, but especially among Asian, 18-29 year olds and white non-college educated populations.
Voting by all racial groups of 18-24 year-olds was up significantly.
The two measures (% of eligible voters and % of population) track closely. The “election project” numbers show VEP at 63% from 1952-68, declining to 58% for 72-00, increasing a little to 61% for 04-16, before spiking to 66% in 2020.
Income really matters for voter turnout, with rates ranging from one-third to one-half to two-thirds. With increased lower income support for the Republican party, this is less of a partisan issue today.
Since 1969, Democrats have argued that demographic trends will overturn Kevin Phillip’s description of the Emerging Republican Majority. This remains a hotly debated topic.
Election day voting decreased in 2018 and 2020 as mail and early, in-person voting increased. Many commentators claim that this change is a large driver of the increased turnout levels.
Real, inflation-adjusted, interest rates have declined greatly since 1980. At that time, with the risks of variable inflation and surging oil prices, the real mortgage interest rate was 8%. It declined to 5% in the 1990’s and 4% in the 2000’s before falling to 2% in the 2010’s. The financial cost of owning property has rarely been lower.
House Values are Up, Way Up
House prices grew relatively consistently from 1970 through 2000, with a spike in 2005-9 and a return to trend values in 2010-12. In the last 10 years, house prices have increased by 6% annually in nominal terms, or 4% annually in real terms.
Home Ownership Rate is Rebounding, Up 2%
The US homeownership rate averaged 47% from 1900-40. It increased smartly in post WWII times to 60% by 1955 and 64% by 1965. Homeownership averaged 64%+ for the decade of 1969-78. It increased by 1% during 1979-81. In the midst of a difficult depression, homeownership rates dropped back to 64% by 1985, about the same for the last 20 years, setting a “normal” level. Homeownership rates stayed at 64% for the next decade. Ownership rates increased from 64% to 69% in the next decade before declining right back to 63% by 2015. In the last 7 years, despite many headwinds, the home ownership rate has increased by 2%.
Number of Homeowners has Jumped by 7 Million
In 2000, there were 69M owner-occupied homes in the US. This increased by a solid 7M to 76M by 2005. The housing market hit a lull and the number of owner-occupied homes essentially stayed flat for a dozen years, through 2017. The supply of owner-occupied homes then rose by a strong 7M in the next 4 years to 83M!
The housing market is inherently volatile, typically rising by 2 times the trend and then falling to one-half of the trend. Annual housing starts averaged 1.6M from 1960-2008. They declined by a severe 75% to just 0.5M in 2009. Housing starts have subsequently grown 3-fold to 1.6M annual housing starts, but the accumulated lack of new supply is impacting housing markets today.
The period from 1982-2000 showed homeownership rates by the 5 age segments remaining relatively constant; 65+ 78%, 55-64 80%, 45-54 76%, 35-44 67% and <35 40%. The 65+ group increased homeownership from 75% to 80%. During this time, the overall US homeownership rate increased from 65% to 69%, mostly due to the aging of the population, now more heavily weighted towards the groups with 76-80% homeownership versus the 40-67% younger groups.
Homeownership rates grew from 2000 to peak rates in 2004, before declining significantly for all groups except for the 65+ cohort which essentially held it’s own. The adjacent 55-64 class fell 4%. The middle 45-54 group dropped 7%. The typically homeownership growing 35-44 group cratered by 9%. The young <35 group fell by 5%. Hence, the overall rate fell dramatically during this time.
There is a 30 point gap between married couples and other groups, with 84% of married couples owning homes versus about 55% for other family structures.
The US shows dramatically different homeownership rates by racial category. The differences between the 1995 non-Hispanic White rate (70%) and Others/Asians (50%), Hispanics (42%) and Blacks (42%) remain large in 2021 where we see White (74%), Other (57%), Hispanic (48%) and Black (44%). The groups homeownership share gain from 1995 to 2005 were similar, ranging from 6-10%, but the decline from 2005-2015 was only 3-4% for Whites and Hispanics, but 7% for Blacks and Others. The improvement from 2015 to 2021 has been 2% for 3 groups and 4% for the Other/Asian group.
Summary
The Great Recession flattened the housing market. The number of owner-occupied homes in the US remained level at 76 million from 2006 – 2017. The number of housing starts plummeted from 2.0M to 0.5M per year, compared with an historic average of 1.6M. New home construction first exceeded 1.2M units (75% of historic average) again only in 2020, a dozen years later. New home-owning households have increased by 7M units in the last 4 years! The homeownership rate is up 2 points, from 63.5% to 65.5%. Supply is responding to increased demand and higher home prices. Homeownership rates will increase with the economic recovery, but be constrained by higher home prices.
