It's the Internet Stupid, Part II

They keep trying to paste a smiley face on the numbers. "They" are the pundits, politicians, realtors, retailers, bankers, and everyone else whose livelihood depends on pretending that the Great Recession is just like all the others since World War II--a blip, a momentary pause, a temporary departure from the norm.

SMILEY FACE: New home sales were up 5.5 percent in November! REALITY: New home sales were 21 percent below their November 2009 level.

SMILEY FACE: The unemployment rate fell in December! REALITY: The job increase was well below expectations.

SMILEY FACE: Retail sales climbed 0.6 percent in December! REALITY: The biggest gains were in energy and food, and department store sales fell.

This is not a run of the mill recession, a blip, or temporary. This is a massive economic dislocation caused by the Internet. It is not over, it may get worse before it gets better, and it is not likely to get better for a generation. These numbers tell the story.

More than 1 million homes were foreclosed in 2010, a record. (RealtyTrac.com) The story begins with business. It is the nature of private enterprise to seek out and exploit every advantage in the marketplace. That is what business is supposed to do, and that is what it is doing. Those who were first to understand the Internet have used it to their advantage by globalizing their business, finding cheaper sources of labor and materials, and setting up systems that profit from instantaneous communication. Because of the Internet, the average stock is owned for only 22 seconds, according to economists. The speed of transactions creates an opportunity for entrepreneurs, but also opens the door to Internet savvy con men and crooks who can buy low and sell high in ways that our regulatory system has yet to comprehend. The Internet, and its crooks and con men, brought us the housing bubble and the foreclosure mess.

4.5 million Americans have been unemployed for a year or longer, a record. (Bureau of Labor Statistics) Never before have so many American workers been unemployed for so long. Labor markets are in turmoil because the Internet has eliminated time and distance as barriers to business. Those with digital skills are making a living. But most of us--our livelihoods dependent on pre-Internet business models--are only muddling through. A large segment of workers faces economic catastrophe. With unemployment above 9 percent and no sign that it will fall much for years, this is a structural realignment. Companies with pre-Internet profit models are either collapsing entirely or ridding themselves of workers who are not Internet savvy--usually the older workers. Among the unemployed, those aged 55 or older are having the hardest time finding a job. Forty-one percent have been unemployed for a year or longer.

Median household net worth fell 30 percent between 2007 and 2009. (Federal Reserve Board) Now on to the politicians, most of whom are standing idly by as the Internet's crooks and con men destroy the middle class. This is not a right versus left thing. This is not a Republican Party versus Democratic Party thing. This is an old versus young thing. The 111th Congress was one of the oldest in U.S. history. The 112th Congress is not much younger. The median age of the current House of Representatives is 57. The median age of the Senate is an even older 61. Few of our elected representatives are fluent in digital. The problem is not that many of our politicians must depend on their younger staff to help them turn on a computer, use a keyboard, surf the web, text, or twitter. The problem is that they cannot comprehend how the Internet is transforming our world. They are intellectually incapable of crafting policies that will help us cope with our new problems or take advantage of our new opportunities. It will take a generation of elections before politicians fluent in digital replace the elderly statesmen from the paper and ink era.

Meanwhile, we are sitting ducks.

Television Time Up 15 Minutes

We are watching more TV. Americans aged 15 or older watched television for 2.82 hours a day on average in 2009, according to the American Time Use Survey. This is 15 minutes more than we spent watching television in 2005. Television time has increased in all but one age group: 15-19-year-olds are the only ones who spent less time watching TV in 2009 than in 2005.

Behind the rise in television viewing are bigger screens, more channels, and HD and DVR technology.

Source: American Time Use Survey, 2009 and 2005

Out of Work the Longest

Job seekers in Michigan have been looking for work the longest, according to a state-level analysis of unemployment. In 2009, the unemployed in Michigan had been looking for work a median of 19.7 weeks. South Carolina ranked second (19.6 weeks).

Source: Monthly Labor Review

Slow Recovery

Only 60 percent of the 1.7 million jobs lost in residential construction will be recovered by 2018, according to projections by the Bureau of Labor Statistics. In that year, residential-construction related employment will account for 3.8 percent of the labor force--above the 3.0 level of 2008, but well below the 5.1 percent level of 2005.

Source: Monthly Labor Review, The U.S. Housing Bubble and Bust: Impacts on Employment

An Average Day: Shopping

On an average day, 40 percent of Americans aged 15 or older spend time shopping, either going to a store and/or using the Internet or telephone. Women are more likely than men to shop on an average day (44 versus 36 percent).

Source: American Time Use Survey

Big Spenders on Health Care

Health care costs are highly concentrated among those experiencing a health care crisis. Just 1 percent of the U.S. population accounted for 20 percent of health care spending in 2008. Five percent accounted for nearly half of the nation's health care spending.

Source: Medical Expenditure Panel Survey, Statistical Brief 309, The Concentration and Persistence in the Level of Health Expenditures Over Time: Estimates for the U.S. Population, 2007-2008

On an Average Day: Grooming

On an average day, 75 percent of men aged 15 or older spend time grooming as a primary activity (meaning it is their main focus of activity). Among women, the figure is a somewhat higher 82 percent.

Source: American Time Use Survey

We Knew That

Every three years the Federal Reserve fields the Survey of Consumer Finances, asking American households about their assets, debts, and net worth. The last survey was taken in 2007, just before the economic downturn. Results from the 2010 survey will not be released until 2012.

Presented with a once-in-a-lifetime opportunity, the Federal Reserve took an unprecedented move and reinterviewed the 2007 SCF households two years later--in 2009--to measure the impact of the Great Recession on household wealth. The results of the 2009 follow-up survey will be released in a few months, but a comment in a methodological paper hints at the findings: "Changes for many people were dramatic over the period between the two surveys."

Source: Federal Reserve Board, Try, Try Again: Response and Nonresponse in the 2009 SCF Panel

An Average Day: Pets

On an average day, 15 percent of Americans aged 15 or older care for animals and pets as a primary activity (meaning it is their main focus of activity). Walking your dog counts. Sitting on the couch with your dog while you watch TV doesn't count. Women are more likely than men to care for pets on an average day (17 versus 12 percent).

Source: American Time Use Survey

An Average Day: Reading

On an average day, 24 percent of Americans aged 15 or older read for personal interest. The readers spend 1.42 hours (1 hour, 25 minutes) reading. Women are more likely than men to read on an average day (27 versus 21 percent).

Source: American Time Use Survey

No Health Insurance for Most of the Unemployed

Percentage of people who do not have health insurance, by employment status...

Employed: 19.0%

Unemployed: 52.3%

Source: National Center for Health Statistics, Health Insurance Coverage, Early Release of Estimates from the National Health Interview Survey, January-June, 2010

Years of Healthy Life

Expected years of life, at birth: 77.7

Expected years of healthy life, at birth: 66.7

Source: National Center for Health Statistics, Life Expectancy Free of Chronic Condition-induced Activity LImitations Among White and Black Americans, 2000-2006

Many Do Not Have Access to Public Transportation

Percentage of households with public transportation available in their neighborhood, by homeownership status...

homeowners: 47%

renters: 70%

Source: American Housing Survey

South Most Likely to be Wireless-Only

Landline-only samples may be more of a problem when polling in the South, which is the region with the largest percentage of adults living in wireless-only households. Percentage of adults living in wireless-only households by region, January-June, 2010...

Northeast: 15.8%

Midwest: 26.6%

South: 29.3%

West: 23.5%

Source: National Center for Health Statistics, Wireless Substitution: Early Release of Estimates from the National Health Interview Survey, January-June, 2010

Wireless-Only Tops 50 Percent in 25-to-29 Age Group

Percentage of adults living in wireless-only households by age, January-June, 2010...

18-24: 39.9%

25-29: 51.3%

30-34: 40.4%

35-44: 27.0%

45-64: 16.9%

65+: 5.4%

Source: National Center for Health Statistics, Wireless Substitution: Early Release of Estimates from the National Health Interview Survey, January-June, 2010

Could Births Dip Below 4 Million?

In an end of the year data dump, the National Center for Health Statistics has released a flurry of reports on the nation's births: final birth statistics for 2008, preliminary birth statistics for 2009, and an unusual count of births through June 2010.

For the 12 months ending in June 2010, births fell to an annual 4,055,000. This is down from the all-time annual high of 4,316,233 in 2007. Yes, births could fall below 4 million in 2010.

Source: National Center for Health Statistics

Is Nevada Growing?

The Nevada state demographer, Jeff Hardcastle, has estimated that Nevada lost 100,000 people in the past two years, according to the Las Vegas Review-Journal. Yet the 2010 census results show Nevada's population growing 35 percent over the decade (to 2,700,551) and gaining 84,779 people in the last two years (a calculation made by comparing the 2010 census count with the Census Bureau’s estimate of Nevada’s population in 2008).

Who’s right? My guess is the state demographer. Nevada has been devastated by the Great Recession. It has the highest unemployment rate and the highest foreclosure rate in the country. Behind Nevada’s “growth” over the past few years is the Census Bureau’s probable underestimate of Nevada’s population in the intercensal years from 2001 through 2009. During those years, the state demographer’s estimates of Nevada’s population have consistently exceeded the Census Bureau’s. In 2008, the excess was 139,000. Given the hard times the state has experienced, the Census Bureau is likely to revise its estimate of Nevada’s intercensal population upward, revealing the recent loss.

Census Count Matches Bureau Estimates

The official count of the American population--308,745,538 on April 1, 2010--closely matches the Census Bureau's population estimates. The population clock on the Census Bureau's web site estimated 308,977,944 on that date. The bureau's demographic analysis middle range estimate for April 1 was 308,475,000.

No surprises.

Arizona Sees Biggest Decline in Births

The number of births fell 2.7 percent nationally between 2008 and 2009, but in Arizona the number fell by a much larger 7.1 percent. Other states ranking among the top ten in the percentage decline in births: Idaho, Mississippi, New Hampshire, Maryland, Rhode Island, California, Florida, Nevada, and South Carolina.

Source: National Center for Health Statistics, Births Preliminary Data for 2009

Fewer Marriages in 2009

The number of marriages in the United States fell 3.8 percent between 2008 and 2009--to 2.7 million. Double digit declines occurred in California, Hawaii, South Carolina, and Oregon.

Source: National Center for Health Statistics

Biggest Decline in Births Since 1973

The number of babies born in the United States fell by 2.7 percent between 2008 and 2009, the biggest drop since 1973. The 4,131,000 babies born in 2009 were 117,000 fewer than in 2008. Could this be the beginning of another Baby Bust generation?

Source: National Center for Health Statistics, Births: Preliminary Data for 2009

Life Expectancy Declines

Life expectancy fell slightly in 2008, down by 0.1 years to 77.8 years, according to the National Center for Health Statistics. This measure of the nation's health has declined only three other times in the past thirty years: 2005, 1993, and 1980.

Source: National Center for Health Statistics, Mortality Data

It's the Internet Stupid!

Twenty years ago, when I was the editor of American Demographics magazine, we published an article entitled "The Fifth Medium," the purpose of which was to describe and name the Big Thing that was about to happen. Everyone who followed the trends could feel something coming, but no one knew quite what it would be.

"A new medium is emerging that may be more powerful than newspapers, magazines, and television put together," the American Demographics article announced. For want of a better word, we called it the "fifth medium" (the others were radio, television, newspapers, and magazines). We struggled to identify the fifth medium: "People call this new medium electronic publishing, on-line information, telecomputing, multimedia, or videotex. They are all evolutionary names for a beast that hasn't yet shown its full form."

Doesn't it make you want to scream, "It's the Internet, stupid!"

The identity of the beast is painfully obvious now, but it wasn't so back then. For proof, try a search of the New York Times archives by year for the number of articles that contain the word "Internet." Here's what you get:

• 1988: 3
• 1989: 7
• 1990: 17
• 1991: 9
• 1992: 12
• 1993: 89
• 1994: 375
• 1995: 1,241
• 1996: 2,218
• 1997: 2,779
• 1998: 4,057
• 1999: 7,737
• 2000: 10,134

On November 5, 1988, the word "Internet" appeared for the first time in the New York Times. The article was about Robert T. Morris, Jr., a Cornell University graduate student who unleashed a computer worm on what the Times calls "an international group of communication networks, the Internet." The other two articles of 1988 in which the word Internet appeared were also about the Morris worm, one of them noting that "many teenagers are treating Mr. Morris as a folk hero and are busy designing their own virus programs." (Mr. Morris is now Dr. Morris and a professor at MIT.)

For years, even as late as 1996, the Times felt the need to add explanatory descriptors whenever using the term Internet. In a 1990 article: "An international computer network known as Internet..." In a 1992 article: "a worldwide network called the Internet." In 1996: "the linkage of computers known as the Internet." By 1996, the word 'Internet' had become common public currency, says Wordiq.com. After that year the New York Times no longer felt the need to explain the Internet to its readers.

Although the public was familiar with the term Internet by the mid-1990s, most were not Internet users until more recently. In the early months of 2000, according to the Pew Internet & American Life Project, only 46 percent of Americans were online. The figure topped 50 percent later that year. Today, 79 percent are online.

With that kind of penetration, you might think the Internet revolution is behind us, but you would be wrong. The Internet revolution has been slow to unfold and is only now--right now, this year--fully on top of us. What took so long? The demographics. The effect of technological change on human history unfolds at the pace of generational replacement (henceforth known as the Russell Rule). The Internet has been part of the fabric of our daily lives for only one generation, which is why the full force of the Internet is only now being unleashed. Among today's young adults (18 to 29), 95 percent are online, according to Pew. The figure is 87 percent among 30-to-49-year-olds, 78 percent among 50-to-64-year-olds, and just 42 percent among people aged 65 or older. The older generations have resisted the Internet, but they are being replaced by younger generations who live in "the cloud." A growing percentage of the world's population has never known a world without the Internet.

Future generations will see clearly how the Internet revolution led to the dislocations that are causing our current economic woes. In contrast, most of the generations alive today--including all historians, pundits, politicians, and most business leaders--are not in a position to comprehend this cause and effect. Here is their position: They are standing barefoot on a shore, gazing out at the ocean, and seeing for the first time strange white clouds on the horizon. What could be coming their way? It's the Internet, stupid!

Underemployed at Record High Too

Not only are the long-term unemployed at a record high, but so are the underemployed. The most recent issue of the Monthly Labor Review has an analysis of the nation's underemployed. Underemployment is defined as people employed part-time for economic reasons, meaning they cannot find a full-time job or their work hours have been cut because of slack demand. In the fourth quarter of 2009, both the number of underemployed (8.9 million) and the incidence of underemployed (6.3 percent of all employed persons) was greater than in any previous quarter for the past 61 years.

Source: Bureau of Labor Statistics, Monthly Labor Review

How the Great Recession Has Hurt Americans

For just $5 you can download the best study to date of the effects of the Great Recession on the average American. This National Bureau of Economic Research study (Effects of the Financial Crisis and Great Recession on American Households, by Michael D. Hurd and Susann Rohwedder) is based on the smart, new American Life Panel, an Internet survey run by RAND. With findings as recent as spring 2010, the analysis shows that 39 percent of households have been severely hurt by the recession--meaning they have experienced unemployment, have negative equity in their home, are arrears in their house payments, or have had a foreclosure. Monthly household spending is also analyzed, revealing deep cuts in restaurant meals and health care.

Source: National Bureau of Economic Research, Working Paper 16407

Should Poor People Own Cell Phones?

Forty-four million Americans live in poverty, according to the latest Census Bureau statistics, a substantial 14 percent of the population. Who are the poor? They are people whose incomes fall below the level needed to buy what was deemed to be a nutritionally adequate diet in 1955 multiplied by three and adjusted for inflation. Sounds crazy, no?

Crazy, but all too true. Mollie Orshansky, an employee of the Social Security Administration, was charged in the early 1960s with creating a poverty measure. She and her colleagues never meant for the methodology they devised to become permanently enshrined in American economic policy. But politics being what it is, that's what happened. Orshansky believed her calculations would be updated every few years to account for rising living standards and changing spending patterns. No update has ever occurred. The poverty measure she created, based on a 1955 food consumption survey, is simply adjusted for inflation each year. Today, a family of four, is deemed to be poor if their income falls below $21,954.

Officially, poverty in the United States is defined by this income measure alone. The poor may or may not receive benefits such as food stamps, subsidized housing, or Medicaid. In fact, most of the poor do not receive these government benefits. The poor may or may not own a house, a car, a television, a microwave, or even a cell phone. In fact, 97 percent of the poor have a television, 79 percent have air conditioning, and most own a cell phone. As Adam Smith once cautioned, poverty is relative. Begrudging the poor the necessities of the 21st century makes no more sense than begrudging them 20th century basics like running water and indoor plumbing.

Census Counts to be Released Next Week

National and state populations counts for April 1, 2010, as well as congressional apportionment totals for each state, will be released on Tuesday, December 21, at 11:00 am.

Most Fail to Graduate from For-Profit Schools

Another damning report about for-profit universities. This one, from the National Center for Education Statistics, is a longitudinal study measuring how many students earned a degree within six years of starting a degree program at a post-secondary institution. The study examines the earned degrees in 2009 of students who entered school in 2004. Among students in 2004 who entered a degree program at a four-year institution, 51.5 percent of those who attended a public university had a bachelor's degree from that institution six years later. Among those who attended a private, non-profit university, the completion rate was an even higher 57.0 percent. Among those who entered a for-profit school, the figure was only 13.3 percent.

Source: National Center for Education Statistics, Persistence and Attainment of 2003-04 Beginning Postsecondary Students: After Six Years

Lower Life Expectancy for the Less Educated

Years of life remaining at age 65, by education...

Men

Not a high school graduate: 15.1 years

High school graduate: 17.8 years

More than high school: 20.8 years

Women

Not a high school graduate: 18.3 years

High school graduate: 21.4 years

More than high school: 24.3 years

Source: National Center for Health Statistics, Education Reporting and Classification on Death Certificates in the United States

Biggest Increase in Unemployment Rate: Men Aged 45 to 54

Who has been affected the most by rising unemployment rates? It's not the usual suspects--young adults, blacks, or the poorly educated. Those groups have been coping with relatively high unemployment rates for years, so the increase in unemployment during the past few years has not been as great for them as it has for others who have long enjoyed low rates.

Between 2006 (when the unemployment rate reached its low for the decade) and November 2010, the biggest percent increase in the unemployment rate has been experienced by men aged 45 to 54. Their unemployment rate nearly tripled during the time period, rising from 3.1 to 9.1 percent, a 194 percent increase. The overall unemployment rate climbed by a smaller 113 percent during those years, from 4.6 to 9.8 percent.

Source: Bureau of Labor Statistics

Bet You Didn't Know

Percent of Americans aged 15 or older

who watch television on an average day: 82%

Source: American Time Use Survey

More Prescriptions

Percent of people aged 65 or older who have taken three or more prescription drugs in the past month...

1988: 35%

2008: 65%

Source: Health United States 2009, Web Update

The Doctor Will See You...Later

Percentage of adults who did not go to a doctor in 2009:

Under age 65, with private health insurance, 16%

Under age 65, with no health insurance, 47%

Source: National Center for Health Statistics, National Health Interview Survey

Bye Bye White Pages

No more white pages. In the past few months, state regulators in New York, Florida, and Pennsylvania have ended the requirement that telecommunications companies publish residential phone books. Many older Americans will be dismayed. A doctoral student who is writing her dissertation on phone books described it, according to the Associated Press, as “sort of heartbreaking.”

"Sort of" is an understatement. Just ask the baby-boom generation. Boomers are caught between two worlds in a new kind of generational sandwich. The bottom slice is their children, who access the world through the Internet. The top slice is their parents, who access the world through print—newspapers, magazines, letters, and phone books. It is heartbreaking to see the bewilderment of the older generation as familiar icons disappear, one after the other.

Right now—literally right now—it is all coming together (or falling apart, depending on your point of view). The transition from the old world of print to the new world of the Internet is almost complete. In 2010, 79 percent of American households used the Internet, up from fewer than half of households in 2000, according to the Pew Internet and American Life Project. The massive brick and mortar businesses built on the profits generated from putting ink on paper are collapsing.

Boomers are stuck in the middle. Among people aged 65 or older, only 42 percent are online. The older generation is increasingly dependent on boomers—their children—to help them navigate a strange new world.

Long-Term Unemployed at Record High

Almost 15 million Americans are unemployed, and 31 percent have been out of work for at least one year. Never before have so many people been out of work for so long. Among the unemployed aged 55 or older, an even larger 41 percent have been out of work for a year or longer.

Source: Bureau of Labor Statistics

Young Men: Bad Marriage Risks?

As men's earnings have fallen over the decades, women are thinking twice about getting married. The median age at first marriage reached a new record high in 2010 for both women (26.1 years) and men (28.2 years). Simply put, in the eyes of young women, today's young men are poor marriage risks. Why commit yourself to one man with iffy financial prospects?

For many young men, the future looks dreary. One reason for the dismal outlook is that young men are far less educated than young women. Only 29 percent of men aged 25 to 34 have a bachelor's degree compared with 37 percent of women in the age group.

Because of their lower educational attainment, young men are bringing less and less to the table. The median income of men aged 25 to 34 fell 15 percent between 2000 and 2009, after adjusting for inflation. Their female counterparts experienced a smaller 4 percent income loss during those years. Among full-time workers, women in the age group earn almost as much as men ($35,608 versus $41,240). And in the 25-to-34 age group, women are less likely to be unemployed—9.2 percent of women versus 10.4 percent of men in October 2010.

Sociologists have long known about women's aversion to marriage in low-income communities. When men are in trouble, it makes more sense for women to play the field. This aversion to marriage may be emerging in the broader society as the middle class struggles to stay afloat.

Households in the West Decline

Between 2009 and 2010, the number of households in the West fell by 108,000. Most of the decline occurred in the Mountain states (down 77,000). This geographical division includes Nevada and Arizona, two states that rank among those hardest hit by the collapse of the housing bubble.

Source: Census Bureau

Ten U-Turns in Consumer Spending

Household spending peaked in 2006 at $51,688. In 2008, the average household spent $50,486, or $1,200 less after adjusting for inflation. On many categories of products and services, the average household reversed the direction of its spending in the 2006-08 time period compared with the 2000-06 time period. Here are the 10 most telling U-turns in consumer spending:

1. RESTAURANTS: +8 percent to -6 percent Average household spending on restaurants U-turned from an 8 percent gain in the 2000-06 time period to a 6 percent loss between 2006 and 2008, after adjusting for inflation. Because of the Great Recession, Americans are spending more on groceries. Even basic ingredients such as eggs, flour and milk are staging a comeback after years of decline. Don't write restaurants off, however. They still attract the 72 percent majority of households into the marketplace on a weekly basis.

2. MORTGAGE INTEREST: +21 percent to -5 percent Every age group has been hammered by the housing bubble. But no age group has been hit as hard as 35-to-44-year-olds. Because they were in the home buying lifestage when housing prices peaked, they paid top dollar for houses and are--by far--the biggest spenders on mortgage interest. With many losing their homes, average household spending on mortgage interest is declining.

3. STATIONERY AND GIFT WRAP: +15 percent to -11 percent Is there anything more discretionary than gift wrap? Spending on this item climbed significantly during the easy money years of the housing bubble. Since 2006, not so much.

4. DAY CARE: +16 percent to -8 percent As the unemployment rate climbed, spending on day care fell.

5. FURNITURE: +1 percent to -22 percent Houses were selling furiously during the housing boom, but spending on furniture was surprisingly lackluster. Since 2006, average household spending on furniture (and appliances) has collapsed.

6. HOUSEHOLD TEXTILES: +24 percent to -23 percent Towels, sheets, blankets, curtains--nothing is feeling the whiplash more than the household textile category.

7. BABY CLOTHES: 0 percent to -9 percent This category had been defying the long-term decline in apparel spending as births climbed to a record high of 4.3 million in 2007. When the recession set in, the number of births began to fall, and so did spending on baby clothes.

8. DRUGS: +6 percent to -12 percent Out-of-pocket spending by the average household on drugs is down despite the barrage of advertising, the growing proportion of pill poppers in the population, and the penny-pinching of insurance companies. Behind the decline is the Medicare Prescription Drug Plan, which went into effect in 2006.

9. ADMISSIONS TO ENTERTAINMENT EVENTS: +1 percent to -5 percent During the downturn, households continued to spend on high-definition television sets. But they cut back on other entertainment categories. One loser was this category, which includes movie and amusement park tickets.

10. CASH CONTRIBUTIONS: +34 percent to -13 percent Donations to charities are plummeting, says the Chronicle of Philanthropy. The household numbers bear this out. Average household spending on contributions climbed strongly when Americans felt flush, then fell sharply as they tightened their belts.

Living with Mom and Dad

Percentage of 25-to-34-year-olds who live with their parents, 2000 and 2010...

Men

2010: 16.4%

2000: 12.9

Women

2010: 10.5%

2000: 8.3

Source: America's Families and Living Arrangements

Who Lives the Longest?

Well, this is a surprise. Hispanics live longer than other U.S. residents despite the fact that they are the least educated, have the lowest incomes, and are most likely to be without health insurance. The National Center for Health Statistics recently estimated, for the first time, the life expectancy of the Hispanic population. To their astonishment, the calculations showed that Hispanics live longer than blacks or non-Hispanic whites. In 2006 (the latest data available), Hispanics had a life expectancy at birth of 80.6 years. This compares with a life expectancy of 78.1 years for non-Hispanic whites and 72.9 years for non-Hispanic blacks. The actuaries are mystified.

Why the surprise? For one, because education has a strong positive correlation with life expectancy. The more educated you are, the longer you live. Studies have shown that a high school diploma adds five or six years to life expectancy. But only 63 percent of Hispanic adults have a high school diploma, far below the 83 percent of blacks and 91 percent of non-Hispanic whites. Yet Hispanics live longer.

The second reason for the surprise: Hispanics have lower incomes than blacks or non-Hispanic whites, and higher incomes are strongly correlated with a longer life expectancy. Studies show that people in the highest income groups live 4 to 10 years longer than people in the lowest income groups. Yet Hispanics live longer.

The third reason for the shock waves reverberating in the nation's vital statistics corridors is that Hispanics are least likely to have health insurance coverage. Only 68 percent of Hispanics are insured compared with 79 percent of blacks and 88 percent of non-Hispanic whites. Yet Hispanics live longer.

Source: United State Life Tables by Hispanic Origin

More People, Fewer Households

Although the Hispanic population is growing, the number of households headed by Hispanics is shrinking, falling by 127,000 between 2009 and 2010 as the recession forced more to live under one roof. The average Hispanic household now has 3.54 people, up from 3.41 people in 2009.

Source: Census Bureau, Current Population Survey

Fewer "Rooms Used for Business"

Have millions of very small businesses disappeared during the Great Recession? According to the Census Bureau's American Housing Survey, the number of households that report having a "room used for business" fell by 4 million between 2007 and 2009, from 40 million to 36 million. The percentage of households that have a room used for businesses fell from 36 to 32 percent.

Source: American Housing Survey

Age of Marrying at Record High

The median age at first marriage is at a record high for both men and women, according to the Census Bureau's 2010 statistics:

First-time brides: 26.1 years old

First-time grooms: 28.2 years old

Source: America's Families and Living Arrangements

Blame it on the Internet

Will historians look back on the Great Recession and explain its depth and length by pointing to the Internet revolution? Two indicators suggest this may be the case.

One, the widespread adoption of the Internet has coincided with the recession. According to the Pew Internet and American Life Project, the percentage of households that use the Internet climbed from 42 percent in 2000 to 79 percent in 2010. In other words, only during the past few years has the average household had access to the Internet, and Internet access changes the rules of the game. When rules change, economic turmoil results as everyone scrambles to understand the game.

Two, never before have we had so many long-term unemployed, according to the Bureau of Labor Statistics. Among the unemployed, people aged 55 or older are most likely to have been without a job for a year or more—a stunning 41 percent. Is the labor force ridding itself of the generation of workers who were most reluctant to go online?

Source: Pew and Bureau of Labor Statistics

Recession Crowds Nest

Thanks to the Great Recession, the nest is getting crowded. The Pew Research Center reports that 13 percent of adults with grown children have had a child move back home in the past year. The figure reaches a stunningly high 19 percent among 45-to-54-year-olds.

The Census Bureau's 2009 data on American families, released today, confirms the survey results. The number of adults who live with their parents grew from 22 to 24 million between 2000 and 2009. The increase has been particularly sharp among 25-to-29-year-olds. Seventeen percent of these young adults now live with mom and dad. The number who live at home climbed by 39 percent--an increase of 1 million--between 2000 and 2009.

Source: Census Bureau, Families and Living Arrangements

Bet You Didn't Know

Foreign-born women as a percentage of the nation's stay-at-home moms: 34 percent.

Source: Census Bureau, America's Families and Living Arrangements: 2007. (PDF)

Fractures in the Middle Class

We all know that Americans are economically stressed. What we don't know is where the stresses are causing fractures. There are clues in the household statistics collected by the Census Bureau's Current Population Survey, however. Take a look:

1. The number of households headed by people under age 65 declined between 2008 and 2009 for the first time ever.

2. Unexpected household declines (unexpected because the age groups are growing) occurred in two age groups: 15 to 24 and 55 to 64.

3. In both age groups, single-person households registered the steepest decline. The number of single-person households headed by women under age 25 fell by a stunning 17 percent between 2008 and 2009. The number of single-person households headed by men aged 55 to 64 fell by 8 percent.

Since young women are more likely than young men to be in college, could it be that student debt is causing many to reconsider living by themselves as an unaffordable luxury?

Men aged 55 to 64 are the ones most likely to divorce. Could it be that the economy is forcing men with marital problems to stay married or encouraging divorced men to get married? Interestingly, the number of married couples in the 55-to-64 age group increased by 273,000 between 2008 and 2009--up 2.4 percent.

How Much Did You Spend Yesterday?

The average American spent $57 yesterday, according to a Gallup survey. This figure excludes normal household bills and major purchases such as homes and cars.

A year ago, the average American spent $78 yesterday. Ouch.

Why They Are Afraid

The median income of non-Hispanic white men aged 45 to 54 fell by 10 percent between 2000 and 2008, after adjusting for inflation--a loss of $5,666.

Even Stranger

Ok, this is weird--and unprecedented. Between 2008 and 2009, the number of households headed by people under age 65 DECLINED. This has never happened before.

Another Surprise

Looking again at the latest household numbers released by the Census Bureau last week, it is surprising--perhaps shocking--that the number of households headed by 55-to-64-year-olds fell between March 2008 and March 2009, even though the age group was expanding with baby boomers.

The number of people aged 55 to 64 climbed by nearly 1 million between 2008 and 2009 (up by 987,000). At the same time, the number of households headed by 55-to-64-year-olds fell by 26,000.

Not a good sign.

Household Incomes Fell in 2008

It is no surprise that median household income fell between 2007 and 2008, but the size of the decline is surprising. The big news in the Census Bureau's release of 2008 income data today is the statistically significant decline in median household income in all but the oldest age group (65 plus). Overall, median household income fell by a substantial 3.6 percent between 2007 and 2008, to $50,300 after adjusting for inflation. That is down from $52,163 in 2007 (in 2008 dollars), a loss of nearly $2,000 per household. Householders aged 45 to 54 experienced the greatest decline, with their median income falling by 5.4 percent in the past year (a loss of more than $3,600).

Other interesting findings:

Average household size INCREASED between 2007 and 2008 (rising from 2.56 to 2.57 persons per household), despite the aging of the population. Behind the increase was a DECLINE in the number of people living alone as the recession forced people to double up in homes and apartments.

The number of households headed by people under age 25 FELL between 2007 and 2008 as young adults found it increasingly difficult to strike out on their own. This decline occurred despite the large Millennial generation in the age group.

The number of 45-to-64-year-olds without health insurance climbed by 571,000. The percentage who are uninsured in this most vulnerable age group rose to 14.4 percent.

There is no doubt that these numbers are just a preview of what is to come as the Great Recession unfolds.

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.

Cell Phone Spending Tops Landline

Recently released statistics from the 2007 Consumer Expenditure Survey show that average household spending on cell phone service has surged well above spending on residential phone service. Here are the numbers:

Average household spending in 2007
Cell phone service $608
Residential phone service $482

In 2006, spending on residential phone service ($542) was slightly greater than spending on cell service ($524).

Source: Unpublished tables from the 2007 Consumer Expenditure Survey

The Great American Shopping List

Oh, American consumer, how we miss you!

Consumer spending is falling at a 3.1 percent annual rate, according to the latest statistics from the Bureau of Economic Analysis. Many of the nation's retailers reported double-digit declines in October sales, with the New York Times calling it a "collapse" in spending. Since consumer spending accounts for two-thirds of our economy, the belt tightening hurts all of us. To weather what looks like a prolonged economic downturn, businesses large and small need to brush up on consumer spending patterns. There is no better place to start than with The Great American Shopping List.

You can learn most of what you need to know about consumer spending by taking a look at the list--the inventory of every product and service purchased by American households, ranked by how much the average household spends on each item. The federal government collects the information by surveying thousands of households each month, asking them how much they spend on everything from cookies and crackers to video games and recreational vehicles. The Consumer Expenditure Survey data are used to create the all-important Consumer Price Index. Although the list is long, with more than 350 products and services, just 10 items consume more than half of the $50,000 spent by the average household each year. Here they are.

1. Social Security payroll taxes The bad news is that Social Security is our single biggest expense. The average household paid $3,811 into the Social Security trust fund, according to the 2006 Consumer Expenditure Survey. The good news is that this flow of funds reverses direction when you retire. If you don't believe it, join the crowd--only 31 percent of today's workers think Social Security will be their most important source of income in retirement, according to the Employee Benefit Research Institute. The rest will be surprised. The fact is, most American workers do not have a 401(k) or an IRA. Those who do have managed to save very little--and that was before the stock market crash. You don't have to be a number cruncher to realize that Social Security will be even more important tomorrow than it is today. Among people aged 65 or older, 68 percent receive at least half their income from Social Security.

2. Mortgage payments Hyperbole is the word that best describes the media narrative about the dire financial straits of the nation's homeowners. In fact, most homeowners have a manageable, fixed-rate mortgage. Most owe far less on their mortgage than their home is worth. Although there are plans afoot to help homeowners renegotiate their mortgage payment, few will need to take advantage of these efforts. Nevertheless, because mortgage payments are the second largest expense for the average household--an expense that is pretty much non-negotiable--household budget cutting will target items further down the list.

3. Car payments U.S. auto sales are plummeting, down 32 percent in October. Further declines are likely as households cut costs. The automotive industry is caught in a perfect storm--a severe recession, a paradigm shift in what consumers want (hint: better gas mileage), and a demographic transition as SUV-loving baby boomers morph into downsizing empty-nesters. The car payment is one item on which the average household can and is cutting back, forcing car manufacturers to beg the federal government for handouts to stay afloat.

4. Groceries Food prices have been rising at a pace not seen for decades, and forecasters say costs will continue to climb. Americans do not like paying higher prices for food, but they have little choice unless they want to plow up the backyard. Groceries are the fourth largest item in the Great American Shopping List. For grocery stores, the cutback in consumer spending could be good news, since a growing proportion of budget-minded shoppers are likely to head to a grocery store rather than a restaurant. In the grocery aisles, private labels will flourish, as will fresh prepared food--the grocery store's answer to the demand for fast-food convenience. Fresh prepared food is already the single biggest item on America's grocery list. Average household spending on fresh prepared food from the supermarket deli climbed an enormous 53 percent between 2000 and 2006, after adjusting for inflation.

5. Restaurant meals Eating out is a necessity, not a luxury, for busy two-earner and single-parent families with children. Convenience drives them to restaurants and price steers them to fast-food. This is why fast-food restaurants will weather the downturn far better than full-service establishments. At McDonald's, same-store sales were up 8 percent in October. Meanwhile, full-service restaurants such as Bennigan's are filing for bankruptcy.

6. Gasoline Even before prices soared, gasoline was one of the biggest household expenses. Now that Americans are desperately seeking savings, gasoline is an obvious target. Memo to Detroit: Fuel efficiency will be the number-one priority for American car buyers from now on, regardless of the price of a gallon of gas.

7. Federal taxes Taxes are a perennial political issue because they are one of the biggest household expenses. Middle class tax cuts may be on the way, but do not expect this line item to fall much lower in the list.

8. Property taxes With home values declining and local governments strapped for cash, property taxes will become one of the most contentious local issues of the economic downturn.

9. Health insurance The average household devoted $1,465 out-of-pocket to health insurance in 2006, 27 percent more than in 2000 after adjusting for inflation. Most Americans will do just about anything to avoid losing their health insurance, which guarantees budget cutting elsewhere as the cost of health insurance rises.

10. Electricity The average household spent $1,266 on electricity in 2006, placing it 10th on the Great American Shopping List. Consumers are eager for ways to reduce this major expense. This desire will fuel green businesses that can help them save them money.

Every item at the top of The Great American Shopping List is a necessary expense. This is not good news for the hundreds of items further down the list--such as women's clothes in 16th place, television sets in 69th place, ice cream in 123rd place, whiskey in 285th place, or dating services in 359th place. With jobs disappearing, incomes falling, and consumers cutting back, necessities will command a growing share of household spending, leaving less for everything else.

College Enrollment Is Declining

An article in today's New York Times on the rising cost of college includes the following sentence: "Although college enrollment has continued to rise in recent years...it is not clear how long that can continue."

I have posted on this topic before, and I will say it again: college enrollment is already declining. Traditional college enrollment--meaning undergraduates attending four-year schools full-time--fell 4 percent between 2005 and 2006 (the latest data available).

This dramatic reversal of the long-term trend is being masked by an enrollment surge at community colleges. All this was underway BEFORE the current economic collapse. The next few years are going to be very tough indeed for high-priced private four-year colleges.