Young people in the US labour force – caught between a rock and a hard place

For a number of months, US employment has taken a clear turn for the worse, having been at record levels for a long time. The speed of the deterioration is remarkable, particularly in some age categories. This is particularly the case for those in the 20-34-year-old bracket, where the unemployment rate rose above 5% in October for the first time in 18 months. Indeed, the number of jobseekers in this category has jumped by close to 20% in six months, versus just a little over 10% for the labour force aged over 20. Whilst the November figures – somewhat difficult to interpret due to the return to work of strikers in the automotive sector – showed some improvement, these figures are worrying.

Firstly, because a rise in the unemployment rate among young people in comparison to the overall population is generally a good leading indicator for recession. Secondly, because this category of the US population is performing badly in other macroeconomic data sets. This is the case for repayments on consumer loans, credit cards and car loans in particular. In these two areas, the rise in repayments that are 90 days overdue has been highest in recent quarters for 18-29-year-olds and, especially, for 30-39-year-olds. Overdue payments are now significantly higher than in the pre-Covid era. Whilst these age groups are not the major holders of such loans, they are the ones having the most difficulty dealing with loans on which interest rates have sky-rocketed in recent months – to well over 20% for credit cards. This is due to a swifter deterioration in employment, lower savings reserves, and the end of the moratorium on student loan repayments.

18-39-year-olds hold 53% of student debt, and 30-39-year-olds alone, 33%. The resumption of repayments on student loans came into full effect in October and thus mainly affects young workers, i.e. those already struggling more than the rest of the population to keep up with consumer credit payments, and seeing their employment prospects deteriorate more quickly than the average. The consequences of this are significant. Young workers are major contributors to discretionary consumption due to a number of factors, including a higher marginal propensity to consume^[1]. They also make a significant contribution to residential investment in particular. In other words, these age groups are a key driver for economic momentum, especially in the US where private consumption represents 70% of GDP. The pressures confronting young workers today – as regards both the employment market and the interest burden – thus require careful monitoring, to assess the trajectory of the US economy in the coming quarters.

Final version of 8 December 2023 – Enguerrand Artaz, Fund Manager, La Financière de l’Echiquier (LFDE)

^[1] Marginal propensity to consume measures how much more individuals will spend for every additional unit of income.