Consumer debt outweighs glowing jobs numbers

Kathleen C. Jacobs

Data on the July jobs situation was released by the Bureau of Labor Statistics on August 5, 2022. The number of jobs rose by 528,000. That was double the economists’ projection. The unemployment rate fell to 3.5% and wages increased by 0.5%.

So why am I not jumping for joy? It’s what’s behind the numbers that worry me.

Inflation is rising at a faster rate than last month’s tiny 0.5% increase in the average hourly wage. Does this leave consumers with a lot of worries moving forward? These concerns relate to three types of consumer debt: mortgage debt, student loan debt, and car loan debt.

Mortgage debt remains the largest debt hanging over consumers’ heads. It is common to hear many people say that they own their home. The truth is, most people don’t own their homes. This includes seniors approaching retirement and many who are already retired. Previously, mortgages lasted 15 to 30 years, but today some mortgages can extend for 40 years or more. Instead of leaving assets or money to their children or grandchildren, upon death what mortgage payers are left with are unpaid loans or the task of selling the home and collecting the equity in the home. , if applicable. Actual home costs are far from the original price quoted on the original date of purchase due to high interest rates and long term payments. It may seem like house prices are going up, but the truth is that most inflation-adjusted homes are just keeping pace with inflation. There are various online inflation calculators where consumers can work out the numbers themselves.

Student loan debt is the second biggest debt people are buried under. As colleges and universities prepare to open this fall, their finance offices are waiting with open arms. As the rate of college graduates has increased in the country, student loan debt has also increased. I’m sure everyone in today’s society can agree that a college education is an absolute necessity. Statistical data, from the Bureau of Labor Statistics, proves this to be a definitive reality. The unemployment rate for someone with a university degree (bachelor’s, master’s, professional degrees and doctorate combined) has been around 2% since last month. With these four different levels of education factored into the 2% unemployment data on the job situation in this month’s report, it’s easy to see how low the level of unemployment will be with each level. higher degree. The unemployment rate for someone with only a high school diploma is 3.6%. For high school dropouts, the unemployment rate is 5.9%. Another difference is the salary. University graduates tend to be salaried employees, which means they are not paid hourly and are paid much more no matter how many hours they work or how many jobs. overtime they can work. High school graduates tend to be paid an hourly wage, unless they are self-employed. For college graduates, the debt is worth it in the long run. Some finance experts even call it an investment which I agree with but the bottom line is that it is still a debt that has to be paid over a period of time after graduation. The duration varies.

Auto loan debt has also increased. Car loans used to run no more than 3-5 years, now they can run up to eight years or more. Some people end up paying more for their cars than the original sticker price due to stretched monthly payments and higher interest rates. In business, we call it being underwater. Even with more people working from home before and after the pandemic, personal transportation is an absolute necessity. In fact, the Bureau of Labor Statistics pointed out in its August 5 report that last month only 7.1% of workers reported telecommuting due to the pandemic. This means that an overwhelming majority of workers commute to work by car. In addition to car transportation for work and leisure, cars are needed for other activities, including transporting children to and from sporting events, dental appointments, doctor’s appointments. doctor, etc

In summary, at first glance, the report on the employment situation published by the Bureau of Labor Statistics for the month of July looks good at first glance. It’s what’s underneath that worries me. Cash outflows from households continue to outpace cash inflows due to consumer debt. In my opinion, the debt that most Americans are stuck with is not eradicated with a positive job status report. Nor are they mutually exclusive.

Kathleen C. Jacobs

Dr. Kathleen C. Jacobs is professor emeritus of business management at Wesley College and former state president of the American Association of University Women of Delaware.

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