7 minute read
1. The Great Graduate Struggle: Fewer Jobs with More Debt
- College grads aged 22 to 27 face record unemployment rates alongside rising student loan delinquencies, exacerbated by a cooling job market
- The end of the pandemic loan pause means missed payments now hurt credit scores, adding pressure to already financially stretched young individuals.
What you need to know: The U.S. job market is cooling, and fresh college grads are feeling it the most. In September, their unemployment rate was nearly 3% higher than that of all degree holders, data from the Federal Reserve Bank of New York shows. This marks the biggest gap since 1990 - except for the early pandemic months.
Why it matters: This data shows that graduates - aged 22 to 27 – are struggling to break into the job market. Meanwhile, in September, there were 7.4 million unfilled jobs - far fewer than the 12 million open in March 2022, according to the Bureau of Labor Statistics. The hiring rate has also dropped steadily in recent years and now sits below its long-term average.
Now the Dunham Deep Dive: The job market continues to cool, and the data shows that it is disproportionately affecting college graduates.
But here’s the bigger picture... A weak job market is colliding with $1.75 trillion in student debt.
As I highlighted in September’s piece - “Student Loan Crisis: A Growing Problem That Will Soon Hit Credit Scores” - missed payments now impact credit scores.
- Remember, during the pandemic, the government paused loan payments which essentially protected borrowers from penalties. Thus, missed payments weren’t reported, and interest didn’t accrue. But that grace period finally ended on October 1, 2024 – with missed payments now reported to FICO and credit agencies.
And student loan delinquencies have already climbed over the last few months, thus a weakening job market could make matters worse - after all, it’s hard to repay debt without a steady income, right?
Meanwhile, for grads aged 22 to 27, the challenges keep piling up. For instance, TransUnion recently reported that Gen Z consumers in their early 20s carry more debt and face higher delinquency rates than millennials did at the same age during the Great Recession. This includes credit cards, mortgages, and student loans.
Although it’s unlikely to be a death rattle for the economy, it is a worrying mix - and one to watch closely as it may have both political and economic headwinds later.
Figure 1: Bloomberg, November 2024
2. Japan’s Economic Dilemma: Inflation Hits, but Spending Sinks
- Japanese households are cutting spending, with inflation and a battered yen driving higher costs and shrinking consumption.
- For the first time ever, household debt has surpassed income, with rising mortgage rates hitting young families hardest.
What you need to know: Japanese households cut spending for the second straight month, as inflation keeps denting consumption. Household outlays fell 1.1% in September from a year earlier, beating expectations of a 1.8% drop. This follows a 1.9% drop in August and spending rising only twice in the past year (and only three times since 2023).
Why it matters: Consumer spending in Japan – which is the world’s third-largest economy - has struggled to gain momentum. For 30 months, shoppers have faced prices rising at or above the Bank of Japan’s inflation target – which has curbed spending. After decades of weak consumption, Japan now faces added pressure from persistent inflation – making recovery seem more distant.
Now the Dunham Deep Dive: Japan’s economy still can’t catch a break.
After decades of weak growth and deflation following the 1991 bubble popping, Japanese elites believed inflation could revive consumer spending. So, they tried it all - zero interest rates, negative rates, and even inventing the quantitative easing (QE) playbook used by the U.S. since 2008.
Well, finally, inflation arrived - thanks to a global pandemic.
But ironically, instead of spending more, consumers are cutting back as prices rise, wiping out any hope for consumption growth.
- The yen’s collapse has only made things worse. Since 2020, it’s fallen 45% against the dollar, with the exchange rate sliding from 108 to 155 yen. This has pushed up import prices, straining households further.
Meanwhile, for the first time ever, average household debt now exceeds income.
In 2023, households with two or more people owed 6.55 million yen ($43,500), while earning just 6.42 million yen. Most of this debt - nearly 90% - is tied to home purchases, with Tokyo’s soaring housing market hitting young families hardest.
But here’s the key: Japanese households don’t borrow to consume; they borrow to buy homes. When prices rise, they simply cut back on everything else (as the data shows). Thus inflation is just straining them further.
So while experts hope wage growth may help this, I’m still skeptical. Because even with higher incomes, it seems likely they’ll just save more instead of spending more.
This dynamic could indicate the Bank of Japan may raise rates less than many expect (as higher interest rates may slow consumer spending further) – which has global implications from the infamous “yen-carry” trade.
- aka when investors borrow yen because it’s cheaper, thanks to Japan’s low rates. Then, they invest in higher-yield assets like stocks or U.S. dollars. The profit comes from paying little on the yen and earning more from the investments.
Time will tell.
Figure 2: Bloomberg, November 2024
3. From Powerhouse to Pressure Point? The Germany Economy Is Stalling
- Germany’s economy, once Europe’s engine, faces stagnation as productivity drops and key export advantages vanish.
- A weaker Germany risks destabilizing eurozone policies, with its struggles reverberating across trade, investment, and monetary decisions.
What you need to know: Germany’s economy is set to stall as the year ends, weighed down by a weakening labor market and looming trade tariffs, the central bank said Tuesday. While the economy managed a modest 0.2% growth in the third quarter, the Bundesbank sees little chance of this continuing, with domestic productivity, foreign demand, and investment remaining very weak.
Why this matters: Germany, Europe’s largest economy and the world’s fourth largest, is a cornerstone of the eurozone. Its slowdown matters because as a major export hub and manufacturing powerhouse, Germany’s struggles ripple across Europe, dragging down trade, investment, and growth. The decline also highlights deeper structural challenges - from aging demographics to energy market pressures – which may force other euro economies to change.
Now the Dunham Deep Dive: Germany’s economy - once a powerhouse of global stability and productivity in Europe - is now facing serious trouble.
In short, its success essentially relied on three key factors: industrial exports to China, cheap Russian energy, and nearshoring production to low-cost eastern European neighbors. All three are now gone.
The result? A shocking drop in productivity, which was already stagnating for years (see chart below).
- The deeper issue is labor productivity – aka real GDP per hour worked. Once a major driver of economic growth, it peaked in 2008 and has since fallen 8%, a troubling sign for Germany’s long-term economic model.
Add to that heavier regulations, terrible public investments, and slipping education standards, and the picture grows hazy.
Making matters worse, Germany’s auto sector - a global leader - is also under pressure. It’s battling a trade war with China, and the return of Donald Trump to the White House could bring U.S. tariffs on German cars
But this isn’t just Germany’s problem. As Europe’s largest economy, its struggles ripple across the EU. Germany has long shaped Europe’s monetary and fiscal policies. Thus, a weaker Germany could lead to mismatched policies and even destabilize the euro.
- Take interest rates, for example. If Germany needs lower rates to recover, it could clash with stronger economies like France or Italy that are fighting inflation. The European Central Bank’s one-size-fits-all policy could deepen these divisions, with Germany’s size making its struggles impossible to ignore.
With all this said, Germany - and by extension, the eurozone - face deep, structural challenges ahead.
Keep your eyes open on this one.
Figure 3: Trading Economics, November 2024
Anyway, who knows what will happen?
This is Just some food for thought as we watch how these trends develop.
As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.
Sources:
- The Labor Market for Recent College Graduates - FEDERAL RESERVE BANK of NEW YORK
- Why Gen Z Is Sinking Deeper Into Debt, Explained - Bloomberg
- Japan’s Household Cut Spending Once Again as Prices Rise - Bloomberg
- Quantitative easing - Wikipedia
- Japan: Average household debt exceeds income for the first time
- German economy to stagnate as labour market cools, tariffs loom | Reuters
- Germany’s economic stagnation and lessons for the EU – GIS Reports
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