Summer of 1894 marked the first official celebration of Labor Day in the United States; President Grover Cleveland signed a bill creating a national holiday across the country when reconciliation with the labor movement became a top political priority.  

Since the original Labor Day, the U.S. labor market has been affected by economic upturns and downturns, governmental policies, changes in cultural values, and countless other factors. One significant statistic from the labor market, the unemployment rate, gives the percentage of unemployed workers in the total labor force. The rate reveals how many people are out of work or seeking a job, which affects the American economy as a whole. When one becomes unemployed, an individual or family loses its wages. In turn, the national economy loses the consumption of goods and services that the individual or family would be spending with earned wages. The purchasing power of the unemployed consumer declines and eventually puts other workers out of a job. The fact that unemployment affects purchasing power makes it an economic indicator: a means to gauge future trends in the economy. A low unemployment rate indicates a strong economy usually tied with high consumer spending; a high unemployment rate usually occurs during a time of economic downtown and causes low consumer spending.

During the year of the first Labor Day, the unemployment rate was 7.73%. The Panic of 1893 has just occurred due to international crop failures and other shocks that weakened the economy. Four million people were unemployed during what became a major depression in the business cycle. The unemployment rate confirmed the pattern of economic downtown in several sectors of the economy at the time.

Last month, July numbers showed a present-day unemployment rate of 3.7%, one-tenth of a point up from the record low rate of 3.6% reported in April. The rate has not hit that low of a percentage since December of 1969, indicating a robust labor market in the current U.S. economy. Consumer spending is high, building good business, and in turn, generating more jobs.

The unemployment rate, a trailing indicator, confirms the growth that the American economy is experiencing in the present day. Workers earning wages stimulate economic growth with spending.

The unemployment rate rose one-tenth of a percent between the first and second quarter of 2019. However, the small fraction of growth is not alarming on a month to month basis. If the unemployment rate were to rise 0.5% over a short period of time, there may be reason to worry about economic downturn.

125 years after the first official Labor Day and Panic of 1893, the U.S. sees a robust economy confirmed by a low unemployment rate. Although other indicators such as an inverted yield curve and slowing global growth may suggest an imminent recession, the unemployment rate confirms economic growth and stability in the present day.

Sources:

In his book “Misbehaving,” behavioral economist Richard Thaler analyzed a 2011 study by Justine Hastings and Jesse Shapiro which explored the relationship on spending and gas prices. The study found that during the 2008 financial crisis, when gas prices fell 50 percent from $4 a gallon to $2 a gallon, the money that was saved on buying regular gasoline ended up being spent on premium gasoline instead. Instead of pocketing the money in case of an emergency or allocating the extra cash elsewhere, car drivers viewed their decision to upgrade gas as a splurge. 

If households view premium gasoline as a splurge, then gas may be seen as an economic indicator. By definition, an economic indicator is used to predict investment possibilities and assess the economy’s overall health. In the same way that women view cosmetics like lipstick as an affordable splurge during hard times, an increase in buying premium gasoline can be an indicator of an economic fall. 

Gas is a frequent and telling purchase. 85 percent of Americans either drive alone or carpool to work each day, according to American Community Service data, and there are over 115 million cars on the roads each day. 

Although it may seem counterintuitive to be spending more on a higher grade of gasduring a recession, Thaler attributes this seemingly irrational behavior to a concept he termed “mental accounting,” meaning that consumers all have mental spending “buckets” that are largely separate and unchangeable. For example, the study found that a save in filling up a driver’s gas tank did not readily translate to a consumer using the extra money to upgrade their orange juice or milk choices.

Another study conducted by the American Automobile Association found that 16.5 million motorists in the United States purchase premium gas. However, 70 percent of cars driven in the U.S. require only regular gas. The study estimates that purchasing premium gas wasted $2.1 billion in 2016 because motorists perceive premium gas as better for their engines when in reality, it is an unnecessary purchase. Despite the state of the global financial crisis in 2008, spending on premium grade gasoline rose by 14 times the usual amount even more so than normal, according to the Hasting and Shapiro study.

In April of this year, the L.A. Times reported that gas prices rose to over $4 a gallon for the first time in four years. While the price of gas itself may be seen as an economic indicator, the amount of spending on premium grade gasoline can also chart economic changes. When gas prices go down during periods of economic recession, the purchase of premium grade fuel may go up due to its now-affordability as a splurge item, signaling an economic downturn. As gas prices rise, more consumers have forgone splurging on premium and have settled for regular due its lower cost because in their minds, they don’t have any discretionary funds from their gas money “bucket” to pay for better quality fuel. 

Argentina’s inflation rate has risen to as high as 57 percent this year and has stayed at around 55 percent since its peak in May of 2019.

In recent memory, Argentina has been known for two things: Really good homegrown beef and an extremely high inflation rate. Thank god for the high-quality beef, a key trade asset that has kept some value in the economy. However, even the best beef in the world can’t save the economy from an inevitable crash or crisis. Argentina’s inflation rate at the end of 2017 was only 24 percent, still unbearable, but nowhere near as bad as 57 percent. So the question is, what is the reason behind their 30 percentage point spike in inflation and how do we fix it?

Background information on how we got to this point

The Central bank has tried to control the Argentinian inflation rates in the past, but has proven unsuccessful. The Argentinian peso lost almost 51 percent of its value in 2018, and this year has lost 15 more percent of its value compared to the U.S. Dollar. The disesteemed peso has caused an extreme recession in Argentina, where poverty rates have gone up tremendously. The economy contracted 5.8 percent in the first quarter of 2019. This has left foreigners skeptical to invest in the Argentinian peso, but many continued their investments due to confidence in a turnaround. The spike in inflation in 2019 has not only driven most investors to stay away from the Peso, but has also forced banks to ease limits on foreign exchange interventions. The President of Argentina, Mauricio Macri, has been under a lot of pressure to fix the inflation rate or at least make the economy emerge in the right direction. But with election day coming in October, Macri’s chances of being re-elected are diminishing. Macri was elected as a moderate that would be fiscally conservative, a polar opposite to the “free-spending” 2015 president Cristina Fernandez, who originally started the extreme spike in inflation.

The Inflation Spike!

When Macri was elected into office in 2015, he started off with major budget cuts to offset the “free-spending” of Fernandez. Macri was furious with the free public subsidies given to families to get back on their feet from the 1998-2002 Argentine Great Depression that left millions impoverished. He believed that these subsidies caused an extreme spike in inflation and when Macri became elected, he got rid of the subsidies right away. People had relied on many of these subsidies to help provide for their family, and when these were taken away, they were not prepared to pay for things that had previously been taken care of by those subsidies. Once the budget cut kicked in, “Every time a water, electricity, or home heating gas subsidy was reduced, people’s monthly utility bills went up”(PRI.org), which caused consumer spending to go down dramatically. Business’s also had to pay off the utility bills which raised prices on goods and services. The people could not afford the goods and services anymore. The central bank then raised interest rates tremendously, thinking it was a good decision since the safe United States economy among other safe economies were doing it as well. Instead, private investment went down even more, and the recession got worse as inflation skyrocketed.

Lowering the inflation rate and Argentina’s big decision in October!

People put Macri at fault for the whole situation and blame his moderately conservative policies as the leading indicator for the spike in inflation. However, those policies did not spike inflation on their own as Private investors staying away from the devalued peso helped skyrocket inflation as not enough money was coming into the economy. Many are so angry with Macri that they want to venture back to “free-spending” and vote for the ultra-liberal and former president Cristina Fernandez. Citizens believe that Fernandez will at least lower the inflation rates back to 25 percent from 56 percent, since it hovered around there for part of her presidency. However, many of these citizens are uninformed and there are many lurking variables behind the spike in inflation and what caused it. Yes, Macri made the spike in inflation worse with his policies driving investors away, but this crisis could have been avoided if Macri implemented his policies at a slower rate, rather than drastically changing the economy right away which he did. Fernandez will make drastic changes as her free-spending agenda will raise inflation even more, ultimately making Argentina unlivable. Argentina needs a moderate with a fiscal agenda to take over. Macri was not the right fit, but someone who can read economies better than him, use similar fiscal policies, and implement those policies at a slower rate will make the economy better. If the people of Argentina decide to go ultra-liberal with their inflation rates at 56 percent, then an even bigger crisis is inevitable.

Sources:

Main source: https://www.pri.org/stories/2019-05-06/how-argentina-crept-threshold-crisis-again

Source 2: https://tradingeconomics.com/argentina/inflation-cpi

Source 3: https://www.forbes.com/sites/stevehanke/2019/03/16/argentinas-peso-nothing-but-trouble/#1f5a1d262a9a

Silicon Valley acts as the entrepreneurial hub and home to major tech companies and start-ups on the west coast. TV series and movies depict this culture of wealth and fame. But this San Fransisco tech hub is not the only city in the United States that fosters this type of creative and financially flourishing environment. Over the past 10 years, start-up culture has spread throughout the United States and is flourishing in cities like Boulder, Colorado and Austin, Texas. Boulder has a population of approximately 100,000 people and in a study done in 2010 by the Kauffman Foundation, Boulder has six times more high-tech start-up’s per capita than the nation’s average and twice as many per capita than San Jose-Sunnyvale in California.

Normalizing this start-up culture has helped Boulders economy flourish, but not all metropolitan cities have the financial backing and culture that could support this shift. Though the majority of millennials in metropolitan areas understand the benefits of integrating small businesses and technology into their city, older generations and individuals with a traditional mindset have difficulty coming to terms with this non-traditional shift in career trajectory. But what makes a city a successful hub for start-up and venture capital culture, is the willingness to explore opportunity and advancement for your environment. Start-up culture is fostered by problem-solving, so is it possible that down the line more cities will become tech hubs and how will this affect entry-level jobs and cities economic development? The cities economic and social structure needs to be supported by the infringement that incorporating entrepreneurial opportunities will bring. Automation, data analysis and other forms of technology will continue to grow and change the systems placed by standard job structures, and the infrastructure of the city around it must be prepared for the change it will bring as well. 

Innovation impacts socio-economic objectives.

Incorporating new practices and innovative efficiencies into a new market will have a positive effect on the socio-economic objectives of a city because incentivising an entrepreneurial culture will ultimately resolve unmet needs. Unmet needs meaning desired services, tangible inventions and reforms to existing systems. Opening small businesses and branches of larger corporations and remote offices also mean that there will be more employment opportunities in a city. Whether the level of entry is higher than a cashier or waiter type position, the market will continue to grow and change with an influx of jobs being introduced either way. This incentivizes people to relocate to these cities, like Boulder or Austin, where the market is rapidly increasing with more complex executive positions, that require a form of expertise. For the past 30 years, the resident population in Boulder County has been steadily increasing, which proves that the growing economy is attracting more people every year.

Unmet needs meaning desired services, tangible inventions and reforms to existing systems. Openings of new businesses and corporations also mean that there are more employment opportunities. Whether the level of entry is high, the industries market will continue to grow and change with an influx of jobs being introduced either way. This is a very positive trend in these metropolitan areas because the demand for jobs, while the price o rent, insurance, tuition, etc. all seem to be increasing as well, therefore unemployment rates have been at a steady decrease since the financial crisis in Colorado.

Brad Feld, the author of “Startup Communities: Building an Entrepreneurial Ecosystem in Your City and Co-founder,” the co-founder of TechStars and managing director of Foundry Group, a VC fund focused on early-stage investments, developed the concept called the “Boulder Theory.” This theory is based on breaking down the four major components essential to how start-up communications start and evolve. Noah Horton, CEO, and Co-Founder of Unsupervised, an AI data analysis tool that is used to automatically detect trends and draw insights from a companies data in a much shorter time span, spoke with me about his take on the “Boulder Theory.” Horton chose to relocate to Boulder, CO from the infamous Silicon Valley for a better quality of life. In a phone interview with Horton, he said that, “It just makes more sense to save money and live some place where I will be surrounded by nature and still be able to find incredible talent to come work with us.” Horton has been in Boulder for the past three years and has seen a continual increase in people moving to the city, and finding talent that is leaving the bay area to come to what National Geographic has deemed The Happiest City in the United States.

Commerce and regional economic integration.

What is important to note is that emerging tech and transportation make it possible for small businesses to export and do business on a national and global scale. Therefore working in cities that are not coastal or main financial hubs, make it possible to still be successful. The selling of local goods contributes directly to that particular region’s earnings and productivity which strengthens the economy and supports the ecosystem and local economy. Having increased investment and entrepreneurial activity is extremely beneficial for an interconnected global economy. The trend of starting new businesses and endeavors in a city gives hope, inspiration and motivation to people living in the city to conceptualize the new sense of opportunity in their area. Entrepreneurs finding solutions to market needs and providing new goods and services proves that cities throughout the United States are capable of pursuing similar endeavors that will enrich their local and the nation’s economy. Articles and lists have been published regularly as well highlighting Colorado’s success in businesses thus far. Built in Colorado focused on promoting the “Top 50 start-ups in Colorado” with the first five companies including autonomous vehicle engineers, educational technology, security data analysis, and a virtual reality house realtor, so you can walk through a house without making an appointment to physically go there. These are just some examples in which the city is advancing and growing their infrastructure. 

The proof of growth

What makes projects and change like this so exciting in a city, is that this does not mean that Silicon Valley and New York City are ever going to go away. What this now means is that you do not have to pay to live in one of those cities to have a successful and well-paying job at one of the same companies, there are growing businesses and tech start-ups that are fostering the same environment as they would in any other city. According to BuiltInColorado tech companies in Colorado raised $780 million in funding in 2017 and $35 billion in exits alone in that year. The volume of capital raised is significantly small in comparison to New York raising $4.227 billion in funding during the third quarter of 2017 and the Bay Area raising $4.117 billion as well during that quarter in local start-ups. But, having $35 billion in exits alone means that outside investors are willing to invest and foster the growth of companies out of Colorado because a are aquiring majority of them. In 2017 alone, tech companies, according to CompTIA, made up “9.7% of the workforce in Colorado and contributed $43.4 billion to Colorado’s economy, representing a 14% share in the state’s total economic landscape.” These statistics provide the city with quantitative reason to believe that this direction of Colorado’s investments in start-up culture is benefitting the economy in a positive manner. Honing the ability to create a template or potentially franchisable ideologies and systems to support similar growth in cities across the United States could have a very positive effect on the nation’s economy overall.

Sources:

https://www.cyberstates.org/pdf/CompTIA_Cyberstates_2018.pdf

https://www.nationalgeographic.com/travel/destinations/north-america/united-states/colorado/happiest-city-united-states-boulder-colorado-2017/

https://unsupervised.com/team/

https://www.businessinsider.com/new-york-beat-out-san-francisco-as-a-venture-capital-powerhouse-2017-10

https://www.inc.com/magazine/201312/boulder-colorado-fast-growing-business.html

https://powderkeg.com/the-denver-boulder-startup-scene-a-guide-to-the-front-ranges-givefirst-tech-cultur

https://www.builtincolorado.com/

https://www.builtincolorado.com/2017/10/24/top-100-digital-companies-colorado-2017

As a student graduating with some debt, I empathize with the approximately 44 million borrowers who begin their adult lives feeling financially behind. This is an issue that does not only hinder Americans throughout their lives but especially in the first 10-20 years after they graduate from college. Some of the first steps to becoming financially independent come from getting your own credit card, purchasing high-value items like your first car, groceries, insurance, and then putting money down on your first house. All of these transactions require you to have a certain amount of credit in order to do so, which is difficult when you have upwards of $100,000 of debt to your name before people even apply for their first credit card in their name. Though most importantly, understanding the debt that I will have, along with a lot of my friends, makes me feel nervous about future investments such as purchasing a house. But I am not alone in that concern. The housing market is only decreasing while student debt is skyrocketing, and the long-term effects of this situation are yet to be determined as the debt continues to accumulate. 

Millennials between the age of 24-34 are around 8 percentage points lower than baby boomers and Gen Xers when they were that age in homeownership, according to a report by the Urban Institute, a policy research group. Only 37% of millennials born between 1981 and 1997 are homeowners, which does not show a lot of promise moving forward as the housing and entrepreneurial markets have presented solutions to avoid taking out loans and mortgages. A main factor is also the regressing age of marriage. Societal norms are changing and evolving, normalizing the concept of getting married later and women completely joining the workforce, which was not the case, to the same extent, 30 years ago. The more single people in their 20’s the less people will be willing to invest in property because are not assuming that that will be their permanent residence. This is all very important information because as a borderline millennial and Gen Z individual myself, I believe it is important for us to understand the greater effect these changes are having on the economy and how it will affect the market down the line.

According to the graphs created by the Federal Reserve Flow of Funds on Market Watch’s Capital Report, home prices since 2010 have only gone up at a steady rate, making it increasingly more difficult for the skyrocketing amount of student loan debt. Economists are worried about what this challenge will present for future homeowners. The New York Fed shows that the there is approximately $1.4 trillion of student debt accumulated in the United States, while the GDP is $19.4 trillion. Which means that the student loan debt makes up approximately 7% of the total GDP. With that being said, the amount of people investing in the housing market is decreasing which is a strong contributing factor of why housing prices are high. It also makes it difficult that the millennial generation is so keen on leases and rentals rather than making long term investments.

With new companies such as Airbnb entering the space, and co-ops providing short term housing, they are effectively changing the perception and future of the housing market. Conceptually, it will be very challenging to reverse a generation’s perception of long and short term goals with investing, marriage, and daily spending habits. So it will be interesting to see how the value of the housing market shifts and if reforms will be made to help appease the student debt crisis at the whole.

Sources:

https://www.marketwatch.com/story/the-surge-in-student-debt-may-be-linked-to-the-wreckage-in-the-housing-market-2018-01-26 

https://www.nar.realtor/sites/default/files/documents/2017-student-loan-debt-and-housing-09-26-2017.pdf

https://www.cnbc.com/2018/03/29/these-are-the-ways-student-loans-stop-people-from-buying-a-house.html