Americans Living Paycheck To Paycheck

In theory, if the labor market gets to full employment in the next few quarters and there isn’t an immediate recession, the economy will be limited by the working age population growth. Everyone who could come off the sidelines and into the labor market already will have done so. There isn’t an exact level we can point to where full employment will be reached, but the peak in the prime age labor force participation rate in 1999 gives us a big clue as to how full the labor market can get.

As you can see in the chart below, if this occurs, America will be in relatively great shape.

Interestingly, even though America is a developed economy and China and Russia are emerging markets, America is the one with the highest expected working-age population growth. China is developing because of its low GDP per capita, but its population will actually peak somewhere between 2030 and 2035. America has great long term demographics.

This supports the notion of heavily weighting American stocks in your long term portfolio. If you live in America, critics will scream going overweight America is home country bias. Forgetting about this bias, it is bad for diversification if you heavily invest in the country you get your paycheck from. The good news is American large caps have a high percentage of their sales coming from international markets. Therefore, you’ll never be completely ‘all in’ on America unless you put all your money in a small cap ETF.  

Paycheck To Paycheck

Despite the doom and gloom in the media which states American consumers are highly indebted and aren’t seeing their personal balance sheets improve, the percentage of people living paycheck to paycheck is declining. Even the personal finance horror stories can be vanquished by a strong labor market which has provided plentiful jobs and accelerating real wage growth. As you can see from the bottom chart below, the percentage of people who agree or strongly agree with the statement that they live paycheck to paycheck has recently fallen sharply to 37.8%.  

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