Summer jobs for teenagers are expected to rise this summer. Even better news, while the job openings are higher, so too are the wages young workers can command.

 

Teens have a long history of labor market participation in America. Between World War II and the end of the 20th century, at least half of the nation's teenagers were active participants in the labor force. 

 

Back in my day, getting a summer job in high school was a status symbol, a source of spending money, and a chance to show the world what I could accomplish given the chance. Back then, summer jobs provided real-world experience and helped street kids like me develop work-related skills, especially soft skills that apply to almost all career paths.

 

I credit summer and after-school jobs for keeping me on the right side of the law in a neighborhood where crime, gang fights, and booze on the corner were a nightly occurrence. Academic research indicates that summer employment still has positive effects on all of the above areas, plus teenagers' overall academic and career aspirations, work habits, and job readiness. 

 

Over the past three years, as readers know, the U.S. has been wrestling with a nationwide labor shortage. Blame the Pandemic, the retirement of Baby Boomers, the strong economy, or whatever. One silver lining in this woeful tale is that the demand for teen labor has increased dramatically.

 

The workforce of 16- to 19-year-olds was hit hard by the Pandemic. That made sense since teens usually work at the entry-level in the retail trade, leisure, and hospitality sectors. Those were the areas that were most impacted by Covid-19 and the subsequent lockdowns, etc.

 

As the labor market began to bounce back in 2020, teen employment improved as many older workers continued to remain out of the workforce. Demand for service jobs skyrocketed. By the end of the first quarter of 2023, the teen employment rate in the U.S. stood at 33.4 percent. That was the highest rate since 2009, according to "The 2023 Summer Job Outlook for American Teens," a research study by Rhode Island College.

 

Since 2019, the tight labor market, especially at the entry-level, caused hourly wages to rise sharply. Weekly pay for summer teen workers increased from $280 in 2019 to $300 by the summer of 2022. That 7 percent increase beat the 20-to-24 age group's 4 percent gain and the prime age group (ages 25-54) wage gain of 2 percent. Older workers (over 55) saw wages decline by 1 percent.

 

The national lifeguard shortage is a good example of this trend. For the third summer in a row, a lack of lifeguards is expected to keep about a third of the nation's 309,000 public pools closed or operating with reduced hours. This does not include beaches, water parks, and other venues, which are in a similar position. Teenage workers are nowhere to be found. To woo more young workers, cities, and states are raising wages and/or offering incentives including one-time bonuses.

 

The bad news for teens overall is that since the turn of the century, the participation of teens in the workforce has been on a steady decline. At the peak of the 1990s' labor market boom, 52 percent of teens were working. Teens held one out of every 20 jobs across the nation. By the Great Recession of 2008-2009, the teen participation rate in the labor force fell to 41 percent and remained in a range of between 34-35 percent from 2011 through 2019. At that point, one out of every 30 jobs were held by teens.

 

No other group experienced such a sharp decline in employment during those years. What is worse, the U.S. Bureau of Labor Statistics has forecasted that by 2031, the teen participation rate will fall to under 30 percent.

 

The reasons for this troubling demographic are varied. Substantial job deficits were a source of unemployment for most Americans during the period in question. At the bottom of the Great Recession, there were six unemployed workers for every job opening. Unemployed college grads found themselves working in the food services and retail trade. In addition, older workers and unskilled or undereducated foreign workers took many of the menial jobs usually reserved for youth. In sum, teens were crowded out of a scarce employment market.

 

The question remains. Will this renaissance in labor participation for today's teens continue, or is it simply a flash in the pan? I hope that the Labor Department is wrong, and America's youth will find their summer jobs as fulfilling as mine was.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

As the smoke from Canadian wildfires clears (literally) here in the Northeast, the awareness of climate change has risen. For the insurance industry, that knowledge has already precipitated some worrying policy changes.

 

Last month, the news that two major insurers were no longer going to sell homeowner's policies in California may have come as a surprise to some. But like me, I am sure that most readers simply dismissed the issue as a problem between a West Coast state's regulations and the insurance industry.

 

In California, which some think as the home of liberal politicians and crazy ideas, regulators have capped rates insurance companies can charge the public. On average, residents pay $1,300 per year in insurance rates, which has been artificially low for years when compared to other states. After years of losses, State Farm and Allstate Insurance companies called it quits.

 

Last month, State Farm stated that "due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," they were done accepting new applications for property insurance from both homeowners and commercial property owners.

 

What to do? The easy answer would be for California to just remove the rate cap for insurance, the companies would relent, and the problem is solved. Sure, that works, if you are OK to see your insurance policy double, triple, or maybe quadruple in the years to come as wildfires continue to rage. And it is not just about wildfires.

 

Take Florida's issues for example. Hurricanes and flooding have devastated the state. As of right now, homes are still insurable in many areas, but at what cost?

 

In Florida average annual rates are forecasted to rise 43 percent to almost $6,000 this year. Experts believe that the annual cost to insure your home in Florida could top $10,000 a year in a few years. In some areas, it is already that high. Despite those rates, two dozen Florida insurers are on the state government's financial watchlist as rates are still not keeping up with underwriting losses.

 

In many areas of Florida, the only recourse for homeowners' insurance is the state-backed Citizens Property Insurance, which has become the largest insurer in the state with greater than 1.2 million customers. And like California, rate increases are restricted by regulators. Aside from the intensity and frequency of damage from climate change, home replacement costs have also gained by more than 50 percent since 2019 as wages and material costs have climbed.

 

As in other areas, reinsurance costs (insurer's insurance) have also skyrocketed, especially in areas that have been impacted the most by climate change. Today, insurance costs are the highest and/or most difficult to procure in California, Florida, Texas, Colorado, Louisiana and New York in that order.

 

Over half of the worst disasters (in dollar terms) in U.S. history have happened since 2010, according to the National Multifamily Housing Council. Unfortunately, as time goes by, climate change in the form of drought, tornados, hurricanes, wildfires, snowstorms and floods will increase and impact all 50 states. And those are only the most common catastrophes we face today. The spread of life-threatening insects and disease, dust storms, rising water levels, and permanent damage to shrinking coastlines and waterways is yet to come.

 

Insurance costs, where available, are going to continue to rise, in my opinion. Many homeowners in more and more locales might find that they cannot obtain insurance. As climate risks rise, certain regions of the country could become uninsurable, at least by the private sector. Without insurance, the chances of obtaining a mortgage would be difficult at best. In the end, it would make living in certain areas cost-prohibitive for all but the very wealthy. That would spark migration away from coastlines and further inland. Many climatologists believe that is the best and only solution.

 

The alternative would be to establish some form of government insurance based on the California or Florida model.  Homeowner insurance rates would need to be capped, but the taxpayer would ultimately be on the hook to cover losses. I am not sure how happy voters would be with that solution. All that would manage to do is continue to escalate the cost of climate change, chase insurers out of the business, and allow (encourage) those who live in danger zones to continue to do so. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The debt ceiling crisis has come and gone but the financial markets did not get away scot-free. The bond market is facing an avalanche of new bond sales that could pressure interest rates higher.

 

The government's bank account, called the Treasury General Account, is practically empty in sovereign terms. Today, there is less than $50 billion in the account as of June 2, 2023.

 

The U.S. Treasury has been draining this account since January 2023, when the government debt ceiling controversy started to heat up. The government cut back on the number and amount of bond auctions, which were almost a weekly feature of sovereign debt financing in normal times.

 

The dearth of new supplies of government bonds added liquidity to the financial system. As the fear of a government default grew, yields on government bonds rose and liquidity continued to increase. Where did all that money end up — in the stock market?

 

It explains to some extent why investors flocked to the FANG stocks. Investors sought the largest, safest, most liquid equities they could find as bond equivalents. Stocks continued to climb as liquidity increased.

 

Could we be facing a reverse of this situation as the supply of Treasury bills increases in the months ahead? The answer depends on how much money the government will need to raise in the short term.

 

Experts expect the government will need to raise as much as $1 trillion-$1.4 trillion in Treasury bills over the next six months just to return the government's balances to normal. That would include continued funding of the U.S.'s day-to-day needs.

 

If that estimate proves to be accurate, it would be the largest issuance of Treasury bills in history (excluding the major financial crisis of 2008 and the pandemic in 2020). To put this in perspective, the money needed to be raised would be about five times the supply of bills in an average three-month stretch in the years before the pandemic.

 

On the negative side of the ledger, dumping that amount of bills onto the market, while the economy appears to be slowing, is risky enough. If one also includes the problems in the regional banking sector, then we may be flirting with financial danger. Siphoning a lot more money out of the banking system, which has already seen enormous outflows because of the regional banking crisis, would force these banks to raise more cash.  Their financing costs would rise and stress an already fragile system.

 

However, some positives could mitigate some of the risks. Currently, more than $2 trillion is sitting in money market assets yielding over 5 percent at the Federal Reserve Bank's overnight repo facility. This money is what I call "yield-hungry assets" that can move to wherever the return in yields is greatest. That money could easily support the government's treasury bill auctions, but the price of that would be higher interest rate yields.

 

What that may mean for you and me, is an opportunity to earn even more on your money market funds this summer. It could also mean an overall rise in yields on two-, three-, and four-year bonds, which could also offer bond investors opportunities. It could also cause some disruption in the stock market during the same period. Time will tell.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

For more than a year, consumers have been contending with higher food prices. The latest read of April's Consumer Price Index, however, gave some hope that relief may be around the corner.

 

Headline inflation rose 0.4 percent last month but a look under the hood revealed that the "food at home index" declined. This was the second month in a row that prices for fruit, vegetables, meat, and eggs among other items, fell.

 

That may be so, but I certainly am not seeing those price declines in my shopping bill. Let's take eggs for example. You may remember that in December 2022, we were paying as much as $5.46 on average for a dozen eggs. The culprit behind those soaring prices was a historic outbreak of avian influenza or bird flu that coincided with the winter holidays. The epidemic killed millions of egg-laying hens. Since then, influenza has subsided and there have been no new cases detected at commercial farms since December 2022.

 

The industry has bounced back since then and as it has the price of wholesale eggs has fallen. At the end of April, the benchmark Midwest Large White Egg price has fallen to $1.22 per dozen. That is a 78 percent decrease in five months. Some produce analysts expect we could soon see egg prices dip further to below $1 a dozen.

 

The average consumer paid $3.45 for a dozen large Grade A eggs last quarter, according to government data. That is down from January's $4.82, but still more than double the $2.05 the prior year.

 

While this may be good news for some consumers, a trip to my local supermarket tells me retailers have certainly not passed on those price savings to customers. Retailers can sell their eggs at whatever the market will bear. Here in the Berkshires, we are way above the so-called "average" egg prices. At Price Chopper, for example, a dozen cage-free Grade A large eggs are going for $5.39 a dozen, while organic eggs are $8.99. That is a markup of 441 percent and 736 percent.

 

I know there are other costs that retailers need to cover — transportation, labor, etc. — and there is always a lag effect between a decline in wholesale prices and the price we pay at the check-out counter. We could see price cuts in the months ahead for eggs and other products but the jury is still out when it comes to beef.

 

Beef prices remain in the stratosphere. There are reasons for this situation. A continuous and extreme series of droughts in the U.S. in recent years has made maintaining cattle herds expensive or, in many cases, impossible to maintain. Herds (including breeding cows) were slaughtered, which has resulted in a growing scarcity of beef products. This year will be the first significant drop in beef production since 2015. Less beef supply usually means higher prices if demand remains the same.

 

There is some evidence, however, that beef prices may have reached a level where consumers are beginning to cut back on their beef purchases. Tyson Foods, which processes 20 percent of the nation's beef, poultry, and pork, saw its first fiscal quarter net income drop more than 70 percent based on weaker results in all three of those product areas. Analysts believe some consumers are substituting more chicken and pork for beef in their diets. Tyson was caught between higher live cattle prices and less consumer demand and was forced to reduce prices somewhat. Will this trend continue?

 

That remains to be seen. Demand for beef usually picks up about now (during the grilling season), so this summer will be key to determining the consumers' appetite for continued purchases of high-priced hamburgers and steak. If so, we can expect meat processors and retailers to charge even higher prices in the fall and winter for meat. However, if the economy begins to slow, consumers might cut back even more on their spending across the board and that could keep beef prices flat or even slightly lower.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Nationwide, rents have been climbing since the pandemic, but it is still cheaper to rent than to buy in most of the country. As such, in some states, building houses-to-rent is becoming a trend.

 

Home prices continue to soar with the median sale price of a U.S. home gaining 32 percent in the first quarter of this year from the same time in 2020. Throw in the climb in mortgage interest rates and there is no wonder that a record number of Americans believe it is a terrible time to buy a house, according to a Gallup survey. Renting seems to be the only alternative.

 

But the unfortunate fact is that rents are growing faster than incomes in the U.S. The trend began two years ago and is gaining steam. The reasons are simple. As the pandemic abated, the number of U.S. households grew by 1.48 million. Young adults, who had been sheltering with their parents at record numbers, began moving out and finding their places. Unfortunately, a soaring housing market locked out many of these would-be first-time home buyers.

 

That has forced many to rent while waiting for interest rates and housing prices to decline. At the same time, many local governments and management companies that had limited rent increases during the pandemic began lifting those rent controls. As a result, landlords are jacking up rents to make up for two-plus years of rent freezes just as the demand for rentals has increased.

 

In addition, the trend toward working from home opened opportunities for white-collar workers to move from pricey locations to more affordable areas. That wealthier demographic trend has driven rental prices higher in areas where there was not enough inventory to satisfy this influx of demand.       

 

In the first quarter of 2023, the average renter, according to Moody's Analytics, needs to spend almost 30 percent of their monthly income on monthly rentals. That sounds like a lot, and it is, but that number is down from last year's historical peak when the rent-to-income ratio was higher than 30 percent.

 

Last year there were several urban centers where the burden of high rents was overwhelming incomes. As you might imagine, cities such as New York, Boston, Philadelphia, Houston, Palm Beach, Miami, Los Angles, and Northern New Jersey are experiencing rent increases that are above the typical mortgage payments.

 

Entrepreneurs in the building and construction industry are recognizing the opportunity in the rental markets. Their answer is build-to-rent (BTR) housing. BTR allows the renter to move into a brand-new home without the need for a huge down payment, or a long-term lease. In many cases, that rent includes amenities and professional property management.

 

In most cases, build-for-rent homes are clustered together and form a community like an apartment complex but not always. Depending on the locale, some communities consist of townhouses or cottages, or even detached family houses.

 

Builders like the concept, since the community projects can be put together in bulk and all at once. Construction can be accomplished faster and without checking in with the home buyer, who may have countless questions, changes, and thus delays. Potential landlords like them as well since each house is designed for efficiency, making repairs and maintenance easier.

 

There is a housing shortage in America. Experts believe the nation needs anywhere from 3 to 6 million more homes. Build-to-rent homes won't satisfy that demand overnight, if ever.

 

It is early days in the BTR market since there are only 115,000 units in the construction pipeline throughout the U.S. Arizona, North Carolina, and Texas lead the nation thus far in construction and many municipalities are still struggling with how to zone these communities. In 10 states there is no construction planned at all including Oregon, Massachusetts, and West Virginia, according to the National Rental Home Council. As rental prices continue to climb, however, so too will build-to-rent housing in my opinion and that is a good thing for both builders and renters.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.