Facing faint job prospects and mounting student loans, Courtney Schlottman did what many others her age have done, and moved back in with a parent. She became one more data point contributing to the nation's stunted rate of household formation.
Facing faint job prospects and mounting student loans, Courtney Schlottman did what many others her age have done, and moved back in with a parent. She became one more data point contributing to the nation’s stunted rate of household formation.
That’s a fancy way to describe the rate at which grown children leave the nest or depart the world of roommates for their own places. Derived from Census Bureau data, it’s an important economic indicator because, when normal, it portends a healthy housing sector, which in turn bodes well for the wider economy.
Statistics aren’t high on the list of worries for Schlottman, 23, a would-be educator who graduated from Bloomsburg University last year. She’s moved back in with her father in Reading, Pa., while riding out an underperforming economic recovery.
“In order for me to be financially stable, I have to live with my father,” she said. “I’m hoping it’s not much longer, maybe a year or two. But going to interviews and not hearing anything back, it’s not promising. My hope is one or two years from now I can get a full-time job.”
Since 1965, the number of households has grown at a rate of 1.5 percent annually, according to census data, and that’s meant about 1.3 million new ones every year. But since the Great Recession began in December 2007, and going well beyond its end in June 2009, the rate of new households has slowed sharply.
“The number of households, via quarterly Census Bureau data, (suggests) we’re only adding about 600,000 to 700,000 this year,” said David Crowe, the chief economist for the National Association of Home Builders.
Schlottman personifies why economists worry about the flagging household-formation rate. Unable to find full-time work, she’s underemployed, working as a college-educated teacher’s aide and forced to live at home in order to pay off student loans.
Multiply her plight across the economy, and there’s a huge ripple effect.
“While younger adults . make up a relatively small proportion of heads of households, they account for almost three-quarters of the overall shortfall in household formation,” Timothy Dunne, who was then a vice president at the Federal Reserve Bank of Cleveland, said in an August 2012 report, citing numbers that haven’t improved much.
Workers aged 20 to 34 are vital to foot traffic in shopping malls, sales at automobile dealerships and the pace of new homes being built. For all that to happen, however, there must be more jobs for them.
“How do you get household formation moving? It means getting the economy moving faster, more jobs,” said Jack Kleinhenz, the chief economist for the National Retail Federation.
Retailers feel the lagging rate of household formation in slower sales, particularly home furnishings and other products tied to the housing sector. Little by little things are getting better, but a full recovery remains elusive.
“The outlook certainly is improving, but it’s going to take a long time for this to actually get some traction,” Kleinhenz said, adding that household formation is one of the signposts for recovery that he’s watching.