Housing And Auto Sectors May Be Weak For Decades

by: Steven Hansen

The inordinate growth of student loans - and its effect on the economy - is killing consumption (autos) and the housing sector. This is no short term dynamic, but will affect the economy for decades.

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The USA is a consumer driven economy. A study released this week authored by Meta Brown and Sydnee Caldwell stated:

As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores, consumers with educational debt may have more limited access to housing and auto debt and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential.


Both these factors-lowered expectations of future earnings and more limited access to credit-may have broad implications for the ongoing recovery of the housing and vehicle markets, and of U.S. consumer spending more generally. While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today's marketplace.

Some believe the lack of jobs is causing a higher than normal attendance in schools - but historical data from the BLS shows attendance appears moderating.

And there seems little correlation between the ability of the young to get jobs and enrollment in colleges / universities.

Click to enlargeThe student loan growth phenomenon seems to be directly related to cost inflation of education outstripping the general rate of inflation by significant multiples. The following table is from a study by Jordan Bowersox and Jonathan Breazeale.

Yearly Cost of Colleges / Universities

This study appears to correlate well with the associated BLS education cost index.

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It is interesting to this author that economists talk about the economic drag by the declining consumption of baby boomers on the economy, but yet ignore the built in drag of higher education on the economy. The young are historically higher consumers than the old - yet the cost of education is weakening the ability of the young to consume.

As youth (especially educated / skilled youth) are a country's future, the solution may be for the government to pay for education, taking the burden off of the individual and giving it to society. The payback, instead of money, can be a period of government service as a thank you for their education.

In any event, the continuing growth of student loans will only be providing a tailwind to the education sector of the economy.

My normal weekly summary of economic events is in my instablog.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.