No. of Recommendations: 16

The Credit-History Pariah Class
New York Times: March 24, 2013


...millions of Americans who have emerged from the recession with medical debts or a record of late payments are at risk of being denied jobs by companies that use credit histories to screen applicants. ...

...Many people have recovered from the recession and seen their credit ratings go up. But the proportion of people with poor ratings — credit scores under 600 — has grown from about 15 percent in the years before the recession to about 25 percent in 2011. This means nearly 45 million people [have low credit scores]...
[end quote]

This is an editorial, sprinkled with words like "unfair" and "could."

Disregarding that, there is a large Macro impact of 25% of the adult population having low "pariah" credit scores that inhibit their finding a good job (full-time with benefits).

As the workforce grows naturally, new entries with good credit scores will displace the "pariahs" in the employment process. As a result, the long-term unemployment rate has not dropped much, the Civilian Participation rate has dropped to the lowest since 1970, and 8 million people are "Part-Time for Economic Reasons" (they would rather have a full-time job) - the highest since 1955.

With job growth not much faster than the growth in the labor force, the large number of "credit pariahs" will be continually pushed out of the competition for good jobs and will either work low-paying part-time jobs or drop out of the work force entirely.

The Macro effect will be to stunt the purchasing power of 1/4 of the population for a very long time to come. This favors stocks of companies that provide low-cost consumer staples, such as MCD and WMT, where this consumer niche often shop.

Whether any action will be taken to change this situation and the timing is anyone's guess. I think nothing will change for quite a long time.

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