This economy is really booming, ain’t it? They said it would happen. All last year we heard stories of the economy finally picking up and predictions that 2015 would be the year the US economy finally turned the corner. And it’s finally here! Wait, what? It isn’t? The economy is still idling? Record numbers are still out of the workforce and wages have declined? Interest rates have cratered since the fall? How is that possible? Well, if you’re a regular listener of this show you know this wasn’t only possible but inevitable. Demographically speaking, a meaningful economic recovery is still years away.
After hitting a two-year peak in September, rates are now at a 20-month low with little chance of improving. Mostly this is because of global economic uncertainty, but it also reflects the fragility of our so-called economic recovery. Jobs reports oscillate between underwhelming and treading water, and the marked decline in the jobless rate—presently at 5.8%–is both historically high and still misleading; it does not factor the record-high number of US workers who have left the workforce. Beyond this, wages have actually declined in recent quarters.
There are many theories to explain the softness of this recovery—now entering its 7th year—but the one I find most convincing is the one posited by such writers and thinkers as Harry Dent, which is that the demographics of America’s population are preventing a meaningful economic recovery. As the Baby Boomers exit the workforce and tighten their spending, we are relying on Generation X to pick up the slack. Since Generation X was the first generation in US history to actually be smaller than its preceding generations, they have found it impossible to replace the Boomers. There simply aren’t enough Gen Xers to produce the kind and quality of economic activity that the Boomers produced.
Consider the most recent statistics on home-buying. The breakdown of the ages of homebuyers is as follows:
- 31% are ages 23-34
- 37% are ages 35-49
- 30% are ages 50-70
- and 2% are 71 or older
One-third of homebuyers are over the age of 50, and another one-third are in the financially-immature years of 23-34. The kinds of homes these two demographics are buying are typically small, older, and have recently-though-no-new appliances. The housing industry cannot thrive with the buying habits of these demographics, and such ancillary industries as furniture manufacturers and appliance makers cannot thrive, either.
Fortunately, with the Millennials set to come of age beginning in 2020, we are set for a massive economic expansion. The Millennials will start to become financially and economically mature, and will not only replace the lost economic activity of the Boomers but far surpass them. In the meantime, we will no doubt continue to hear stories of “green shoots” and lower unemployment, just as we heard throughout 2014. But as today’s low rates show, those stories are not convincing anyone. There is still great uncertainty about our economy and its capacity to grow, and this uncertainty will persist until the Millennials finally come of age.
1-10-2015 21 Demographically Speaking