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U.S. demographics and its impact on the economy

One factor that has always played out in America’s favor in the last 100 years is demographics. The baby-boom generation, immigration, inflows of skilled labor from around the world, productivity and its entrepreneurial promise has catapulted it into a super-power. But this demographic picture may be shifting now.¬†

 

This article courtesy Sami Karam highlights the main demographic problems – the key points are captured below.

 

1) US population until 2007 was growing at over 1%, but now that has slipped to less than 1%. In the future, baby-boomer deaths will be a greater number relative to new births.

 

2) The Fertility rate in the US has fallen from 2.1 in 2007 to 1.9 (Graphic from The Economist)

 

 

3) Americans aged 30 to 60 years (the financially productive age group) was growing at 1% but has leveled off with no growth 

 

4) The Dependency ratio (people below 14 years of age and above 65 to people between 15 and 65) was .67 in 1960, and it fell to 0.49 in 2005. This ratio is expected to climb to 0.56 by 2020, and back to 0.67 by 2050. This does not bode well for discretionary spending.

 

5) Not covered in this article is Housing – baby boomers will downsize and there is not enough buyers in the next generations (more in another post). This will impact housing supply and prices will have to come down. Housing will remain a long term problem due to this demographic shift.

 

As if structural factors were not enough, the economy has to battle this additional headwind in the coming years.

Categories
Macroeconomics

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