by Chris Hamilton via Econimica blog,
As the Millennials are making their way into adulthood, countless economists and nervous Boomers have pinned their hopes on this generation to kickstart the moribund US economy. There are 3 basic sources of consumptive growth in a nation with twin budget and trade deficits… population growth, wage growth, and/or credit growth and population growth the greatest among these to drive greater demand. So, the growth of the population, and the Millennials in particular, is worth a pretty close look. I’ll dive deep on the quantitative inferiority and just skim along on the inferior quality of Millennials vs. Boomers.
It is true that there are more Millenials than Boomers. But to compare apples to apples, I’ll compare the two groups as they made their way through the 15-34yr/old population segment (kinda like tracking the Mississippi river around about Davenport, Iowa to know what downstream communities like St. Louis, Memphis, and eventually New Orleans should expect). When the Boomers exited this segment in 1981 (heading for adult prime time), they numbered about 81 million. Likewise, the Millenials are now making their transition to adulthood and they number about 88m. Or simply put, there are about 6.7 million more Millenials than Boomers (comparing peak to peak).
But to understand the impact of the two different generations, the chart below shows the total population growth during each generations time…since it is not just growth but the rate of growth that is paramount to make our economic system function. The Boomers represented an increase of 33 million (a 40% increase of the 15-34yr/old population) vs. the Millenials 9 million (a 10% increase in the 15-34yr/old population).
Based on the generations relative population growth vs. total population, the Boomers added an average 0.8% annually vs. the Millenials which, on average, added 0.15% annually… or about 1/5th the impact the Boomers had on growth. Really simply, Millennials require far fewer new houses that did Boomers, far fewer new cars, far fewer new factories to produce the new goods, fewer new suppliers, far less new infrastructure to support them, etc. etc. The virtuous loop of growth creating growth is an absolute minimum. Millenials economic impact, by the numbers, is nothing like that of the Boomers now nor will it be akin to the Boomers over the coming decades.
But it’s not just that the quantity of growth among Millennials that is inferior…it’s also the quality of growth. Please note, this comparison of Boomers vs. Millennials has nothing to do with them as people but instead solely on their impact upon consumptive growth.
Full time jobs growth over the past decade has been anemic compared to the Boomers period. Likewise low wage growth, high student debt loads, low marital rates, low birth rates…all these things and so many more impact the Millenials inability to “grow” or increase consumption (aka, GDP growth) as their predecessor generations had (not that I’m rooting for it…simply noting the differences). Comparatively, Millennials buy fewer cars, fewer homes, and aside from smart phones, seem to be trending down across the consumption spectrum vs. their predecessors. They face record asset valuations, record rents and rent-to-income ratios. This is well worn ground so I won’t dwell here but the chart below highlights the slowing growth in full time jobs, rising reliance on “financialization” (Fed’s balance sheet, interest rate cuts, etc.), and the impact on asset valuations represented by the Russell 3000 (The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market).
What should be apparent is that the factors pushing up asset valuations are having little (any?) positive impact on net full time job creation (nor real wage appreciation).
And finally – to maintain economic growth while core population growth has been decelerating since 1980, the Federal Reserve (and CB’s worldwide) have cut interest rates since 1981 even faster than the decelerating population growth to make leverage and debt ever more serviceable and attractive. But the population growth that would be necessary to outgrow all this debt isn’t coming back, at least not in our lifetimes…so what’s the end game?
How low will the Federal Reserve need to take rates over the next decade as core population (including Millennials) slows to a crawl? I wonder if even Janet knows?!
Post Script – For those who believe America’s problems can or will be solved by global growth…please consider the below chart representing 15-64yr/old core population growth among the combined 35 OECD nations, plus China, Brazil, and Russia vs. global GDP, global debt, and the Federal Funds Rate. The picture is even uglier than that of the US and no help should be anticipated from this neck of the woods that represents 3 billion people and 70% of the earths oil consumption…not to mention the vast majority of total consumption.