Category Archives: demographics

The Future is still Bright!


Trulia chief economist Jed Kolko wrote this morning:

“Median age in US ~38. But modal age is 23. Five most common ages: 23, 24, 22, 54, 53.”

This is an important change in the modal age. As I’ve noted before, by 2020, eight of the top ten largest cohorts (five year age groups) will be under 40, and by 2030 the top 11 cohorts will be the youngest 11 cohorts.
Demographics is a key driver of economic growth, and although most people focus on the aging of the “baby boomer” generation, the movement of these younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through May 2014.
Prime Working Age PopulatonClick on graph for larger image.
There was a huge surge in the prime working age population in the ’70s, ’80s and ’90s – and the prime age population has been mostly flat recently (even declined a little).
The prime working age labor force grew even quicker than the population in the ’70s and ’80s due the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the ’80s!
So we when compare economic growth to the ’70s, ’80, or 90’s we have to remember this difference in demographics (the ’60s saw solid economic growth as near-prime age groups increased sharply).
The good news is the prime working age group will start growing again by 2020, and this should boost economic activity.
But that is medium term – in the near term, the reasons for a pickup in economic growth are still intact:1) the housing recovery should continue, 2) household balance sheets are in much better shape. This means less deleveraging, and probably a little more borrowing, 3) State and local government austerity is over (in the aggregate),4) there will be less Federal austerity this year, 5) commercial real estate (CRE) investment will probably make a small positive contribution this year.
For new readers: I was very bearish on the economy when I started this blog in 2005 – back then I wrote mostly about housing (see: LA Times article and more here for comments about the blog). I started looking for the sun in early 2009, and now I’m more optimistic.
Last year I wrote The Future’s so Bright …. In that post I outlined why I was becoming more optimistic.
Here are some updates to the graphs I posted last year.  Several of these graphs have changed direction (as predicted) since I wrote that post.  For example, state and local government employment is now increasing, and household debt has started increasing.
Total Housing Starts and Single Family Housing StartsThis graph shows total and single family housing starts. Even after the 28.2% increase in 2012, and 18.5% increase in 2013 (to 925 thousand starts), starts are still way below the average level of 1.5 million per year from 1959 through 2000.
Demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will probably increase another 50% or so over the next few years from the May 2014 level of 1 million starts (SAAR).
Residential investment and housing starts are usually the best leading indicator for the economy, so this suggests the economy will continue to grow over the next couple of years.
State and Local GovernmentThis graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, 249,000 in 2011, and 33,000 in 2012.
In 2013, state and local government employment increased by 44,000 jobs.
This year, through May 2014, state and local employment is up 46,000.   So it appears that most of the state and local government layoffs are over – and the economic drag on the economy is over.
US Federal Government Budget Surplus DeficitAnd here is a key graph on the US deficit. This graph, based on the CBO’s May projections, shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.
As we’ve been discussing, the US deficit as a percent of GDP has been declining, and will probably remain under 3% for several years.  
Here are a couple of graph on household debt (and debt service):
Total Household Debt This graph from the the NY Fed shows aggregate household debt increased $129 billion in Q1 2014 from Q4 2013.
From the NY Fed: “In its Q1 2014 Household Debt and Credit Report, the Federal Reserve Bank of New York announced that outstanding household debt increased $129 billion from the previous quarter. The increase was led by rises in mortgage debt ($116 billion), student loan debt ($31 billion) and auto loan balances ($12 billion), slightly offset by a $27 billion declines in credit card and HELOC balances. Total household indebtedness stood at $11.65 trillion, 1.1 percent higher than the previous quarter. Overall household debt remains 8.1 percent below the peak of $12.68 trillion reached in Q3 2008. “
There will be some more deleveraging ahead for certain households (mostly from foreclosures and distressed sales), but it appears that in the aggregate, household deleveraging is over.
Financial ObligationsThis graph is from the Fed’s Q1 Household Debt Service and Financial Obligations Ratios. These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households.
The overall Debt Service Ratio decreased in Q1, and is at a record low.  Note: The financial obligation ratio (FOR) is also near a record low  (not shown)
Also the DSR for mortgages (blue) are near the low for the last 30 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.
This data suggests household cash flow is in much better shape than a few years ago.
AIA Architecture Billing IndexAnd for commercial real estate, here is the AIA Architecture Billings Index. This is usually a leading indicator for commercial real estate, and even though the index has been moving sideways near the expansion / contraction line recently, the readings over the last year suggest some increase in CRE investment in 2014.
Overall it appears the economy is poised for more growth over the next few years.
As I noted at the beginning of this post, in the longer term I remain very optimistic. The renewing of America was one of the key points I made when I posted the following animation of the U.S population by age, from 1900 through 2060. The population data and estimates are from the Census Bureau (actual through 2010 and projections through 2060). 

U.S. Population 1990 through 2060

The Future is still Bright!
Bill McBride
Thu, 26 Jun 2014 16:56:00 GMT


Maybe we’re not headed for demographic armageddon after all


The Census Bureau is out with a report on the changing composition of America’s old people, and in one way, the story is the same as it’s ever been: The Baby Boomers are retiring, and they’re going to be expensive to take care of. The number of working-age people who’ll be around to support their parents and grandparents is declining, in relative terms; the cost of pensions and social security payments and Medicare could take a toll. That’s caused no small amount of fretting about the “silver tsunami” that will come crashing down on the economy over the next couple decades.

But the report also contains a useful reminder: Even as the elderly population increases, the younger population decreases in relative terms, which leaves the overall dependency ratio relatively stable. In 2050, it’ll even be substantially lower than it was in the roaring 1960s:

Screen Shot 2014-05-06 at 11.24.43 AMOf course, youth dependency and old age dependency carry different kinds of burdens — older people require more medical care, while young people carry more educational costs. So the economy will still have to adapt to take care of the shifting load of non-working people. But overall, the picture is a lot less alarming when you know America has borne something similar in the past.

And besides, most developed countries are a lot worse off than we are:

Screen Shot 2014-05-06 at 2.17.08 PM

Maybe we’re not headed for demographic armageddon after all
Lydia DePillis
Tue, 06 May 2014 19:19:51 GMT

Looking Back at the Baby Boom

Was the baby boom just deferred birth during the war and perhaps the depression?

The trend toward lower fertility rates seems like an inexorable long-run trend, in the U.S. and elsewhere. The U.S. total fertility rate–that is, the number of average births per woman–is about 2 right now, and the long-run projections published by Social Security Administration assume that it will hold at about 2.0 over the next 75 years or so.
But I recently saw a graph that raised my eyebrows. Here is the fertility rate for US women (albeit only for white women for the early part of the time period) going back to 1800, taken from a report done for the Social Security Administration.  If you were making projections about fertility rates in about 1940, and you had access to this data, you might have predicted that the rate of decline would level off. But it would have taken a brash forecaster indeed to predict the fertility bump that we call the “baby boom.”

Two thoughts here:
1) The baby boom was a remarkable demographic anomaly. It gave the U.S. economy a “demographic dividend” in the form of a higher-than-otherwise proportion of working-age adults for a time. But the aging of the boomers is already leading to financial tensions for government programs like Medicare and Social Security.
2) There’s really no evidence at all that another baby boom might happen: but then, there was no evidence that the first one was likely to happen either. Someone who is wiser and smarter than I about social trends–perhaps a science fiction writer–might be able to offer some interesting speculation about what set of factors and events could lead to a new baby boom.  

boomer generation is an enormous historical anomaly

Looking Back at the Baby Boom
Timothy Taylor
Fri, 23 Aug 2013 11:00:00 GMT