Boomer Blame, part 2

I was born in 1957, a year for the largest number of births in the United States until it was surpassed by a minor amount in 2007.  I am part of the baby boom generation.  People have been giving credit or blame to baby boomers for 40 years, ever since the first part of the generation created havoc in the 1960's on the societal norms of that era.  What most probably did not know at the young age of the boomers, was that there was more than social chaos, but that the baby boomers would unleash a spending tsunami.  The spending of the baby boom generation would have implications not only for the nation, but the world economy.  My prior post dealt with demographics and this post will deal with the link between demographics and what many see as economic health.

Economic health is a relative factor, and for much of human history economic growth puttered along until the time of the industrial revolution.  A person living in the mid 16th century would have more in common with a person in the year 600 than those in the 2010's.  Many traditional societies, as hunter-gatherer societies or cultures are often referred to, would know little of the concept of economic growth.  Yet, in the western world the impression of lackluster growth has brought down presidents, and prime ministers. From cities, to counties, to states, and to the nation, growth is often thought to be necessary to drive and enhance the lifestyle enjoyed in the west.  In the United States, it is almost as if growth is part of our DNA.  The need for growth and resources drove the settlement of distant lands.  It certainly was part of the original 13 colonies, and was perhaps most clearly expressed by not only Thomas Jefferson's Louisiana Purchase, but the whole concept of manifest destiny.  Who cared about the Indians of the west, the American goal was land from the Atlantic to the Pacific.

Head west young man

The idea of manifest destiny was seen as a natural progression of geographic growth.  But, growth is affected by more than geography.  One analyst, Mike Alexander, building on research of Harry Dent, believes that a downturn in population of the main spending cohort (what he and Dent say is ages 45--49) was partially responsible for the great depression.  Prior to the great recession, Harry Dent working off birth patterns and immigration, pegged the beginning of a recession in 2007.  Dent believes that peak spending occurs in the age 45-49 age cohort. As spending drops, so would the nation enter a recession. It is all relative. In fact, he has analyzed statistics to point to age 48 as the peak year. Since 100 economicst will give 100 different answers, another economist notes that the peak spending age is 46.5 years.  Whichever it is, they are close enough for this blogger.  The difference is minor when talking about generations.

Growth of the nation

After that age, spending tends to decline.  Of course, while a person is often a statistic, we all have our own lives, interests, and spending habits.  Yet, analysts like Dent pour over the data to make generalizations, and from this data he predicted a recession 2007, which in hindsight was quite prescient.  The great recession may have begun with the collapse of Lehman Brothers and other financial institutions, but perhaps those were the catalyst.  High gas prices, in a time before fracking (which has lowered gas prices), ate into people's income and caused less discretionary income. Some homeowners had over extended on their housing loans, this was affected by overbuilding of houses and a drop in demand, due to the smaller demographic.  Generation X, that smaller demographic stuck between the boomers and the millennials suffered the worst of the consequences.  Based on pure demographics, many would have thought that Dent's forecast for the recession would have occurred earlier, but Dent had a few year delay due to his having added migration patterns in to his calcuation.

Consumers account for about 70% of total GDP

By 2007 most of the boomer spending peak was coming to an end.  While the peak spending year was in 2009, according to Doug Short, spending was starting to plateau in about 2003 to 2005.  Yes, spending still increased, but the rate of increase was decreasing and a plateau of spending was starting.  The start of the spending plateau fairly well tracks the age of the 1957 birth cohort.  It is often said that President Bill Clinton pulled off economic miracles.  But, much of the growth in his presidency was actually related to the demographics of boomers entering their peak spending years.  Yes, trade deals of Clinton and prior administrations assisted by making overseas goods so cheap, and yes China was then up and coming in the international scene as an economic powerhouse (one could say boomer spending help make the Chinese economy), and yes, Clinton lessened the rules for home ownership which helped lead to the housing crash (and recession) a decade later, yet demographics still played a large role.  The boomer cohort on spending for themselves and their children was just too many persons and too large.  Add in that all the easy solutions for economic growth have occurred, information age and the large entrance of women into the labor force, and it means that other economic crisis may be more difficult to ride out.

Peak Spending by Doug Short, 2012

The Federal Reserve has kept interest rates so low for so long that they will now lack the ability to adjust to the next economic downturn.  Harry Dent has predicted, based on demographics, that the glory days of spending will not significantly increase for about 10 years, as the millennials reach peak spending age. Even then, the forecast is that spending will not increase as it had during the peak spending years of the boomers. The poor generation Xer's are just a small blip between demographic tsunami's.  They are the Rodney Dangerfield's of the current generations.  Numbers produce dominance and the Xer's lack the numbers.  As long ago as 2004 CBS broadcast "60 Minutes" talked about how millennials were now starting to shape the world.  Back in 2004 the oldest of that group was just in college and the youngest in grade school.

Boomer waves, per blog "Economic Edge"

While the millennials, that connected generation, have reformed some aspects of culture, think craft beer and local food movement, us baby boomers will likely not go quietly.  You see, as us boomers are now looking forward toward retirement, and many already having retired, our spending is lower, but we also will continue to drive some aspects in our culture.  Their is a reason so much is being written about retirement and if persons have set aside sufficient money for retirement.  It is because the boomers are driving that conversation, and financial planners are more than willing to make a buck off of the assistance,and advice, they can provide.  The boomer generation may be beyond spending on their home, large toys (think how Harley Davidson motor cycle sales boomed over ten years ago, everyone had to have a Harley), tuition for the kids, all things electronic (even now their is press coverage that cell phone sales have peaked--market saturation), and many other aspects of consumer goods.  Heck, I  now have trouble trying to find a gift for my spouse for her birthday.  Come to think of it, when did I not have trouble trying to think of a gift to buy her, so this is not a really relevant statement.  She has most of she needs or wants, and I have most of what I need or want.  We are, however, in need of a new tarp to cover our screen tent when we camp.  I guess you know you are beyond peak spending when a tarp is the top item on your need list, and you check the Menard and Farm and Fleet advertisements for tarp sales (or it is an idea of how boring our lives are).   Millennials have yet to reach peak spending.  The gen X'rs, that small group stuck between the boomers and the boomer echo (aka Millenials), essentially lack a large demographic to makeup for the boomers is what is affecting growth.  Harry Dent is now predicting a recession for 2017, so pity the poor president who becomes victim to the Dent's predicted demographic headwinds.  If you click here you can see a link to an interactive website which predicts the spending wave of growth and decline for most countries in the world.  this web site has the next growth period starting in nine years, 2025. (Take a close look at Italy, and recall from my prior post its inverted demographic pyramid and how long its period of decline is.)

Spending bublles on a web site which would seem to show peak
spending being between 50 and 54 (ixicorp.com)

I suspect I was married rather late for a boomer and hence our children were born near the end of the echo boom, so we may not have had our peak spending years between 45 and 49. We are probably a disdain for an economist like Harry Dent, we did not move up in housing as our kids entered their teen years (as he said is a common occurrence), nor have we ever had cable television, much less a satellite dish. We keep our vehicles until near death they do us part.  We also never bought some big adult toys, like a motor boat, camper or Harley; although as I age sometimes sleeping off the ground when camping in a rainstorm starts to sound pretty good.   Yet, we have computers, tablets, and my wife now even has a smartphone. Spending occurs, but as empty nesters it is now less than before--just as Harry Dent would predict. The end of our peak earning years is upon us as we look forward to retirement. Mr. Short, writing in 2012, noted that:

many analysts often think of retiring boomers as the primary drag on the economy with their transformation for the accumulation to the decumulation phase of their life-cycle, but if we understand the crucial role of consumption for our economic health (about 70% of GDP), a significant decline in the number of peak spends is a demographic headwind that will challenge us for years to come.

 Baby Boomers have been blamed for the down turn in spending.  Why would someone even think you need to keep spending as you once had?  If Boomers shoulder the blame for the downturn in spending, think what it will be like for entitlement programs, such as social security. Tune in for a later post on Boomer Blame, part 3.