Demography is Destiny
Now some good demographic news from the US
by Marcus Roberts | May 27, 2019
Last week I wrote about the USA’s continued baby decline and the potential for future labour shortages and population decline. It was a bleak outlook. Now let us turn to the good news for the Land of the Brave: you are in a better demographic condition than your nearest rivals. And as the joke goes about the two hikers trying to outrun a bear: I don’t have to run faster than the bear, I just need to run faster than you. So in what way is the USA, despite its sinking birth rate, outrunning its economic and geopolitical rivals and competitors?
According to this piece at Forbes, despite the current fertility decline in the USA which we discussed last week, the already born generations (Millennials and Gen Z) will replace the retiring Baby Boomers in the workforce at such numbers that the size of the working aged workforce will continue to increase in the decades ahead. Up until 2040, the annual increase in the size of the working age population will continue to grow slowly in the USA, up to about 0.5 per cent per year. In contrast, the three largest economic rivals to the USA (China, Japan and the EU) will all see their working aged populations continually decline in the next 20 years or so. There will be a steady decline in the European working aged population of 0.5 per cent per year; Japan’s working aged population will more rapidly decline until it is hitting -1.5 per cent growth per year in the late 2030s; while China’s working aged population will stagnate until 2025 when it will decline more quickly at about one per cent per year from the early 2030s.
The relative youth of the American population is “an unmatched advantage among major developed economies”. This advantage will help America’s relative productivity, wage growth and consumption. Morgan Stanley is predicting that average consumption levels in the USA will grow from 1.7 per cent in 2018 to 2.5 per cent in the 2030s. The younger generations coming into the labour market will increase discretionary spending, but the consumption mix will change. Millennials and Gen Z are expected rent for longer than the Baby Boomers did, meaning that demand for rentals is expected to exceed the long term average by 20 per cent. At the same time Boomers will be looking to downsize their homes. Will there be a mismatch between the Boomers wanting to sell and the younger generations only wanting to rent? (In Auckland we are seeing a large number of larger houses coming onto the market as the Baby Boomers retire and downsize. One wonders who is going to buy these properties. Who can afford them?) The consumption mix is also expected to change as dining out, holidays and clothing are all areas of discretionary spending that the younger generation is likely to spend more on than their elders.
Although the current demographic news from the US is not looking good, the next couple of decades are looking promising for the US, especially when compared with its rivals. The US is still able to count on a growing labour force and a growing consuming population up until 2040 at least. After that, however, the current low fertility rates will start to bite. The middle of century will perhaps look less rosy economically and demographically for the USA.
Marcus Roberts is co-editor of Demography Is Destiny, MercatorNet's blog on population issues.