(Invictus here, friends.  Please note that technical problems booted me out of this post before I was done with it, and it posted before I could get back in.  Therefore I’m doing I’ve done some after-the-fact editing, which I would normally not do.)

As readers may know, I have used some pixels here and elsewhere exploring what I think is a very under-reported story — how demographics is playing into our current economic situation (making it worse, actually).  The interesting thing about demographics is that they are what they are, which is to say there’s generally no legislating them (unless you’re China, of course).  But let’s stipulate that we’re not heading down that road and, even if we did, it’s already too late to alter our current situation.  (Some of my previous posts surrounding demographics can be seen here, here, here, here and here, to cite but a handful.)

This post will expound a bit on the Boomer theme with some chart porn that I think helps to drive home my point, and that I’ve not seen explored elsewhere.

We all know that the recovery we’ve experienced over the past four quarters has been — let’s be honest — mostly statistical in nature.  Most Americans still feel or believe the country is in recession.  What we’ve seen is, essentially, a huge inventory restocking, which is likely winding down.  And the handoff to the private sector is wobbly and hardly assured.

Final Sales (BEA.gov, Table 1.2.1, Line 2)  has been running at a very tepid pace.  In fact, it’s the worst pace on record.  Let’s look at how this has played out since the Boomers made their way into the real world:

(Source: St. Louis Fed)

For every one of the past five recessions, Final Sales is relatively weaker six quarters from the economic peak than it was in the prior recession, with our most recent experience being the weakest yet.

Let’s take the data above and produce another chart that looks at the same data a bit differently and incorporates the age of Boomers along the x-axis:

(Source St. Louis Fed for y-axis, assumption of 1955 as mid-point of baby-boomer era from 1946 – 1964 for x-axis)

(I get the whole “correlation does not imply causation” schtick, but there is very ample evidence of the impact of our aging population.  The information provided here does not even scratch the surface.)

One trend that’s likely behind the pattern apparent in the Final Sales series is our accumulation of all manner of “stuff” — Durable Goods to be precise:

(Source: Fed’s Flow of Funds, Census.gov.  Durable Goods at replacement (current) cost.)

Along the lines of accumulated stuff, here are some tidbits from the Self Storage Association (much more at the link):

  • The self storage industry has been one of the fastest-growing sectors of the United States commercial real estate industry over the period of the last 35 years [Ed. Note: Coincides with the rise of the Boomer.]
  • It took the self storage industry more than 25 years to build its first billion square feet of space; it added the second billion square feet in just 8 years (1998-2005)
  • During the peak development years (2004-2005) 8,694 new self storage facilities (approximately 480 million square feet of space were added)
  • There may be good news on the horizon, though, as this nugget from the SSA is all too consistent with a deleveraging consumer:

  • Fewer than 250 new self storage facilities came on line in the U.S. during 2009; the trend in new construction is down significantly the last four years
  • And that’s today’s Boomer update.  Thoughts?

    Category: Consumer Spending, Cycles, Data Analysis, Economy

    Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

    35 Responses to “Boomer Bust”

    1. wally says:

      Thoughts? Yes: this is interesting.
      On the correlation vs causation question, you could probably plot some of those same charts against increasing development of formerly undeveloped or less developed countries. the US is still a big fish, but the pond is changing.

      Jamie Galbraith makes an interesting point that we may be at a balance point now; we can either keep older boomers working at the expense of jobs for the youngest generation or we can encourage boomers to step aside. There aren’t enough jobs in the US now because they’ve been moved overseas. We may raise a whole generation that does not have access to jobs – and, in fact, life-long careers – unless we make some openings for them.

    2. Transor Z says:

      I wonder what the impact of eBay, craigslist et al have been on final sales over the last 15 years. The idea of “stuff saturation” is interesting. We hear about debt saturation as it relates to household spending but the assumption is always of infinite capacity of Americans to buy stuff.

      I wonder how you could quantify re-sale/re-use on the macro level — YoY change in landfill use?

      http://blogs.wsj.com/economics/2009/07/17/using-garbage-to-measure-consumption/
      The garbage data in the U.S., for instance, tracks stock performance twice as well as the government’s consumption data. (The U.S. data has a correlation of 60%, while the government consumption data tracks at 30%.)

    3. Tarkus says:

      Not sure about this. The whole “demographics” thing flies in the face of the fact that all the wealthiest 2% need do is have enough replacement kids and teach them to spend like mom and dad to keep the economy robust…

      Older boomers mostly don’t have a choice about working. They aren’t arbitrarily deciding to crowd-out younger workers. Haven’t really heard many septuagenarians aspiring to be Wal-Mart greeters.

      Unless manufacturing more goods originates in the U.S., this isn’t reversing – or even slowing.

    4. Invictus says:

      @Tarkus

      …keep the economy robust…

      There’s your problem right there, no?

    5. VennData says:

      What are people storing in their storage?

      Memories of great times? Classic, wisdom-enhancing ebooks, papers, links to excellent blogs? Their priceless education? Their network of friends and business associates? Their investments which will provide them subsistence in their dotage?

    6. drey says:

      “we can either keep older boomers working at the expense of jobs for the youngest generation or we can encourage boomers to step aside.”

      I see this competition between boomers who haven’t saved enough to retire and youngsters who may or may not have much of a work ethic as a positive – the latter will have to step up their game a bit and from what I’ve seen many need to step it up. Also very positive from an employer’s POV, obviously…

      Just as interesting to me are the demographic implications of millions of empty nester baby boomers who tire of their McMansions or are eventually forced by health issues to sell into a soft RRE market in which good paying jobs for young folks are increasingly scarce – who’s gonna be there to buy these homes?

    7. Tarkus says:

      @Invictus

      :D

      I try to keep the sarcasm soft to not unduly shock the devout believers in the “2% rule”.

    8. napster says:

      Some have said that all great economic and social crises occur when the social economy is going through a transition. The 1930′s was a transition between rural-local and urban-global economy. The railroads and steam-coal shipments brought us the 1880-1898 transition culminating with the Spanish-American conflict and the Panama Canal. The American and French revolutions, the and the American Civil War were all the fruition of the rise of shipping, financing, and industrial interests against the agricultural (often aristocratic) interests of the population.

      Demographics is certainly one of the transitions we are experiencing right now. I also think that another transition is the rise of the non-euro-american economies in the global economy. America is experiencing a huge increase in the population of older people at the same time global economic arrangements are changing.

      I am always interested in anything you have to say Invictus. Thank you very much.

    9. Thor says:

      Good post Invictus – thank you very much!

    10. farmera1 says:

      Demographics, as a baby boomer I feel that I am part of the economic problem.

      Add this to your list of problems with long term implications: Automation. It takes a lot fewer humans to produce goods. Nobody talks about this, but it is very real. Lots of stuff made overseas, but it also takes fewer people to make stuff. Just a fact.

      Demographics, automation, debt, energy etc etc etc. Lots of big issues.

      Here is my priority listing of bad stuff:
      1) Debt (Just write the sucker off)

      2) Demographics (What is is)

      3) Energy (Peak oil, Global warming)

      4) Automation (no one talks about this)

    11. Tarkus says:

      Just in case – you do realize that the theory that the wealthiest top 1-2% drive the bulk of the economy negates the theory that demographic changes have much, if any, impact, since demographics is more about the study of the habits of the “great unwashed masses”…

    12. Transor Z says:

      @VennData:

      Add: stash of Mr. T hand grenades and miscellaneous loot from World of Warcraft and the deeds to their properties in Second Life.

    13. boston says:

      I read recently on the HBS website there are/were 75 million boomers, 45 million Gen X, and now 65 million millennials (counts vary depending on the exact years, but something like 1945-1960, 1960 to 1980, and 1980 to about 2000). I agree with the demographics effect on the economy, having watched the boomers change US society from 1965 to the present.

      As a US GenX person I saw the overbuilding of schools, to the converting of them to condos, to the now overbuilding of schools. I watched the activists / protesters turn into family-oriented adults who wanted stuff, turn then into pre-retirees. (You can see it in the movies, and in the marketing of consumer goods, as well as effecting housing – condos and McMansions.)

      Gen X is in the shadow. They can not make up for the decline in boomer purchasing. The PR and marketers of the US / Europe world have now started to turn to the “echo boomers” coming into adulthood now. (Sit-coms are showing young folk again. Clothes are getting sexier again. Philosophy is becoming cool, again.) It’s fascinating.

      I think we’re in an economic lull, for lots of reasons, but also because we’re between the boomers retiring and the millenials (Gen Y or Gen “Why?”) growing up and soon to have their (huge) effect on society. (It’s already started, of course, with more to come.)

      I’m expecting inflation, for a multitude of reasons, but not just yet … soon. I’d say: in two years.

      I like PIMCO’s description of the current time (2008-2011) as a “muddle through” period.

      My few cents. Your mileage may vary, etc.

    14. Maseratij says:

      Let them in ! Here is another reason to work on the immigration issue. I have several friends from developing countries and they all feel like there is “not enough” labor in America. Having resources for lower end employment is nice, but more is better. Nanny’s and receptionists and other employment niches above and below labor could be filled. The pressure on the middle class budgets of money and time could be relieved with “more labor”. Hopefully younger folks will immigrate and lower the average age of the population. There will also be tthe benefits of their creativity and innovation.

      Why are we thinking of restricting immigration when it is a solution to more than one problem?

    15. Good post Invictus. Now, translate it to what demographic aging and decline do to aggregate demand (as your charts point out, it leads to declining aggregate demand). Now, what is the proper monetary prescription for declining aggregate demand? Correct, there isn’t one. Ask the Japanese. I’ve been posting on this topic for the last week or so. The bottom line is that if, er when, the Fed restarts the money presses because they see declining prices as evidence of deflation, when in fact they are evidence of declining demand, their prescription will only ultimately cause the same as we got before–a temporary illusion of expanded demand, followed by a crash.

      Deflation is a monetary phenomenon that is amenable to monetary solutions. Declining prices due to declining demand (due to demographics or supply-side efficiencies–whatever) can not be resolved simply by printing more money.

    16. Darmah says:

      Good post. A recent presentation I saw listed the following:
      Traditionalists — ~1922 – 1945 — 75 million
      Boomers — 1946 – ~1964 — 80 million
      Gen x — 1965 – ~1980 — 46 million
      Millennials — ~1981 – ~2000 — 76 million

      As far as demographics go, I agree with Galbraith and others who note that boomers will have to work longer than they and the other generations would like. (The point of Social Security was to get the old folks out of the work force and live a half-way decent life in their “golden” years.)

      As for generational effects, does anyone have any data on what happens as the Traditionalists generation moves on? There’s quite a bit of wealth there — many of them were in the sweet spot of the middle class before its ruination.

      I recall seeing something on this, but can’t find it now.

    17. Lord says:

      So much for those high spending years.

    18. [...] a comment » Invictus over at The Big Picture blog has an excellent post, with neat graphs and everything.   I don’t do graphs much [...]

    19. GeorgeBurnsWasRight says:

      3 demographic / cultural questions I’d like to know the answers to:

      1- How will the pattern of people working after age 65 change in the next decade?

      2- How will the pattern of many people retiring and moving elsewhere change in the next decade?

      3- And, same time frame, what percentage of children will continuing living with their parents after high/school as well as what percentage of older children will be moving back in with their parents for economic reasons?

      I suspect we’re going to see major shifts in all three of these patterns from what has prevailed/evolved since WWII.

    20. Thor says:

      Why is the traditionalist generation so large (23 years) while Gen X is so small? (15 years)

      These numbers aren’t quite so dramatic when you break the generations down by an equal number of years.

    21. destor23 says:

      Hey Invictus, I’d like to gently challenge your assertion that we can’t legislate around demographic issues. Of course we’re not going to pursue China style policies here but there is one part of our demographics we can control — immigration. So long as the U.S. remains a desirable place for younger, ambitious workers and thinkers and we remain open to receiving them, we have a demographic advantage over places like Japan and most of the E.U.

      What frightens me is that I think we’re squandering that good will with our current anti-immigration stance. If we opened our borders to people the way we’ve opened our borders to capital, I think we’d be in much better shape right now both economically and culturally.

    22. Agreed destor23. The demographic gig will be up when immigrants fail to come, whether that’s because we keep them away or because there’s no longer any reason to bother.

    23. S Brennan says:

      I think the point of this post is correct, but it is dwarfed by the effect of low/no/non-secure wages for 8.5/10ths of the US population.

      Low/no/non-secure wages for 8.5/10ths of the population would seem to be the policy of DC, or rather lack of policy in favor specialized business groups immediate whims.

      1] Globalization reaps huge benefits, but only the tiniest sliver of the population…most notably, economists [both left & right] who shill for it. Still, 8.5/10ths of the population winds up net losers in terms of purchasing power

      2] Direct Federal spending in large long term infrastructure projects that sop up excess labor & reap huge productivity rewards at a later date.

      Examples:

      a) The National Interstate and Defense Highways Act that IKE used to stimulate the economy and led to the boom in the 50′s & 60′s

      b) The Space Race that JFK used to stimulate the economy and led to the boom in the 60′s, 80′s & 90′s. IC’s needed a secure market to be developed…that would be the federal government, most notably ICBM’s/DoD & NASA.

      3] Most US citizens require dual incomes to support home ownership since the 1970′s, his creates a problem when an undeperforming spouse requires relocation in order to sustain income

      4] Permanent job loss, what used to be top earning years [late 40's-50's] have been turned into wealth liquidation years as companies in search of the bottom line cull professional top earners who have performed well in the past, for younger cheaper workers, who are in turn, culled. Most HR’s engage in age discrimination(a)/(b) by limiting the experience of applicants, here your ability to document your performance will hurt you.

      (a) We have laws [US] against age discrimination, but they are civil and require private monies, however, Scalia didn’t like the law so he rewrote the law from the bench and set the burden of proof from a singular discrimination, to a plaintiff must show a pattern of discrimination over a significant history in order to have standing. Scalia thought that ended the law…but some smart ass lawyer went forth and found company records through discovery that proved a historical pattern.

      All Good?

      Not with Scalia on the Case representing Corporate interests…refining his earlier ruling Scalia now dictated a new law from the bench “in order to acquire records that might prove “a historical pattern” you need to show that the defendant is guilty of a historical pattern of age discrimination…if you can not do so a priors, you have no right to discovery”. Wasn’t that “clever”, stick a catch 22 in there…no wonder Scalia is the beltways dar’lin….And that was the end of that pesky law.

      (b) Most of this discrimination would end if we eliminated employer supplied healthcare and simply expanded Medicare with a straightforward 6% on income. and supplemental insurance for those who are “entitled” to very best…all the time..but I digress.

      5] Bankruptcy limits buyers, job loss and healthcare are the leading causes, if this happens to you in your late forties, early fifties, you are out of the market…forever.

      Low/no/non-secure wages for 8.5/10ths of the population, limit demand, create uncertainty. Secure jobs, that pay enough to sustain ownership for hardworking citizens will do far more to stimulate housing demand than any group of younger Low/no/non-secure wage earners.

      One last tidbit, low wages are not inevitable because “China”, many countries [all of Scandinavia, Germany, Canada, Australia] are doing okay..the US has chosen this path, it is not “inevitable”

    24. bmoseley says:

      i think theb goods chart should log. thah would be more meaningful

    25. Thatguy says:

      bmoseley,

      You shouldn’t type with your mouth full. Noone can understand what you are saying.

    26. Darmah says:

      @Thor – don’t know exactly why the disparity in length of gens; it’s just what’s on the charts. There was an asterisk next to traditionals saying “Some resources start this generation as early as 1900.” So there are obviously other dynamics at play, the clearest being the end of WWII. Perhaps the Gen-x’ers are defined by the British Invasion at the beginning and the availability of “London Calling” at the end. :-)

      @S Brennan – large corporations have been particularly adept in age discrimination. For layoffs or “resource balancing,” or whatever today’s euphemism is, they are very careful to have a proper balance. But when hiring there’s a lot more leeway. The older workers simply don’t seem to match the requirements.

      I’m all for immigration for reasons stated above by several, but if there are no substantive, productive jobs that won’t help us.

    27. impermanence says:

      As has been known for thousands of years, the best way to enslave an individual (population) is to give them EXACTLY what they desire. This is precisely why the move towards fascism will fail. The 20th Century taught, if anything, that you gain maximum control through TV, food, drugs, sex, and by fulfilling all other misc. desires. What some people won’t do for a Big Mac, large fries and, of course, a DIET coke.

    28. ashpelham2 says:

      I think there are some good things that have been said about immigration on this topic. Certainly we need to have a replenishment of people to overcome the loss of boomers in the years to come.

      Here’s my problem: the largest, by an overwhelming margin, group of immigrants is coming from Mexico and Central America. These are places where government has failed it’s people, where corruption has been the norm, not the exception. While those leaving and coming to here may be well intentioned, the USA must impose an orderly method of doing so, in order to support our democratic ideals. If we allow the stream to become a flood (probably already there), then we open ourselves up to over-immigration, and all the issues that come with a largely unskilled, non-english speaking contingent. Yes, I’m afraid of it. I’ll admit that. Ask the leaders of states and municipalities with large influx of immigrants from those regions what their biggest problems are….most likely, serving the social needs of the population. Less money paid into the system, more demands placed on it=recipe for disaster (that many places are already in).

      Immigrants with something to contribute to society, mainly, their tax dollars, are welcome as always. We must control the flood of immigrants who won’t contribute, but are a net drain on resources.

    29. sbailey says:

      VennData asked what people are storing in their storage. Answer: when you get a divorce and move out, you have to store your stuff somewhere.

      Great post. While I agree that demographics may have something to due with declining final sales response over time, I think indebtedness and the collapse of the credit markets is a bigger factor. Household formation was exaggerated in the runup to the collapse, and it is particularly weak now, that puts a huge damper on consumer purchases. Contrast that with other recoveries where (as Calculated Risk often points out) homebuilding and (associated) retail sales led the way out of a recession.

    30. skier5150 says:

      BOOMER BUST!! Indeed, I have been trying to name the collapse that but I don’t have the platformn to get it through. Good luck Barry! Send ma a dime if you can TM it.

      Heck, demographics plus the Boomer vote for Regan/Bush unregulation pretty much determined it.

    31. plantseeds says:

      late to the party – someone said ” does anyone have any data on what happens as the Traditionalists generation moves on? There’s quite a bit of wealth there …”
      no data but I bet their boomer kids will find a way to squander it like they did the spoils of their own life’s work.

      http://www.washingtonpost.com/wp-dyn/content/article/2010/07/14/AR2010071405229.html?hpid=sec-business

    32. reformed consumer says:

      The accumulation of stuff observation is a good one – consumption is outpacing the planet.
      See http://www.thestoryofstuff.com for a terrific, well-researched 20 minute feature on that very topic.

      If you ask me it’s time to reconsider the workweek. The 40 hour workweek was legislated in 1937 (the Fair Labor Standards Act). Consider how immensely more productive we have become since 1937. The planet simply cannot keep up. A move to 21 hours (discouraging overtime while encouraging co-production, job-sharing and flexibility) would result in lots more time to enjoy and care for our families and communities, grow gardens, learn practical skills, volunteer etc; all the while consuming less and considerably reducing our carbon footprint.

    33. DMR says:

      @ashpelham2 Says:
      ” If we allow the stream to become a flood (probably already there), then we open ourselves up to over-immigration, and all the issues that come with a largely unskilled, non-english speaking contingent”

      In New York, between 35-40% of the residents are foreign born. It has a dynamic, young economy, with millions of non-native English speakers occupying every job from street vendors to top CEOs (including people of Mexican descent). New York also happens to consistently rank in the top 3 safest metro areas in the country.

      The current hysteria has nothing to do with a real “invasion” or “flood”. It has more to do with the fact that the current flow is predominantly latino into states that have been exceedingly white. This is simply a case of Nativism. Cloaking it in terms of legal vs. illegal is moot. The U.S. has always had significant illegal immigration. That is the source of our dynamic demographics in spite of our low birth rates. For example, the reason why Boston is so Irish is that most Irish immigrants hid on board ships and did not have the money or energy to make a trek across the country the way a lot of Germans did. They just settled next to Boston harbor and made a living. They survived the nativism of their time and became a part of the fabric. That’s just the way it works.

    34. princess says:

      The point of Invictus’ post is to discuss the connection between demographics (aging of US pop) and the economy. And to connect them it is shown that purchases of stuff drops as people age, and since we are aging (comparatively over the last few recessionary periods) our purchases drop and as 2/3 of the economy’s growth depends on consumer purchases….this will not be helped by the aging of Americans. Yes troubling.
      Further troubling on this score is the Rogoff and Reinhart conclusion that global financial crises show it will take 3-4 times as long to recover from this recession as from other, non-global financial types.
      Dismal science!!

    35. Storage is down because they need to liquidate and eBay is a better option than holding “inventory”.