Pimco says demographics turning boom to bust

Pimco Dec12.pngThe head of Pimco, the world’s largest bond fund managers, provides influential support this month for the blog’s argument in ‘Boom, Gloom and the New Normal’ about the importance of today’s demographic changes. Bill Gross comments as follows in his new Investment Outlook:

Demography is destiny, and like cancer, demographic population changes are becoming a silent growth killer. Numerous studies and common sense logic point to the inevitable conclusion that when an economic society exceeds a certain average “age” then demand slows. Typically the dynamic cohort of an economy is its 20 to 55-year-old age group. They are the ones who form households, have families and gain increasing experience and knowhow in their jobs. Now, however, almost all developed economies, including the U.S., are gradually aging and witnessing a larger and larger percentage of their adult population move past the critical 55-year-old mark.

“This means several things for economic growth:

• First of all from the supply side, it means productivity and employment growth rates will slow.
• From the demand side, it suggests a greater emphasis on savings and reduced consumption. Those approaching their seventh decade need fewer cars and new homes as shown in Chart 2 (above). Almost none of them have babies (thank goodness!).
• Such low birth rates and a significant reduction in demand have imperiled Japan for several lost decades now. A similar experience will likely turn many developed economy “boomers” into “busters” within the next several years.”

Hopefully Gross’ argument will help to highlight the paradigm shift that is underway.

77m Americans have already joined the New Old 55+ generation, and their numbers will rise 44% by 2030. Yet companies and policymakers are still focusing all their attention on younger age-groups, and ignoring the potential of the New Old. These are already 25% of the US population, and 29% of the Western population.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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