Demographics drive demand. Developments since 1950 are thus creating massive and unprecedented change in global demand patterns, as the chart above highlights:
- Fertility rates (green) have halved on a global basis, with the average woman having just 2.5 children today
- Life expectancy (red) has increased by 50% over the same period, to average around 70 years
Virtually every country has seen the same trends. Thus when people talk about a ‘population explosion’, they really mean a ‘health explosion’.
The two developments are, of course, closely connected. Increased life expectancy means women don’t have to have children every year, in order to ensure the family will earn enough to survive. So they are free to do other things with their lives, such as go back to work after childbirth.
This led to the arrival of dual-income households for the first time in history in the 1980s, and was great news for the economy. It opened up important new markets, as working women not only needed labour-saving appliances for the home, but also had the income to buy them.
The world thus saw a growth SuperCycle between 1983-2007, where the US suffered only 16 months of recession in 25 years:
- The arrival of the Western BabyBoomers, the largest and wealthiest generation is history, meant growth became virtually constant
- As they entered the Wealth Creator 25 – 54 age range, they settled down, had kids, and saw their incomes rise
- Increasing numbers of women entered the workforce, and their incomes relative to men also increased to record levels
But that was then, and this is today.
Most of us, not just the lucky few, can hope to live beyond retirement age. So we now have record numbers of people in the New Old 55+ generation, also for the first time in history.
This, in turn, means the economy has gone ex-growth. Older people represent a replacement economy, who already own most of what they need. Equally, they have much less money to spend. A couple retiring at age 65 would need a pension fund of $1m just to equal median US income of $40k/year. Most people have nothing like this amount of savings.
Equally, and contrary to popular belief, the emerging economies are totally unable to replace this lost demand. Their incomes rose during the SuperCycle but are typically only a tenth of those in the West. In China, for example, only 4% of the population earn more than $20/day. And even this $7300/year would leave them a long way short of joining the Western middle class.
Demographics, as we describe in ‘Boom, Gloom and the New Normal’ are now driving major and fundamental change in the global economy. Those who instead believe in a return to the SuperCycle are going to be very disappointed.