US housing starts fall as the BabyBoomers get older

Chemical companies, Consumer demand, Economic growth, Financial Events, Leverage

US housinga Sept11.pngUS subprime lending was the starting point for the economic crisis now spreading around the world. The blog believes a key cause was policymakers refusal to accept that the ageing of the BabyBoomers (those born between 1946-70) would cause a major change in demand patterns.

Instead, they have continued to believe that underlying levels of housing demand are the same today as in 1970-2000, when the Boomers were settling down and having children. Their idea is that ‘housing demand is a constant’. They will not accept that ageing Boomers no longer need to buy new homes to house growing families.

Thus Fed Governor Sarah Bloom Raskin set out their thinking this week:

“The conventional tool of monetary policy is to modify the near-term path of interest rates…. This policy accommodation also tends to raise household wealth by boosting the stock market and prices of other financial assets. With greater household wealth and cheaper borrowing rates, consumers tend to increase their purchases of houses, cars, and various other goods and services.”

Yet the chart above, based on US Census data, clearly shows that the policy has failed:

• Housing starts (purple) and building permits (red) remain well below anything seen since statistics began in 1959.
• Starts were just 571k in August, and permits only 620k.

This surely represents a generational shift in demand patterns.

Any scientist or engineer, faced with this situation, would re-examine their assumptions. They might well, like the blog, notice that a record 25% of the US population is now over 55 years old. Just 17% were in this cohort back in 1950. And the percentage is rising by 1% every 5 years.

Equally, this refusal to consider other factors is creating great pain for more and more Americans. Their equity in their homes has declined 54% since 2006 from $13.5trn to $6.3trn. 1 in every 5 Americans owes more on the mortgage than the home is worth.

We are now moving into Budget period for most companies. The blog believes it is vitally important that they include their own assessments of the outlook. It fears that the global economy is increasingly threatened by these failed policies.

• On Tuesday, it will outline a 4-point Action Plan for companies to review
• On Wednesday, it will propose 4 key Scenarios for discussion
• On Thursday, it will highlight 5 Critical Success Factors, to help guide implementation plans.

Sadly, it is becoming clear that we cannot rely on wise and far-seeing policymakers to guide the global economy in the right directions. In turn, this may mean that we all need to prepare for increasingly turbulent times ahead.

PREVIOUS POST

Tesco says 'Today is the New Normal'

29/09/2011

The world’s leading retailers have been extremely reliable leading indicat...

Learn more
NEXT POST

Boom/Gloom Index confirms the downturn

02/10/2011

The IeC Boom/Gloom Index seems to have done its job. It was launched in June 200...

Learn more
More posts
Financial markets head for (another) train crash as coronavirus starts to impact
17/02/2020

China’s industrial heartland of Hubei (pop 59m) and its capital Wuhan (pop 11m) have now been ...

Read
Coronavirus disruptions make global recession almost certain
11/02/2020

Last month, our Hong Kong-based pH Report colleague, Daniël de Blocq van Scheltinga, warned of the ...

Read
Your A to Z Guide to the Brexit trade negotiations
02/02/2020

A. Article 50 of the Lisbon Treaty set out the rules for leaving the European Union. As with most ne...

Read
China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry
26/01/2020

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Read
Automakers face stiff headwinds in big emerging markets
19/01/2020

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Read
Contingency planning is essential in 2020 as “synchronised slowdown” continues
12/01/2020

The IMF has now confirmed that the world economy has moved into the synchronised slowdown that I for...

Read
Will stock markets see a Minsky Moment in 2020?
05/01/2020

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Read
Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis
22/12/2019

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more