“Stagnation might prove to be the new normal” for the US

Economic growth

SHARE THIS STORY

US births Dec13The blog returns today to its series on how demographic changes are impacting the 5 largest economies in the world.  Having looked at China and Japan in NEA, it now moves across the Pacific to the USA.  Like all the major economies, the US is now ageing fast as a consequence of the trends in the chart above:

  • Its fertility rate has halved from its peak of 3.7 children per woman in 1955 to just 1.8 today (green)
  • Life expectancy has improved by 14% from 70 to 79 years (red)

It is often said that the US has a “better” ie higher fertility rate than other Western countries.  As a result, it is argued that it doesn’t face the same problems from an ageing society.  But this is not quite the whole story, however, as the chart on the right from a new Rand Corporation study shows:US births Dec13a

  • A dramatic shift is taking place in the racial composition of the US population
  • Pew Research shows that 92% of population growth has been in minority communities since 2000
  • Hispanic women have the highest fertility rate, particularly immigrant Hispanics
  • Immigrant Hispanics have 3 babies per woman, whilst US-born Hispanics have 2.1 babies per woman
  • But the overall Hispanic rate is now falling – it is 2.4 babies today versus 3.0 babies in 1990 (purple)
  • Black women are also having fewer children –  just 2.1 today versus 2.5 babies in 1990 (green), whilst Asian (blue) and white women (red) both now have 1.8 babies

This matters for the economy and demand patterns.  Sadly earnings in the US vary widely by race, as the blog noted back in October.  Thus median earnings for whites were $792/week in 2012.  But Hispanics earned nearly 25% less at just $568/week, whilst blacks earned 20% less at $621/week.

Equally important for future demand is the rapid ageing of the overall population.  Slightly more than 1 in 4 adult Americans were in the New Old 55+ generation between 1950-2000, but since then the proportion has been rising fast.  It is already 1 in 3 adults, and will be 41% of all adults by 2030.

This data again hides vast differences within the different racial groups.  The white population has a median age of 42.3 years – very similar to European and Japanese levels.  The overall median age of 37.3 years is thus only lower because Hispanics (median age of 27.6 years) and blacks (median age of 32.9) are much younger.

Essentially, therefore, this means that currently higher-paid whites will be retiring, and there will be relatively more lower-paid Hispanics and blacks in the workforce – unless salary patterns change quite dramatically.  Add to this the fact that most Americans have not made adequate provision for retirement, and it is clear that today’s already weak trends in consumer spending are likely to get worse, not better.

The US pension system is too complex to summarise in a blog post, but the new OECD Pension Handbook suggests that net relative pension levels are 41% of average earnings.  The position is getting worse, not better however, as the blog discussed back in February when updating chapter 5’s data in Boom, Gloom and the New Normal.

A simple way to describe the problem is that a couple retiring today at age 65 would need a pension fund of $1m just to equal US median earnings of $40k/year.  And even then, there is a 72% chance that the fund will run out before both of them die.

US policymakers are slowly waking up to the fact that the US is indeed following the same path as Japan.  Former Treasury Secretary Lawrence Summers wrote this week that “stagnation might prove to be the new normal”.  But he and other policymakers still appear blind to the obvious demographic cause of the slowdown underway.

Until they recognise this reality, it is hard to have a sensible debate about how to move forward.

PREVIOUS POST

Can oil prices stay at $100/bbl forever?

17/12/2013

Sometimes the blog’s mind goes back to its happy days in Houston, Texas, w...

Learn more
NEXT POST

Demand now the key driver for future US petchem profitability

19/12/2013

Will the US be able to sell all its planned new petchem volumes?  That is the ...

Learn more
More posts
ACS Chemistry & the Economy webinar on Thursday
02/06/2021

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Read
225 years ago today. The first ever vaccination – against smallpox, the great killer of the time
14/05/2021

The pandemic has reminded us of the critical role played by vaccination in our lives. Its impact beg...

Read
Supply chains set to transform as companies start to reshore
09/05/2021

Major new opportunities are starting to appear in today’s New Normal world, as I describe in a...

Read
Pandemic leads to ‘baby bust’ as births decline in most countries
18/04/2021

A year ago, many were suggesting the lockdowns might produce a “baby boom” as couples sp...

Read
Smallpox was the first vaccination to change the world – now we have a new opportunity to improve our lives
03/04/2021

Chart 1: Increased life expectancy led to a dramatic increase in GDP/capita The pandemic has reminde...

Read
COP 26 set to accelerate development of the 15-minute city
28/03/2021

One of the good things to happen in the pandemic over the past year is that ‘cooking has becom...

Read
China’s dual circulation policy aims to reduce debt reliance
14/03/2021

Every now and then, people wake up to the fact that debt is only good news when it adds to growth. O...

Read
UK set to take hard line on EU trade under David Frost
21/02/2021

The Brexit debate has always been about politics, not economics.  So it was no surprise that Decemb...

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