Thursday, August 25, 2016

Why Millennials, by the Numbers, Can't & Won't Grow the US Out of Trouble

As the Millennials are making their way into adulthood, countless economists and nervous boomers have pinned their hopes on this generation to kickstart the moribund US economy.  There are 3 basic sources of consumptive growth in a nation with twin budget and trade deficits...basically there is just population growth, wage growth, and/or credit growth and population growth the greatest among these to drive greater demand.  So, the growth of the population, and the Millennials in particular, is worth a pretty close look.  I'll dive deep on the quantitative inferiority and just skim along on the inferior quality of Millennials vs. Boomers.

It is true that there are more Millenials than Boomers.  But to compare apples to apples, I'll compare the two groups as they made their way through the 15-34yr/old population segment.  When the Boomers exited this segment in 1981 (heading for prime adult time), they numbered about 81 million.  Likewise, the Millenials are now making their transition to adulthood and they number about 88m.  Or simply put, there are about 6.7 million more Millenials than Boomers (comparing peak to peak).

But to understand the impact of the two different generations, the chart below shows the total population growth during each generations time.  Clearly, the Boomers represented an increase of  the 15-34yr/old population of 33 million (a 40% increase of the 15-34yr/old population) vs. the Millenials 9 million (a 10% increase in the 15-34yr/old population). 
Based on the generations relative population growth vs. the total population, the Boomers added an average 0.8%/yr (nearly 1% annually) vs. the Millenials which added 0.15%/yr (just above 0.1% annually)...or about 1/8th the impact the Boomers had on growth.

Comparing the "quality" of the Boomers vs. the Millennials has nothing to do with them as people but instead their impact upon growth.  Full time jobs growth over the past decade has been anemic compared to the Boomers period.  Likewise low wage growth, high student debt loads, low marital rates, low birth rates...all these things and so many more impact the Millenials inability to "grow" or increase consumption (aka, GDP growth) as their predecessor generations had.  Comparatively, Millennials buy fewer cars, fewer homes, and aside from smart phones, seem to be trending down across the consumption spectrum vs. their predecessors.  They face record asset valuations, record rents and rent to income ratios, I think this is well worn ground so I won't dwell here but the chart below highlights the slowing growth in full time jobs, rising reliance on "financialization" (Fed's balance sheet, interest rate cuts, etc.), and the impact on asset valuations represented by the Russell 3000 (The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market).

What should be apparent is that the factors pushing up asset valuations are having little (any?) positive impact on net full time job creation.

And finally - to maintain economic growth (as measured by GDP) despite slowing core population growth, the Federal Reserve (and CB's worldwide) have continually cut interest rates to make leverage and debt more serviceable and attractive.
How low will the Federal Reserve need to take rates over the next decade as core population (including Millennials) slows to a crawl?  I wonder if even Janet knows?!