An emerging American market
| Walter Kemmsies chief economist, Moffatt & Nichol |
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Aging baby boomers create issues, opportunities.
While many people are amazed that China is now the largest energy-consuming country in the world, the largest car market and now the second-largest economy, they ignore that this is the result of another fast-growing market in mature industrialized economies: retirees.
Decision-makers seeking to grow their volumes need to position themselves to benefit from trends. The demographic trend is worth focusing on because regardless of how the economy evolves over the next decade, for sure there will be more retirees. This many retired people will also pose a mobility challenge that has prompted some concern at the U.S. Department of Transportation.
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The driver of this trend is the baby boomer generation, defined as people born between 1946 and 1964. In 2008 the leading edge of this generation reached 62 years of age. In 2010 about 13 percent of the population (40 million people) are over the age of 65. This will rise to 16 percent (55 million) by 2020 and to 19 percent (72 million) by 2030. The share will level at 20 percent by 2040. The share of the population of working age, 15 to 64, will decline from 67 percent in 2010 to 61 percent by 2030. In absolute terms the working age segment will rise from 208 million in 2010 to 228 million by 2030. Over the 2010-2030 period the working age segment will increase 10 percent (by 20 million people) while the retired age segment will increase 80 percent (32 million).
Perhaps a more appropriate name for them is the boom/bust generation. As this population segment went through its lifecycle, it created a series of booms and busts across industries and geographical markets. During the 1950s and 1960s schools had to be built to reduce overcrowding. But, as this generation did not reproduce at the same rate as their parents did, today we see schools being closed. Universities now offer incoming freshmen single dorm rooms; in the 1970s many universities had to accommodate students by offering them cots in gymnasiums. This generation drove music album sales to new heights, resulting in the emergence of scores of new recording label companies. As the boomers moved on in their lifecycles to having families and therefore having less time to spend listening to music, the number of bankrupt or merged labels also increased. Even the auto sector has been affected. During the 1970s and early 1980s small, fuel-efficient cars were gaining share of U.S. auto sales. While this is in part due to the increase in fuel prices following the oil supply shocks, it reflected young consumers with little disposable income. By the late 1980s, as the boomers began having children, minivans and SUV sales also picked up.
The rising share of retired people has raised some important macroeconomic concerns. For example, in 2010 there are 5.2 people of working age for every one person of retirement age. By 2020 this will decline to a 4:1 ratio and to 3.2:1 ratio by 2030. Social Security and healthcare are slated to struggle. It is also likely that the United States will suffer a labor shortage. Other countries with similar demographics such as Canada, Europe and Japan, are already dealing with these issues. Unless there is substantial substitution of capital for labor, the production of goods and services could grow a lot more slowly than it has over the last few decades.
As is the case with other trends, the demographic shift will also create some winners. The spending patterns and residential choices of retired people are different than those who are of working age. There are already advertisements for products to help with joint pains. Cruise lines are busy investing in terminals and new services in anticipation of the growth in potential cruisers among the retired. There will be many new opportunities and markets that should boom with the growth of this population segment.
Some regions of the United States, notably in the southern half of the country and especially along the coasts, the population should grow faster than in the Northeast and Midwest. Infrastructure serving the higher population growth areas will have to invest to cope with growing demand.
As the economy continues to recover from the extended recession and decision-makers begin focusing on capacity investment more as opposed to financial survival, the demographic trends highlighted here and their implications need to be considered very carefully.
Walter Kemmsies is chief economist of Moffatt & Nichol, a marine infrastructure engineering firm. He can be reached at (212) 768-7454 or e-mail, [email protected].