There are a number of demographic changes happening in America that have serious implications for our near and long term economic growth.
In a new research note, Credit Suisse’s Amlan Roy, Angela Hsieh and Ric Deverell make a demographic argument that current mainstream projections of U.S. GDP growth in the next few years are overly pessimistic.
Much of the pessimism about future growth stems from the ageing of the U.S. population: the baby boomers, the largest generation in American history, are beginning to retire, leading to much lower labour force participation rates among adults, a trend that began even before the Great Recession and has accelerated since:
Credit Suisse suggests a different way of looking at this situation. They point out that the Bureau of Labour Statistics projects that there will be increasing numbers of older Americans continuing to work past traditional retirement ages.
This chart indicates that older Americans will be more willing to work through their sixties and into their seventies in 2022 than in 2012:
Credit Suisse argues that this change in the behaviour of older Americans, and the increased desire of younger Americans to go to college, means that our current definition of “working age adults” is obsolete. If we change our definition of working age adults from the current standard of people between the ages of 15 and 64 to people between 20 and 69, growth rates in the working age population suddenly become far more promising over the rest of this decade:
Credit Suisse uses these demographic projections, along with some optimistic but historically reasonable assumptions about labour utilization growth and productivity growth, to come up with a projection for GDP growth over the next five years that looks a lot better than more conventional models:
“Our 2014-2019 projections for a very optimistic scenario yield average growth of 3.2% p.a. and that for a moderately optimistic scenario yield average growth of 2.9% p.a. In fact the prospects for US GDP growth may not be as bleak as many make them out to be based on historical realisations of demographic components. The IMF projects a GDP growth range of 2.7% p.a. over 2014-2019 whereas the CBO projects 2.5% p.a. over 2014-2024.” [emphasis theirs]
For more details, check out the Credit Suisse note here.