An Exciting Demographic Development Is Unfolding In The US And It Will Benefit The Economy For Years

Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the “20 to 24” Age Group and The Future is still Bright!

I pointed out that “even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon.”

Changes in demographics are an important determinant of economic growth, and although most people focus on the ageing of the “baby boomer” generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labour force) from 1948 through July 2014.

Screen Shot 2014 08 05 at 6.14.39 AM

There was a huge surge in the prime working age population in the ’70s, ’80s and ’90s – and the prime age population has been mostly flat recently (even declined a little).

The prime working age labour force grew even quicker than the population in the ’70s and ’80s due the increase in participation of women. In fact, the prime working age labour force was increasing 3%+ per year in the ’80s!

So when we compare economic growth to the ’70s, ’80, or 90’s we have to remember this difference in demographics (the ’60s saw solid economic growth as near-prime age groups increased sharply).

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012. The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 – and this should boost economic activity in the years ahead.

The second shows prime and near-prime working age population in the U.S. since 1948 (this is population, not labour force).

Screen Shot 2014 08 05 at 6.15.19 AM

The near-prime group has still been growing – especially the 55 to 64 age group.The key points are:

1) A slowdown in the US was expected this decade just based on demographics (the housing bust, financial crisis were piled on top of weak demographics).2) The prime working age population in the US will start growing solidly again soon.

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