Category: US Economy

Weak GDP Growth Reflects Poor Demographics

Editors

26 June 2013

GDP growth for the first quarter was only 1.8%, less than the expected 2.4%. Since the recession of 2009, the recovery has been anemic compared to previous ones. See table below. There are some features which differentiate the 2008-09 recession. Most notable among them was the crisis suffered by the major banks and their subsequent inability or reluctance to lend. Another factor in the current recovery, and in our view a more substantial one, is the poorer demographic picture in the US which has resulted in weaker demand growth.

 Number of quarters with n+ GDP growth
 in the 15 quarters following recession of:
n —-> 2% 3% 4%
1991 12 8 7
2001 11 7 2
2009 8 3 2

31 July 2013 Update: GDP growth for Q1 was revised down again today to 1.1%, less than half the estimate from two months ago.  The first estimate for Q2 is 1.7%.

USA: Proposal for Social Security Reform and Medicare Modernization

Editors

The BUSINESS ROUNDTABLE, an association of CEO’s of leading US companies released proposals to reform Social Security and Medicare.  Among its recommendations  are an increase of the Social Security retirement age from 67 to 70 and means-testing of Social Security and Medicare benefits.  FULL REPORT.

Bill Gross: Four Structural Issues Weighing on the US Economy

Editors

BILL GROSS, co-CIO of PIMCO, writes in the firm’s latest INVESTMENT OUTLOOK:

Strawberry Fields – Forever?

You didn’t build that ….. 332

I built that ………………… 206

Well, I guess that settles it: you didn’t build that after all. Or maybe you did, but not all of it. Or maybe like the convoluted John Lennon above “you think you know a yes, but it’s all wrong. That is you think you disagree.” Whatever. Rather than an economic mandate, November’s election was more of social commentary on the Republicans’ habit of living with eyes closed. Their positions on what Conan O’Brien labeled “female body parts” – immigration, gay rights and student loans – proved to be big losers, and they will have to amend rather than defend those views if they expect to compete in 2016. I suspect they will. Political parties are living social organisms that mutate in order to survive. We will see straight talking Chris Christie or Hispanic flavored Marco Rubio leading the Republican charge four years from now versus a reenergized Hillary Clinton. It should be quite a show with a “No Country for Old (White) Men” caste to it. READ MORE.

NYT: Slower Growth Seen in a Graying World

Editors

FLOYD NORRIS writes in the NEW YORK TIMES:

AS the world grows older in the coming decades, economic growth will slow.

That forecast was issued Friday by the Organization for Economic Cooperation and Development, a group of 34 countries that includes all of the major industrialized nations.

“Aging will be a drag on growth in many countries,” said the report, titled “Looking to 2060: Long-Term Global Growth Prospects.” It also projected that while the aging of the population would be offset to some extent by better education in many countries, global growth in gross domestic product, which averaged 3.5 percent a year from 1995 through 2011, would rise to 3.7 percent through 2030, but then fall to just 2.3 percent over the next three decades. READ MORE.

USA: Long-Term Implications of an Older Population

Editors

The NATIONAL RESEARCH COUNCIL released a new report Aging and the Macroeconomy: Long-term Implications of an Older Population. Excerpts of the press release:

Population Aging Will Have Long-Term Implications for Economy; Major Policy Changes Needed

WASHINGTON — The aging of the U.S. population will have broad economic consequences for the country, particularly for federal programs that support the elderly, and its long-term effects on all generations will be mediated by how — and how quickly — the nation responds, says a new congressionally mandated report from the National Research Council.  The unprecedented demographic shift in which people over age 65 make up an increasingly large percentage of the population is not a temporary phenomenon associated with the aging of the baby boom generation, but a pervasive trend that is here to stay.

“The bottom line is that the nation has many good options for responding to population aging,” said Roger Ferguson, CEO of TIAA-CREF and co-chair of the committee that wrote the report.  “Nonetheless, there is little doubt that there will need to be major changes in the structure of federal programs, particularly those for health.  The transition to sustainable policies will be smoother and less costly if steps are taken sooner rather than later.”

Social Security, Medicare, and Medicaid are on unsustainable paths, and the failure to remedy the situation raises a number of economic risks, the report says.  Together, the cost of the three programs currently amounts to roughly 40 percent of all federal spending and 10 percent of the nation’s gross domestic product.  Because of overall longer life expectancy and lower birth rates, these programs will have more beneficiaries with relatively fewer workers contributing to support them in the coming decades.  Combined with soaring health care costs, population aging will drive up public health care expenditures and demand an ever-larger fraction of national resources.  READ MORE.

 

 

‘Siri, How Can Aging Populations Drive Economic Success?’

Editors

MICHAEL HODIN, Executive Director of the Global Coalition for Aging, writes in the HUFFINGTON POST:

It’s an uninspiring truism to say that technology has changed our lives in ways that we never imagined. But as the iPhone 5 is cheered as one of humanity’s greatest developments since the first slice of bread, it’s time to take a step back and evaluate how. Is technology creating new opportunities for healthy, active and engaged aging? This question may be less fun than asking Siri the meaning of life, but the answer to it may well shape the social and economic success of the twenty-first century and how happy we can be in this new era of older societies.

Our tech-savvy, app-obsessed, 24-hour-plugged-in culture doesn’t seem to care much about how technological innovation can transform population aging from an economic sinkhole into a foundation for growth and shared prosperity. For all the “progressive” and “visionary” mythos that lionize Silicon Valley entrepreneurship, the kids in California are pretty far behind the curve on this one.

Yet, while the iPhone 5 hysteria reached its tipping point, a horde of policy wonks, academics and business leaders got together in Tokyo to ask the right questions about how technological innovation can write a better future for an aging society.

At Waseda University in Tokyo, the Organization for Economic Cooperation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC) held a joint conference entitled, “Anticipating the Special Needs of the 21st Century Silver Economy: From Smart Technologies to Services Innovation.” The conference may sound less sexy than Apple’s unveiling of the iPhone — and, make no mistake, it was — but its significance might just be even greater.  READ MORE.

 

USA: Will Property Prices Need a Crutch as the Population Ages?

Editors

MARK HESCHMEYER at the COSTAR GROUP writes:

There has been much speculation that single-family housing prices could take a hit as increasing numbers of baby boomers downsize and leave larger homes behind as they move into retirement age. That assumption is too general to be entirely accurate, according a pair of major economic papers on the topic of aging and property prices.

What is clear is that this ongoing population shift holds important ramifications for the multifamily property sector, including senior and assisted living facilities. And it is also becoming an issue of increasing importance for commercial real estate investment researchers.

“As Baby Boomers enter retirement age, many ’empty nesters’ may downsize, leaving their current homes in favor of smaller condos or age-restricted communities. Therefore, prices for large single-family homes located in high property tax areas could be under pressure over the next decade,” Tim Wang, senior vice president and head of investment research for Clarion Partners in New York, told CoStar News. “However, seniors today are often healthier and live longer; because of this we believe it is still premature to invest in assisted living or nursing homes.” READ MORE.