It is not possible for civilization to flow backward while there is youth in the world. Youth may be headstrong, but it will advance its allotted length. In this article, Ellen Zentner focusses on the impact of America’s new generations.
Ellen Zentner is Chief US Economist and a Managing Director at Morgan Stanley. Ms. Zentner has been named to the “Bloomberg Best” list of top forecasters of the US economy and has 20 years’ experience as a Fed watcher and markets-based economist, with a keen eye toward early identification of market-moving trends. Ellen joined Morgan Stanley in 2013 from Nomura Securities International, where she served as Senior Economist for Fixed Income. Previously, she served as the Senior Economist at Bank of Tokyo-Mitsubishi UFJ, LTD., and Senior Economist at the Texas State Comptroller.
Ellen serves on the Economic Advisory panel for the New York Federal Reserve Bank and the Academic Advisory Panel for the Chicago Federal Reserve Bank, as well as the American Bankers’ Association Economic Advisory Committee. She is a Director of the National Association for Business Economics and has been a past president of the New York Association for Business Economics. Ms. Zentner holds a Bachelor of Business Administration and a Master’s Degree in Economics from the University of Colorado and is an avid fly fisherman.
The economic impact of aging weighs on economic growth
Demographic shifts alone can determine a good deal of a country’s growth path. To be sure, the post-WWII “Baby Boomer” generation was a phenomenon across the developed world resulting from high birth rates as fighting men and women returned home and families came together after the war. The sheer size of the generation propelled economic activity for decades as it aged and moved en masse into its prime working and earning years. But the economic impact of aging also works in the opposite direction and as the generation moved toward retirement it began to weigh on economic growth. In Western countries, like the United States, general expenditures and demand for liabilities fall, while the personal savings rate rises as we move toward, and into our retirement years. This enduring feature of the economic life cycle was weighing on potential global growth prior to the Great Financial Crisis, and continues today.
Millennials or Generation Y are set to overtake Baby Boomers
In the United States, Baby Boomers peaked in 1999 with a population of 78.8 million. Already, the single largest age cohort is skewing younger—today it is age 27. Since the financial crisis, much attention has been paid to Generation Y, or “Millennials” (born between 1981 and 1996) as they became economic agents at the worst possible time. Economists largely believe that simply where the country is positioned in its business cycle when one graduates from university can dictate one’s lifetime earnings. The bulk of Millennials graduated during one of the worst ever labor markets resulting in very low headship rates (they lived at home for longer) and have been described as America’s poorest generation. They too are a size to be reckoned with. Coming into their own, Millennials are set to overtake Baby Boomers in 2019 as their population swells to 73 million while the Boomer population declines to 72 million.
Generation Y and Z will combine a super bubble of youth
But the Millennials are beleaguered no longer. In the US the post-crisis expansion is now in its 10th year. With the financial crisis further in the rear view mirror, 10 years to pay down a burgeoning student debt bill, and wages rising from a tight labor market, headship rates have recently jumped as these adults are now taking flight from the nest to create nests of their own. As this group has moved into its prime earning years, Generation Z (born starting in 1997) is right on its heels and has usurped the Millennials as the country’s largest cohort. At its greatest, it is estimated to reach 103 million. And with the leading edge now graduating from university and entering the labor force at quite a propitious time, these two generations will soon combine to form a super bubble of youth in the United States.
It is this explosion of youth that sets the US apart on the global stage. Whether by sheer numbers or as a percent of the total population, the US leads all other developed nations in terms of its demographic support.
Source: United Nations, Morgan Stanley Research
Source: United Nations, Morgan Stanley Research
Since WWII birthrates in the US have not declined as much as in Europe and Japan, reflecting a good deal of support from its non-native-born citizens. Generation Z is America’s first generation with a non-white majority. To be sure, the fastest growing ethnicity is Hispanic and owes to the close proximity of the US to Mexico, as well as President Ronald Reagan’s amnesty program in 1986 that provided a path to citizenship to some estimated 2.7 million undocumented immigrants. Allowing them to become American citizens also allowed them to become full economic agents with the confidence and support to grow their families.
Over the next few decades the economic gains from America’s youth as it ages will shape the economy, and in ways we may not yet know.
