The current economic picture is one of
slow growth. The economy is moving in fits and starts but lacks momentum. The
S&P 500 closed yesterday at 1885. At the end of 2013, the S&P 500
closed at 1848, meaning it has risen about 2% for the year to date. This
certainly is not the robust market of 2013. Many reasons might account for
slowing the growth in stocks, but overall, I’d say the stock market got ahead
of itself.
When we came out of the 1982 recession,
the growth in GDP was 7.5%, with the next two recessions recovering at a more
modest 5.6% and 5.2%. Nominal GDP growth is just 3.7% during the current
expansion. This slow growth is not just in the U.S. but is occurring in Europe,
Japan and China, to name a few.
Perhaps something else is at work that
is being overlooked. From 1968 to 1985, the population growth in the U.S. was
2% annually. During this same period, the growth in GDP was 4%. From 1985 until
2000, the population grew 1% and the GDP grew 3%. Since 2000, the approximate
population growth is 0.6% and the growth of GDP, overall, is just above 2%.
I believe there is a correlation
between population growth, the aging of the population and the growth of GDP. The
United States has benefited over the years from the constant influx of
immigrants into the U.S. This influx brought young people who had families, and
brought down the average age in the U.S. as the balance of the population aged.
This has not been the case in Russia, where the birth rate has been low and the
mortality rate is high. Europe also suffers from this problem, except for
Germany, which took in the East German population. Japan and China both have
aging populations.
In the 1980s and 1990s, the U.S. had
wide swings in economic growth. With our aging population, we are now experiencing
a period of fewer swings and longer-term growth prospects. While the current
growth is not up to previous levels, it will possibly last for a much longer
time, say the next 5 to 8 years. The U.S. is part of an international community
now, so the growth possibilities of the U.S. will be moderated by the lack of
growth in some developed and developing countries. This period will not show
spectacular growth, but it should be good for the U.S. economy. I’ll talk more
about the impact of demographics at another time.
Ed Mallon
