Monday, January 11, 2010

Two Demographic Icebergs Colliding...

One of my favorite hobbies is speculating on long-term trends. You're rarely wrong and you can make wild guesstimates that sound reasonable if presented properly. Nearly a decade ago, I spent some time doing a good deal of research for a now defunct investment bank that rhymes with Sheman Mothers on the demographic trends in the US.

Three things jumped off the page at me at that time:

1) The boomers were such a huge junk of the workforce that their retirement was going to alter our tax base significantly and influence government spending dramatically from 2010 to 2030.

2) The boomers were likely to live longer than any previous generation due to advancement of healthcare options. I'd alter this analysis today because there is a good chance that many boomers will eat their way into an early grave, but the advancement of medical technology has astonished me and people with serious health issues seem to be living longer than expected.

3) The delay of young people creating households. This trend started in the late 90s as individuals started to push out getting married into their late 20's and early 30's (well, at least the smart ones did ;) -- just kidding honey!

Well, when people delay household creation it slows savings rates and wealth building for a nation. The individual that blows $150 in Hoboken on shooters ever Friday night is not going to be buying a house or shopping for towels at Bed, Bath and Beyond on Saturday.

One of my big fears right now is that these two demographic trends have only seemed to be amplified during the great recession. Under 30 unemployment has skyrocketed during the recession and the jobs that do exist tend to be service jobs that aren't careers. I don't have any data to back it up yet, but I'd suspect that over the next 3-5 we'll see the national marriage rate fall because people fell less comfortable with the idea of settling down, buying a house, having kids, etc, when Time Warner is calling every month and threatening to cut off their cable. Thus, we'll have a problem with young people generating sufficient tax revenue to cover our outflows.

On the other end of the equation, boomers are either retiring at an amazing pace or dropping like flies. Boomers seem to be dropping out of the workforce extremely quickly which means they will require longer periods of pension payouts, health coverage, etc, while contributing less to the tax revenue side of the government's income statement.

These trends can reverse but these two trends are going to collide at some point with devastating impact on State and Federal budgets.

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* The new Governor of NJ has a difficult task ahead of him. Gov. Christie won election on the premise that there would be no new taxes. Yet the state faces an $8-$9billion shortfall in the upcoming year. This nearly a 1/3 of the state's budget. Will he be able to cut $8 billion from the budget in 2 months? Good luck with that.

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* Redefault rates for modified mortgages (mortgages that modified and then still went to default) were termed "tragic" by an analyst that follows the market...

"Re-defaults after modification were $12.8bn, or 10.9%, up from 10.5% last month."

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Sam's Club announced a couple of store closings today. One in Sacramento, CA, another in La Quinta, CA and Clay, NY. Okay, three stores isn't a trend, but one store was opened in 2007 (can you imagine the sunk cost in that place?) and the three stores represent about 1.5% of all US Sam's Club stores. Since it seems like our local Sam's Club is mobbed 90% of the time, this is an interesting development.

Cheers!

1 comment:

Tim said...

I've been noticing this as well. From my perspective as an anthropologist, I think it has a lot to do with not wanting to get tied down in a volatile job market. Loose family commitment is a parallel trend. A volatile job market demands mobility and you can't pull up stakes as easily when you're saddled with a family. But I also have fears that these college students are entering the workforce saddled with an average $30,000 in debt. No new homes there, either.