Despite record-breaking deficits and steep declines in short-term interest rates, the U.S. economy continues to crawl forward by fits and starts. Indeed, not a few political pundits believe Bill Clinton's victory may prove to be a hollow one, as the comatose economy remains as unresponsive to Clintonomics as it has been to the fiscal and monetary stimulants already administered.
Economist Richard F. Hokenson of Donaldson, Lufkin & Jenrette Securities Corp. rejects such pessimistic prognoses. By this time next year, he says, "the economy should be in a solid recovery--one that should last at least for another three or four years."
In Hokenson's view, the force that will propel the economy upward will not result from new policy initiatives but from demographic trends ordained two decades ago. Specifically, a baby boomlet that occurred in the early 1970s, in the middle of the baby-bust period, will result by late next year in a three-year surge in the number of persons turning 25 (chart). And that surge will give a major boost to consumer spending.
Why focus on 25-year-olds? Hokenson says that's the age at which young adults accelerate household formation and begin to make major purchases on credit. Indeed, he points out that tracking 25-year-olds has been an "uncannily accurate predictor" of consumer-related behavior. For example, in 1972, the year in which the leading edge of the baby-boom generation turned 25, housing starts hit their postwar peak and motor-vehicle sales accelerated sharply. Similarly, in 1986, the year in which the most Americans in history turned 25, housing starts hit their peak for the decade and motor-vehicle sales soared to an all-time high.
As Hokenson sees it, the decline in the number of people turning 25 since 1986 has exacerbated the slowdown and subsequent recession, putting additional downward pressure both on housing starts and auto sales. But by the same token, the surge in 25-year-olds should add considerable zip to the recovery from late 1993 through 1996.
"Though the number of 25-year-olds will shrink rapidly after 1996," says Hokenson, "favorable demographic trends will make Bill Clinton's job a lot easier in the years immediately ahead."