An Aging America Will Grow More Slowly

Get used to it: The graying U.S. isn’t growing at the pace it once did. A Bloomberg News story today by Steve Matthews spells out the details:

• Fewer than 4 million babies were born in 2012, near a 14-year low.

• Every day for the next 16 years, about 10,000 Americans will hit the golden age of 65, according to the Pew Research Center in Washington.

• Americans’ mean income peaks at about age 55, so as the midpoint of the baby boom generation moves past that age, demographics will be a drag on growth.

• Researchers at the Federal Reserve Bank of Chicago say the U.S. needs about 80,000 new jobs a month to keep the unemployment rate stable, rather than earlier estimates of 100,000 to 150,000.

• The economy will grow about 2 percent annually over the next two decades, down from 3 percent in the late 1990s, says Dean Maki, chief U.S. economist for Barclays.

• The Federal Open Market Committee in September projected long-term growth of 2.2 percent to 2.5 percent, down from as much as 2.8 percent in its November 2010 forecast.

This isn’t all bad. When the population grows more slowly, it takes less top-line economic growth to ensure that GDP per capita and living standards continue to rise. Also, slower growth is acceptable if it’s steady and expansions last longer. I spoke today with James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. He’s also quoted in Matthews’ story. “It’s different but not dysfunctional, and it’s going to work out OK,” he told me.

How can the U.S. best cope with its demographic challenge (which, by the way, is less extreme than that of Europe and Japan)? Welcoming more young immigrants would help. So would upgrading the skills of the young people who are already in this country so they can contribute to stronger growth and wealth creation. Finally, says Paulsen, the U.S. should engage with parts of the world with younger populations. “That will cause some of their spending power to come to our shores.”

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