Deutsche Morgan Grenfell C.J. Lawrence Established Portfolio Strategy Service #5 The High-Tech Revolution In The US of @ # The US Economy s Mega-Trends #7, In # Liquidity Story Is Wildly Bullish Topical Study #9 THE BABY BOOM CHART BOOK 99 March, 99 Dr. Edward Yardeni Amalia Quintana
.5. 3.5 3..5. 995 9 9 9 95 93 9 9 95 95 955 9 95 97 975 9 99 95.5. 3.5 3..5. # In, the Baby Boomers will be 3-5 years old. LIVE BIRTHS* (millions) Baby Boom 7 million (3-5) Baby Bust million (-3) Baby Boomlet million (-9) "Grandparents" million (7-) "Parents" 55 million (5-7) * Figures in parentheses are the youngest and oldest ages of group members during 99. 9 Page / March, 99 / DMG/CJL Topical Study #9
- The Age Wave - 5 # AGE COMPOSITION OF LABOR FORCE* (percent) 9 5 55 - Year Olds 975 97 Q 55 5 5 5 5 Q -3 Year Olds 9 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 * Oldest and youngest Baby Boomers turned in 9 and 9, respectively. #3 5 THE AGE WAVE Currently, the labor force is the most mature since 97. Over the rest of the decade it will be as mature as during the late 9s. 5 Age Composition of Labor Force: -3 Year Olds (percent) 5 3 3 3 3 93 9 959 957 955 95 93 9 979 977 975 973 97 99 97 95 Age Composition of Adult Population: -3 Year Olds* (percent) 9 7 5 3 999 997 995 993 99 99 97 3 3 3 3 * Projected data start in 99. Adult population is years and older, and includes armed forces overseas. DMG/CJL Topical Study #9 / March, 99 / Page 3
- The Age Wave - Stock prices have risen faster than consumption and home prices as the Baby Boomers have aged. 5 5 5 5 5 5 # 7 7 7 7 7 9 9 9 9 9. * Percent of labor force - years old. #5 THE AGE WAVE Age Wave* Ratio of S&P 5 Stock Index to Personal Consumption Expenditures** Feb...9..7..5..3....9..7..5 5 5 Age Wave* 5 Ratio of S&P 5 Stock Index to Existing Home Prices 5 3 5 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 9 97 9 * Percent of labor force - years old. Page / March, 99 / DMG/CJL Topical Study #9
- The Age Wave - 55 # THE AGE WAVE & INFLATION 5 Age Wave* Inflation Trend** 5 Feb 5 5 5 5 7 7 7 7 7 9 9 9 9 9 * Percent of labor force -3 years old. ** Five-year moving average of yearly percent change in CPI. #7 THE AGE WAVE & BOND YIELD 3 Age Wave is probably a big influence on inflation trend and suggests inflation will remain subdued at least through end of the century. The Baby Boomers will be 3-5 years old by the year. 9 Feb 7 3 Age Wave* Ten-Year Government Bond Yield** 5 3 3 5 5 7 7 7 7 7 9 9 9 9 9 * Percent of labor force -3 years old. ** Five-year moving average of ten-year government bond yield. DMG/CJL Topical Study #9 / March, 99 / Page 5
- Population: Numbers - 5 5 3 5 5 5 3 5 5 5 3 5 5 5 3 5 5 5 3 5 # US POPULATION BY AGE (millions) 5 5 3 5 5-3 5 5 3 5-5 5 3 5 5-5 5 5 3 5 55-5 5 3 5 5 & Over 9 95 97 975 9 95 99 995 5 Source: Bureau of the Census, U.S. Department of Commerce Page / March, 99 / DMG/CJL Topical Study #9
- Population: Numbers - #9 US POPULATION BY AGE (annual change, millions) 5-3 - - - - 5-5 - - 55- - - - 5 & Over - - 9 95 97 975 9 95 99 995 5 Source: Bureau of the Census, U.S. Department of Commerce DMG/CJL Topical Study #9 / March, 99 / Page 7
- Population: Numbers - - - - - - - - - - # US POPULATION BY AGE (yearly percent change) 5-3 - 5-5 55-5 & Over - - - - - - - - - - - 9 95 97 975 9 95 99 995 5 Source: Bureau of the Census, U.S. Department of Commerce Page / March, 99 / DMG/CJL Topical Study #9
- Population: Numbers - 3.. # POPULATION (yearly percent change in -month average) 3............ Total Population* Civilian Noninstitutional Working-Age Population** 7 7 7 7 7 9 9 9 9 9. * Population used to calculate per capita income. Includes military in US. Source: Census Bureau. ** Source: US Department of Labor, Bureau of Economic Analysis.......... The working-age population grew much faster than the total population during the late 9s and 97s as the Baby Boomers flooded into the labor markets. In the 99s, the growth of the working-age population is at record lows.. # HOUSEHOLD FORMATION (millions). 3.5 3.5 3..5..5..5 5-year moving average 9 3..5..5..5 The Baby Boomers are no longer young adults. As a result, household formation has declined sharply from. million per year, on average during the 9s to.9 million per year from 99 to 99. This trend has depressed housing starts.. 3 5 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 9. Source: US Department of Commerce, Bureau of the Census, Series P-. DMG/CJL Topical Study #9 / March, 99 / Page 9
- Population: Characteristics - Since the mid-9s there has been a significant downtrend in the average number of people in both family and household living units. Households are smaller than families, on average, because there are many single-person households: People are marrying later, getting divorced, and living longer. 3. 3.7 3. 3.5 3. 3.3 3. 3. 3..9..7. #3 3. AVERAGE POPULATION 3.7 3. 3.5 Per Family 3. 3.3 9 3. Per Household 3. 3..9..7 9 5 5 5 5 5 7 7 7 7 7 9 9 9 9. Source: Current Population Reports # NONFAMILY HOUSEHOLDS BY AGE OF HEAD (as a percent of total households) In 993, nearly 3% of all households were not families, up from about % in 97. One-third of the nonfamily households are senior citizens. 55-5 + 5-3 - 5-5 - 93 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 9 Source: US Department of Commerce, Bureau of the Census, Series P-. Page / March, 99 / DMG/CJL Topical Study #9
- Population: Characteristics - 7 # MEDIAN AGE AT FIRST MARRIAGE 9 7 5 3 5 9 Men 3 Women 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 Source: Current Population Reports People are getting married for the first time at a later age. The medium age for men is up to nearly 7 from about 3 twenty years ago. Women are waiting until their mid-twenties to marry. During the 95s and 9s, they tended to marry in their early twenties. # MARRIAGE & DIVORCE (rate per population) Marriages 9 The marriage rate has been moving gradually lower in recent years, while the divorce rate has been relatively steady. 5 Divorces 9 5 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 Source: US National Center for Health Statistics, Vital Statistics of the United States. DMG/CJL Topical Study #9 / March, 99 / Page
- Population: Characteristics - 3 33 #7 POPULATION: MEDIAN AGE IN YEARS 93 3 33 3 3 The median age of the US population has risen sharply over the past years because the Baby Boomers are aging and senior citizens are living longer. Life expectancy is up over 75 years compared to about 7 years during the late 9s. 3 3 9 7 77 75 73 7 9 LIFE EXPECTANCY AT BIRTH* (years) 9 3 3 9 7 77 75 73 7 9 7 5 5 5 5 7 7 7 7 7 9 9 9 9 7 * Source: US National Center for Health Statistics, Vital Statistics of the United States. Older people tend to move less than younger ones. The medium age of the population is around 3, up from twenty years ago, and it will continue to rise over the rest of the decade. 5 3 5 # MOBILITY STATUS BY AGE GROUP, 993-9 (percent movers) 3 3 9 5 5 3 5 5 5-9 - 5-9 3-3 5-5-7 75-5 & Over Source: Bureau of the Census, Geographical Mobility: March 99 to March 993, Current Population Reports, Series P-. Page / March, 99 / DMG/CJL Topical Study #9
- Income & Spending - 3 9 7 3 9 7 #9 REAL PERSONAL INCOME & CONSUMPTION PER CAPITA VS PRODUCTIVITY Real Personal Income Per Capita (99 dollars, -month sum) Nonfarm Productivity (977=) Real Consumption Per Capita (99 dollars, -month sum) 7 7 7 7 7 9 9 9 9 9 5 Q 95 9 5 75 7 5 55 Per capita real personal income and consumption are at record highs. Productivity is the main determinant of these two measures of the standard of living and it is also at a record. 3 9 7 3 9 # INCOME PER CAPITA (thousands) Personal Income Per Capita (99 dollars, -month sum) Adjusted Mean Household Income Per Capita* (993 dollars) 93 3 9 7 3 9 Both median and mean family household income data show virtually no growth over the past 5 years. Both measures need to be divided by the average size of the household unit, which has been falling. Adjusted this way, mean household income per capita has been growing in line with personal income per capita! 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 9 97 9 * Mean income of households divided by average population per household. DMG/CJL Topical Study #9 / March, 99 / Page 3
- Income & Spending - # REAL PERSONAL INCOME (yearly percent change in -month average) 5.3% 3.%.%.% Real personal income growth has been on a downtrend over the past three decades as growth in productivity stagnated. This long-term trend should be reversed in the next decade. -.5. 7.5 7..5. 5.5 5..5. 3.5 3..5..5..5. -.5 -. -.5 -. -.5 7 7 7 7 7 9 9 9 9 9 - * Dashed lines show decades annual averages. # REAL PER CAPITA PERSONAL INCOME (yearly percent change in -month average).%.5%.%..5. -.5 -. -.5 -. 7 7 7 7 7 9 9 9 9 9 -.5 * Dashed lines show decades annual averages..7%.5. 7.5 7..5. 5.5 5..5. 3.5 3..5..5 Page / March, 99 / DMG/CJL Topical Study #9
- Income & Spending - #3 REAL CONSUMPTION EXPENDITURES (yearly percent change in -month average).9% 3.% 3.%.% - 7 7 7 7 7 9 9 9 9 9 - * Dashed lines show decades annual averages. # REAL CONSUMPTION PER CAPITA (yearly percent change in -month average) Consumer spending growth has been on a downtrend for quite some time because income growth has been on a downtrend. Income growth is likely to improve. The risk is that consumption growth won t do the same if the Baby Boomers decide to save more. 3.%.5%.%.9% - 7 7 7 7 7 9 9 9 9 9 - * Dashed lines show decades annual averages. DMG/CJL Topical Study #9 / March, 99 / Page
- Income & Spending - 5 #5 REAL CONSUMPTION PER CAPITA (97 dollars, saar) Rent & Utilities* Sep 5 Food Medical Care On a per capita basis, the fastest growing categories of real consumption are medical care and recreation and entertainment. The other major categories are showing relatively little growth per capita. 5 7 7 7 7 7 9 9 9 9 9 5 * Rent includes owner- and tenant-occupied rent. Utilities include electricity, gas, water and other sanitary services, fuel oil and coal. # REAL CONSUMPTION PER CAPITA (97 dollars, saar) Transportation Sep Recreation Personal Business* Clothing & Shoes 7 7 7 7 7 9 9 9 9 9 * Includes brokerage charges and investment counseling, bank service charges, services furnished without payment by financial intermediaries except life insurance carriers and private noninsured pension plans, expense of handling life insurance legal services, funeral and burial expenses and other. Page / March, 99 / DMG/CJL Topical Study #9
- Income & Spending - 7 5 3 9 7 3 9 #7 REAL CONSUMPTION BY CATEGORY (as a percent of total real consumption) Rent & Utilities* Food Medical Care 7 7 7 7 7 9 9 9 9 9 9 * Rent includes owner- and tenant-occupied rent. Utilities include electricity, gas, water and other sanitary services, fuel oil and coal. # REAL CONSUMPTION BY CATEGORY (as a percent of total real consumption) Transportation Sep 7 5 3 9 7 3 For the first time ever, consumers are spending as much of their budgets on medical care as on food. The proportion of total consumption spent on food has been declining for a long time, as consumers spend relatively more on medical care and recreation. Sep Recreation Personal Business* Clothing & Shoes 7 7 7 7 7 9 9 9 9 9 * Includes brokerage charges and investment counseling, bank service charges, services furnished without payment by financial intermediaries except life insurance carriers and private noninsured pension plans, expense of handling life insurance legal services, funeral and burial expenses and other. DMG/CJL Topical Study #9 / March, 99 / Page 7
- Income & Spending - Older workers tend to earn more than younger ones, presumably because they are more experienced, productive, and committed to their jobs. By the year, the Baby Boomers will be 3-5 years old. So there will be more households earning more money than ever before. 55 5 5 3 5 #9 MEAN INCOME OF HOUSEHOLDS BY AGE OF HEAD (993 dollars) 5-5 - 55- All 5-3 5 + 93 55 5 5 3 5 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 Source: Bureau of the Census, Income Statistics Branch, unpublished data. #3 NUMBER OF HOUSEHOLDS BY AGE OF HEAD (millions) 93 During the 9s, all household age groups shown here increased in numbers except the 55- group. During the 99s, only the - and 5-5 year olds will grow. 5 + 5-3 - 5-5 55-7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 Source: Bureau of the Census, Income Statistics Branch, unpublished data. Page / March, 99 / DMG/CJL Topical Study #9
- Income & Spending - 9 7 #3 AGGREGATE MONEY INCOME BY AGE OF HOUSEHOLD* (billions of 993 dollars) - 5-5 5-3 93 9 7 During the 99s, the only age groups likely to show gains in total group money income are people - and 5-5. 55-5 5 + 5 3 3 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 * Mean income times number of households. 3 5 #3 AGGREGATE MONEY INCOME BY AGE OF HOUSEHOLD* (as a percent of total money income) - 5-5 5-3 93 93 3 5 By the year, -5 year olds will probably account for 5% of personal income, up from about 5% currently. 55-5 + 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 * Mean income in 993 dollars times number of households. DMG/CJL Topical Study #9 / March, 99 / Page 9
- Personal Savings -. 9.5 #33 PERSONAL SAVINGS RATE (-month average, percent). 9.5 As the Baby Boomers age over the rest of the decade, they will have more income than ever before. They will probably choose to save more of it. The savings rate should move over 7% by the year. 9..5. 7.5 7..5. 5.5 5..5 9..5. 7.5 7..5. 5.5 5..5.. 3.5 797777377577777979999939959979 3.5 If the savings rate and incomes rise, so will total personal savings. By, savings could climb to $3 billion. 3 5 #3 PERSONAL SAVINGS VS CONSUMER INSTALLMENT BORROWING (-month sum, billion dollars) Personal Savings 3 5 5 5 Personal Borrowing -5 9 9 93 9 95 9 97 9 99 99 99 99 993 99 995 99 997 99-5 Page / March, 99 / DMG/CJL Topical Study #9
- Personal Savings - 3 # PERSONAL SAVINGS AND ITS COMPONENTS (billion dollars) 93 3 5 95 5 5 5-5 - 5 Personal Savings Impersonal Components Truly Personal Components 7 7 7 7 7 9 9 9 9 9 #3 "IMPERSONAL" COMPONENTS OF PERSONAL INCOME (billion dollars) Imputed Interest Received From Private Noninsured Pension Plans And From Life Insurance Carriers 93 93-5 - 5 Personal savings includes two big "impersonal" sources of income which are not taxed and can only be saved. They exceed $5 billion and currently exceed total personal savings. Indeed, excluding these two, "truly" personal savings has been mostly negative since 97. 5 Employer Contributions To Private Pension Funds 5 7 7 7 7 7 9 9 9 9 DMG/CJL Topical Study #9 / March, 99 / Page
- Labor Force - 75 #37 CIVILIAN LABOR FORCE (as a percent of total labor force) 75 Males now account for less than 55% of the labor force, down from 7% in the early 95s. 7 5 55 Male Feb 7 5 55 5 5 5 5 Female 3 3 5 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 5 7 5 #3 CIVILIAN LABOR FORCE PARTICIPATION RATE* (percent) Total Feb 7 5 The labor force participation rate is hovering around %. Since the 95s, the decline in the male component of the labor force participation rate has been more than offset by females. 55 5 5 3 Male Component* 55 5 5 3 5 Female Component* 5 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 * Labor force divided by noninstitutional working-age population. Male and female components are persons that are years and older. Page / March, 99 / DMG/CJL Topical Study #9
- Labor Force - 75 7 #39 FEMALE CIVILIAN LABOR FORCE PARTICIPATION RATE BY AGE* (percent) 75 7 5 55 5 5-3 5 55 5 5 A record 53% of all woman who are years or older are in the labor force. The labor force participation rate of younger women has stabilized around 7% in recent years. & Over 3 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 3 * Female labor force divided by female noninstitutional working-age population. 95 # MALE CIVILIAN LABOR FORCE PARTICIPATION RATE BY AGE* (percent) 95 9 5-3 9 5 The percent of older males participating in the labor force is flat around 7%, while the younger ones participation is around 3%. 75 75 7 7 & Over 5 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 5 * Male labor force divided by male noninstitutional working-age population. DMG/CJL Topical Study #9 / March, 99 / Page 3
- Unemployment - # CIVILIAN UNEMPLOYMENT RATE (percent) Q The unemployment rate shifted upward during the 97s and early 9s relative to inflation because there was a huge influx of young workers who tend to have higher unemployment rates than older ones. Since the early 9s, the unemployment rate has been shifting back down. 5 3 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 # TOTAL UNEMPLOYED BY AGE (as a percent of total labor force) 5-5 Q 5 3 5 5 3 - Q 3 55 & Over Q 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 Page / March, 99 / DMG/CJL Topical Study #9
- Unemployment - 75 #3 LABOR FORCE: MEN 55 YEARS & OVER (as a percent of male civilian noninstitutional population 55 years & older) 75 5 55 5 5 55 5 There has been a dramatic long-term downward trend in the labor force participation rate of older men. The corporate restructurings of the past decade have not accelerated this trend. 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 # UNEMPLOYMENT RATES BY SEX ( percent) Feb During the 95s, 9s, and 97s, the female unemployment rate usually exceeded the male rate. Since the 9s, the two rates have been nearly identical. Males Females 5 5 5 5 5 7 7 7 7 7 9 9 9 9 9 DMG/CJL Topical Study #9 / March, 99 / Page 5
- Health Care - 9 #5 MEDICAL CARE SPENDING (billion dollars) Sep 9 7 7 Total Medical Care Consumption 5 5 3 3 Medicare Plus Medicaid 9 9 Spending on health care will continue to rise rapidly as Baby Boomers age. 7 Medicare 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 9 97 # MEDICARE/TOTAL POPULATION 5 YEARS & OLDER* (dollars) 7 5 5 3 3 7 9 7 7 7 73 7 75 7 77 7 79 3 5 7 9 9 9 9 93 9 95 9 97 9 * Projections begin in 99. Page / March, 99 / DMG/CJL Topical Study #9
- Social Security - #7 SOCIAL SECURITY SURPLUS (billion dollars) 5 Social Security will remain in surplus for the next years. Big deficits will start when the Baby Boomers start to retire after. - 7 7 7 7 7 9 9 9 9 9 - Dashed line is Congressional Bugdet Office s baseline projection. # FEDERAL OUTLAYS (billion dollars) F 5 5 Social security and health care outlays will rise sharply as the Baby Boomers age. Social Security Medicare+Medicaid 7 7 7 7 7 9 9 9 9 9 F = Forecast line. Source: Congressional Budget Office. DMG/CJL Topical Study #9 / March, 99 / Page 7
TOPICAL STUDIES # Dr. Edward Yardeni and Deborah Johnson, The Restructuring Of Corporate America Is Bullish, December 9, 97 # Dr. Edward Yardeni, How The Baby Boomers Are Changing The Economy, April, 9 #3 Dr. Edward Yardeni, The Coming Shortage Of Bonds, June, 9 # Dr. Edward Yardeni, Could Real Estate Prices Fall? And What If They Do?, August, 9 # Dr. Edward Yardeni and David Moss, The New Wave Manifesto, October 5, 9 # Dr. Edward Yardeni with Amalia Quintana, The Baby Boom Chart Book, uary 5, 99 #7 Dr. Edward Yardeni, The Triumph Of Capitalism, August, 99 # Dr. Edward Yardeni and Deborah Johnson, Dow 5, May 9, 99 #9 Dr. Edward Yardeni and David Moss, The Triumph Of Adam Smith, July 7, 99 # Dr. Edward Yardeni, The Collapse Of Communism Is Bullish, September, 99 # Dr. Edward Yardeni with Amalia Quintana, The Baby Boom Chart Book 99, October 9, 99 # Dr. Edward Yardeni, Apocalypse Now! (NOT!), May, 99 #3 Dr. Edward Yardeni, The End Of The Cold War Is Bullish, September, 993 # Dr. Edward Yardeni, Hard Or Soft Landing?, February, 995 #5 Dr. Edward Yardeni, The High-Tech Revolution In The US of @, March, 995 # Dr. Edward Yardeni, The US Economy s Mega-Trends, July, 995 #7 Dr. Edward Yardeni,, In, November, 995 # Dr. Edward Yardeni, Liquidity Story Is Wildly Bullish, February, 99
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