Demographics, Not Central Bankers Explain Slow World Growth May 2017 Robert Johnson, CFA Director of Economic Analysis robert.johnson@morningstar.com (312) 696-6103 2016 Morningstar, Inc. All rights reserved.
World Growth Rates Going Nowhere Fast 2
Slowing Population Growth Triggered Slower World GDP 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010 2011-2015 World Real GDP 5.5 3.9 3.2 3.0 3.7 3.5 World Real GDP per capita 3.5 2.0 1.5 1.5 2.5 2.2 Source: http://www.worldeconomics.com 3
Despite Strong Central Bank Actions Including Bond Purchases 4
Which Have Reduced Interest Rates to Record Low Levels 5
Are Central Bankers Fighting a Demographic Battle They Can t Win? Source: Bureau of Economic Analysis 6
Modest U.S. Population Growth Still Assumes over 1 Million Immigrants Per Year Source: Bureau of Economic Analysis 7
Population Growth Slowing Around the World, Not Just the U.S. Population Growth 3.0% World Developed Developing 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 Source: United Nations 8
Working Age Population Beginning to Shrink, Hurting U.S Growth Potential 1200 Net Change in U.S. Born Working Age Population 1000 800 600 400 200 0-200 -400 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: Bureau of Economic Analysis 9
Working Age Populations Slowing Around the World 10
Potentially Shifting More of the Economic Pie Away from Corporations and to Workers Source: Bureau of Economic Analysis; Federal Reserve Bank of St. Louis, FRED database 11
Though the Latest Data Isn t Conclusive Source: Bureau of Economic Analysis; Federal Reserve Bank of St. Louis, FRED database 12
Older Consumers Who Spend Less, Growing the Fastest 13
Older Consumers Who Spend Less Growing the Fastest 70 Average Annual Household Spending by Age Group, Thousands of Dollars 60 50 40 30 20 10 0 under 25 25-34 35-44 45-54 55-64 65-74 75+ Source: Bureau of Labor Statistics, Morningstar Calculations 14
Per Capita Healthcare Spending Soars with Age Source: Centers for Medicare and Medicaid Services 15
Are Demographics Destiny? Demographics Are Definitely a Headwind Good Policy Changes Have Let an Economy Outperform What Population Growth Suggests (Germany) And Bad Choices Can Really Sting (Europe 1980 s and 1990 s) Regulation, Taxes, Incentives and Infrastructure All Make a Difference Robots, Innovation and Productivity Could Shift the Tide 16
So Just How Well Is The U.S. Economy Doing? Volatile and Below the 3.1% Average Source: Bureau of Economic Analysis, Morningstar Calculations 17
Why Has GDP Growth Been so Slow? Demographics of an Aging Population Slower Population Growth Limited Growth in Government Spending De-Leveraging of Government and U.S. Consumers More Cash Flowing to Households that Spend a Smaller Percentage of Their Incomes Slow Housing Recovery 18
U.S. Economy, Modest Slowing From Recent Highs Continues The Outlook for 2017 Real U.S. GDP Growth of 1.75% to 2.0% CPI Inflation 2.0% to 2.2% Employment Growth Stabilizes at 190,000 Per Month Unemployment Rate Remains at 4.4% Ten-Year Treasury Rate Increases to 3.0%-3.5% Home Prices Increase 5.5%-6.0% 19
Economic Drivers Consumer Spending Up More Than 2%, However, Higher Inflation Will Lower Consumption Growth Less Fiscal Drag, Government Spending Stabilizes Housing Market Poised for Slow but Consistent Growth Business Spending and Exports Stabilize Micro Economic Factors 20
And Key Sectors Are Slowing Source: Bureau of Economic Analysis, Morningstar Calculations 21
Relative to Past Trends, Government and Investment Aren t Helping Much 22
And Consumption Is Accounting for Almost All of the Growth 23
Trump Policy Potential Impacts A Combination of Tax Cuts and Infrastructure Spending Could Stimulate Growth Immigration Reform Could Raise Wages, But Limit Labor Pool and GDP Growth Deregulation Could Lead to Greater Productivity and Improved Investment Environment Trade Restrictions Gains Likely to be Offset by Higher Prices and General Inflation Levels Uncertainty Regarding Concerning Implementation Could Limit Business Investment Inflation Worries and Spike in Interest Rates Could Hurt the Housing Market 24
Presidential Election Brings Winners and Losers 25
Consumption Drives 70% of U.S. Economy and Is Slowing 26
Employment Growth Drives Spending, Now Slowing 27
Employment Growth Diminishes. Worker Shortages, Job Shortages or Weather? 28
High Job Openings Suggest that Worker Shortages Are Increasing 29
Low Inflation Adjusted Hourly Wages Aren t Helping Matters Source: Bureau of Labor Statistics 30
It s Not that Wage Growth Has Been Awful, But that Inflation Is Higher Source: Bureau of Labor Statistics 31
Inflation Rises as Energy Price Deflation Disappears 32
And the Long Slide in Commodity Prices Ends with Better World Growth 33
Slowing Income and Wage Growth Tugging Consumption Down 34
World GDP Growth Picks Up Steam Source: International Monetary Fund 35
Chinese Stimulus Has Arrested the Slowing in GDP Growth Rates, Can It Last? 36
Chinese Debt Level, at 250% of GDP, Has Not Helped Growth 37
Chinese Loan Growth Metric Flashes Danger Signal Source: Bank for International Settlements 38