The financial crisis and the New Normal

 Download the full ebook chapter (pdf)

Summary

Video: Paul Hodges discusses why demographics have become too important for companies to ignore

What have demographics to do with demand?  This is the key question we tackle in Chapter 2.

In a completely new, and challenging analysis, we argue that the Western BabyBoomers (those born between 1946-70), have been responsible for the major growth in demand over the past 20 years:

  • In the USA, for example, the number of people aged between 25 – 54 years soared from 74 million in 1970 to 128 million in 2010 (41% of the total population).
  • As they settled down and had children, they boosted demand in key consuming sectors such as housing, autos and electronics.

 
They also made it very easy to manage the economy.   The Federal Reserve could raise interest rates temporarily to head off higher inflation.  This would then create ‘pent-up demand’ when rates were reduced again.  After all, more Boomers were entering the age group all the time, and those already in it needed to consume more as their children grew up.

But today, this is no longer the case.  US housing starts are now around 800,000 – not only well below their 2.2 million peak in 2006, but below anything seen since records began in 1959.  Auto sales are in the 12 – 14 million range, compared to 15 – 17 million between 1995 – 2007.

We believe demographics are behind these dramatic changes.   The 72% growth seen in the number of Wealth Creator 25 – 54 year olds between 1970 and 2010 is yesterday’s story.  Instead, the growth sector has become those in the New Old 55+ age bracket.  They can expect to live for an extra decade, compared to their parents’ generation.

So the Boomers have moved on from being a high-spending generation.  Instead, they are becoming a high-saving generation, as they need to save more to survive a longer retirement.  And therefore the failure of the various government stimulus programmes since the crisis began should be no surprise.    The concept of pent-up demand is now wishful thinking.

We argue that these facts need to be more widely understood, by  company managements and investors as well as policymakers.  We could then focus on the new opportunities now emerging to supply the 55+ generation, for example.  As we discuss in future chapters of the eBook, there are plenty of new ideas (such as the global megatrends concept), to power the next wave of global growth.

The key issue is that we need a change in mindset.  Those companies who continue to expect stimulus measures to deliver a return to the Golden Age are likely to be disappointed.  Instead, the winners will focus on understanding how to profit from the demographic changes now underway, as we transition to the New Normal.