Friday Finance – Millennials will save America

The hard sell

‘Millennials will make the American economy boom over the 2020s.’

It’s an unusual sentiment to hear in this age of doom and gloom.

My first reaction was the same as yours, but Tom Lee has put together a convincing demographic case that American growth ought to be stronger than than of other major economies into the 2030s due to its comparatively large Millennial population.

Let’s examine the stats and consider counterarguments.

In particular, there tends to be strong performance when there is a large group of people aged 30-50. In these middle years, people are at the peak of their earning and productivity. Just as important, they are at their peak as consumers as they buy homes, cars, furniture, things for the kids, etc.

This graph purports to show how the market turns with demographic trends:

The ‘peak’ here means that the generation starts to tip out of the key 30-50 age bracket.

I don’t quite follow this graph. The 2008 crash doesn’t fit the pattern.

The next chart shows (lower blue line) that there’s more debt overall when large generations reach their consumption peak. Note that the Greatest, Boomers and Millennials are large generations while Silents and GenX are numerically small, hence this up-and-down graph. The upper black line shows the correlation with 10-yr rolling returns of the S&P 500:

In this case, increased leverage is taken as a positive thing because it largely relates to the ‘good debt’ of household formation. New families are the basic fuel of economic growth. Without them, technological advancements and policy reforms make little difference. See: Japan.

According to the graphs, US growth should be strong for another decade. After that, though Tom Lee says little about it, the Millennials will pass their peak, the small Zoomer generation will reach theirs, and the decline will settle in for real.

Compared to what?

To say that things look bright for America only makes sense if you ask this question.

The answer is, ‘compared to every other major economy.’ This is the part of Tom Lee’s argument I find most convincing. Have a look:

Compared to Europe, China and Japan, the US has a big bunch of Millennials coming up. This is partly because of immigration and partly because US birth rates have been well above the others for some time.

The following population pyramids tell the story. They are all from a few years ago. First, note the Boomer and Millennial bulges in the US:

Now have a look at Europe’s population pyramid. For once the US is looking pretty svelte in comparison, hey?

Source

The dearth of young people to support the old will hold back the economy and make Europe much more dependent on mass immigration than the US. Even with huge levels of migration like those seen last decade, it still won’t put much of a dent in this chart.

I leave to others the analysis of how the previous decade’s immigrants have impacted the European economy.

I reckon by now every young Middle Eastern man who wanted to go to Europe has already gone, meaning the last remaining source of warm bodies is Africa.

Here’s China, which of course will not be taking huge numbers of migrants any time soon:

Source

Aside from the odd bump of 25-29 year olds (now six years older), it is almost as top heavy as Europe despite a relatively low level of development.

Emperor Xi seem prepared to throw everything and the kitchen sink at this issue. It will be interesting to see if any of it works. As his latest brainwave was to ban private tutoring, I am doubtful.

And here’s poor old Japan:

It’s basically China but twenty years down the track.

Objections

The Baby Boomers caused massive economic growth in America and other countries.

Millennials are very different to Boomers, which might lead one to doubt their ability to generate similar growth as they reach their peak years.

These differences will be at the margins. Let’s examine how significant each factor might be:

Millennials suck, lol

I invite the reader to distinguish between his stereotypical idea of Millennials, which contains some truth, and actual, individual Millennials who he knows.

Some of them really are guilty of being as soft, Woke and miseducated as we imagine. I can bring to mind the perfect archetype made flesh from my working experience.

Others are smart, competent and hard-working. Even responsible.

They might not be able to fix a car but they are good with computers.

A lot of their failings are due to a mollycoddled upbringing, and this can be overcome. I suspect a good number will mature later than the Boomers did but will mature nevertheless. Contact with the real world has that effect.

A lot of us here enjoy Severian’s tales of teaching Millennials, but I suspect many will grow up once they’re plucked from the womb of what passes for higher education these days and are forced to make a living. Severian may disagree.

Average Millennial. Source
Millennials are diverse

Yes and no.

Here’s a triumphalist article from 2014:

Nationally, 23.4 percent of Americans are between the ages of 18 and 34, and of those, 42.8 percent are minorities (defined as anything other than non-Hispanic White) which is almost double the 21.6 percent it was in 1980. In addition, 15.4 percent are foreign born and 24.6 percent speak a language other than English at home, both more than twice what they were in 1980.

I would guess that Millennials are only slightly more foreign-born than Gen-X, thought I can’t pin down hard figures on this.

The proportion of foreign-born Americans overall is now back up to where it was in the early 20th century, around 14%. This is much lower than in Canada, Australia, New Zealand and much of Western Europe. Also Russia.

Source

As for the ethnic makeup of Millennials, compared to those aged 55+ in 2015 they are 19 percentage points less white, 4 points blacker, 2 points more Asian and 12 points more Hispanic. Also more mixed-race, probably greater than shown here:

I know little about Hispanics as they are one of the few groups I’ve not had much exposure to. My impression is that they are a very disparate group. I invite readers to speculate upon what economic impact they may have over the next decade.

Millennials don’t marry and have babies

Certainly they are doing so less than than the Boomers did:

This matters, but at at the margins. A large Millennial population will mean many new families despite this trend. Even if they manage only one kid, that’s still a newly-formed household in most cases.

Again, compared to what? The US total fertility rate (1.7) is still higher than the EU (1.5), China (they claim 1.7 but you know) and Japan (1.4).

It’s worth pointing out that housing prices (very salient here) have increased in the US as a multiple of median income but not by as much as in some other countries. They’re up 30% or so since the 80s rather than having doubled or more as in Canada, the UK and Australia.

On the other hand, American Millennials may need to spend more in order to buy a home in an area with ‘good schools’.

Millennials are overeducated lefties with huge student debts

These points are best stated together because they are related: From a readable article in The Atlantic:

If there is one category in which the generation born between the early 1980s and the late 1990s really is different, it’s politics.

Young people are not only to the left of the country, but also to the left of previous generations of young people. In national elections, Millennials have voted for Democrats over Republicans by unprecedented margins. They are far more open to various strands of socialism—including social democracy and democratic socialism . . .

Millennials are the most educated generation in U.S. history to date. They bought into a social contract that said: Everything will work out, if first you go to college. But as the cost of college increased, millions of young people took on student loans to complete their degree. Graduates under 35 are almost 50 percent more likely than members of Gen X to have student loans, and their median balance is about 40 percent higher than that of the previous generation.

And what has all that debt gotten them? “Lower earnings, fewer assets, and less wealth,” according to the Federal Reserve paper’s conclusion. Student debt has made it harder for millions of young people to buy a home, since “holding debt is associated with a lower rate of homeownership, irrespective of degree type,” as Fed economists wrote in a previous study. In other words, young people took on debt to pursue a college degree, only to discover that the cost of college would push the American dream further from their grasp.

Is it any wonder that Millennials are eager to overthrow a system that has duped them into a story of permanent progress, thrown them into debt, depressed their wages, separated them from the trappings of adulthood, and then, for good measure, blamed them for ruining canned tuna?

As with most articles on Millennials, this one lacks nuance.

The connection between student debt and leftie politics seems pretty secure. If you owe $100k for a useless degree, what else can you do but vote for Papa Bernie and hope for the best? Frustrated expectations cause greater radicalization than anything else.

However, only around a third of American Millennials even have a college degree, and those with degrees are doing better on average than those without. Plenty studied something useful and/or paid down their loan. These patterns closely hug race.

As with everything in this post so far, these effects are being felt at the margins. Some Millennials are debt-ridden Masters of Interpretive Dance. Some are rural high-school graduates who are already grandparents.

Here are three more factors to consider:

1. As the article accepts, this left-wing slant is not general. Those Woke, brown, ~Studies graduates would vote for Genghis Khan if he promised debt relief, though there is no risk of the Stupid Party leveraging this fact.

2. Again, compared to what? Where is the alternative country with a large, Millennial cohort that wants to vote for their version of Reagan? You have to put your money somewhere.

3. In the 2020s, do you still believe that the will of American voters makes much difference? Biden’s win was controversial enough and those that voted for him in the hope of debt relief have been disappointed. The only candidate that would have done something about it, Bernie, got shafted in the primaries like he always does.

Regardless of generation, elite opinion matters more than the views of ordinary people. It’s always been so but it’s becoming more and more true. These days, the main power of plebs lies not in their votes but in their willingness to resist.

Mini-conclusion: the factors considered throughout this post so far suggest that the Millennials will not cause the same level of economic growth that the Boomers did, but as they are a larger group overall they will have a positive impact nevertheless.

This growth will be heavily concentrated in America. Millennials in other nations are a much smaller percentage of the population so they are irrelevant. Like Gen X.

Other objections
Tom Lee sounds a bit fruity.

Yes he does, but (a) he sounds like a pretty smart fruit and (b) some of his Twitter takes are semi-based:

Tom Lee is a perma-bull

He’s been a bull for the past decade, and the market’s been doing great for the last decade. That makes him right. Others have been yelling ‘everything bubble’ since 2014.

Tom Lee sees the next decade as rosy (overall) but problems after that, if I’m understanding him correctly.

Tom Lee has been wrong before

Yes, mostly on short-term calls on things like bitcoin which he made with less than 100% certainty.

I’m not sure why anyone makes such public calls. If you’re clever enough to know, trade on it yourself or save it for your subscribers.

Successful traders will not be right all the time. They play the numbers and only need to win more than they lose, like a bookie.

Still, he does like that limelight. There’s a market of nervous Nellies who desperately need to hear good news and may be too willing to believe it. Me, for example.

Conclusion

Tom Lee makes a compelling case that growth in the US will be stronger than in other major markets until the 2030s for demographic reasons.

This might lead an indexer to go overweight on American indexes like SPI and underweight on other places, especially Europe, China and Japan.

In my case, I might go from a fund which is currently weighted like this, tracking the MSCI World Index:

To something more like this:

This would be picking a winner, which I have not done up until now.

Your thoughts? I’m very interested to see what the peanut gallery reckons this week.

If not America, then where? And keep in mind that I’m not likely to be convinced by the gold-and-ammo crowd as Mad Max outcomes are rare.


13 comments

  1. Dinothedoxie · May 6

    I think you’re probably correct about growth in the US and it’s continued global dominance for the next couple of decades at least. Primarily because of the residual strength of the dollar and tat the rest of the world is in worse chape than the US. An aspect of the dollar as reserve currency is that status draws people into immigrating to the US. Which increases its population and economy, even as it destroys it culture.

    Which brings us to millennials. My kids are millennials and I employ a number of them. While the stereotypes are overstated, one of the ways that they are culturally different than legacy Americans is that they lack initiative. Call it personal enterprise for lack of a better phrase. It’s the internal motivation that leads people to improve their condition. To try new things, build stuff in hobbies, tinker etc. instead they’re happy to fill their down time with gaming and social media use. When something breaks, they whine about it and call a guy, instead of fixing it themselves, or trying to. When it comes to work, they’ll do the job well, but want to get out as soon as possible. When I was their age, everyone including myself looked forward to overtime for the extra money that came with it. Millennials almost seem like their not motivated by money at all.

    In some ways all that is healthier than the materialism and obsession with activity that characterized white America last century and before. But I also suspect that those were some of the things that made America exceptional and won’t come back when their gone,

    Liked by 1 person

    • toastedposts · May 11

      Millennials almost seem like their not motivated by money at all.

      The sort of money within reach of most millenials doesn’t buy anything real or lasting. (Property leading to independence, freedom from their debts, etc.) If the carrot is out of reach, people will stop reaching. Delaying gratification scraping by until you can finally retire at 150 isn’t going to fly.

      Liked by 1 person

  2. TechieDude · May 6

    It may be my local perspective (I don’t run into the flakes all that much), but my millennial kids and all their friends are hardworking and frugal. Much more so than I was at their ages. From what I see of my kids, their friends, and in my neighborhood, they seem to be doing well for themselves. I see more cut blonde millennial Milfs around here working out in the park, minding the kids. Somehow they figured it out. I know stats don’t lie, but I don’t see all that many of them with tons of college debt. And most I know are smart enough not to buy a house in an inflated market. They are saving dough and renting, waiting for the market to cool.

    My city demographic looks sort of like the millenial graph above, with the exception that Asians are like 10%, Blecks around 9%. I deal with Hispanics all the time. They tend to be frugal, family oriented, and deal mostly in cash. When I shop at the ‘Fiesta’ (Mexican grocery), I never see mamasita paying with a card or ‘food stamps’. They pull out a roll and peel off cash.

    Every one of them I know “knows a guy” when something has to be done – fix the car, remodel the house. For the most part, they are a net plus, no different than Whites or Asians. I don’t think I’ve met one Mexican that didn’t have some side hustle going on. If they are a trades dude, they most certainly will be doing side work, for cash. When I managed them, as long as they weren’t using my vehicles, tools, or material, I couldn’t care less. Long as my projects were done on time and on budget.

    So, at least here in Texas, Hispanics are a net plus. (Keep in mind that even though they are ‘hispanic’ most are not immigrants. Most have lived here for generations. Longer than my kin has been in the US.

    Liked by 2 people

  3. freemattpodcast · May 6

    Although I am not a baby boomer or a millennial; I have brought up things that baby boomers have overlooked:

    (In the US, baby boomers enjoyed being employed by a company, then contracting out most of the work when other generations showed up to work. This shaved off benefits and much of what was appealing to work there).

    (in many parts of the US, the federal government went from a governmental employee system to a contractor based system. Most of the contracts are slow to adjust to marketplace wage changes, that and when the government doesn’t have the funding, people disappear without being re-assigned. They have manning issues because most of the companies engaged with the government go off of wage tables with no wiggle room).

    I have said this about a few workplaces I have been at. Using temporary labor or subcontractors for full time work of an indefinite length helped destroy workplace cohesion. I see this where I work now too. People don’t know who they work with half of the time, no one does the “break bread together” things that the baby boomers did.

    When young people have jobs that they hate and don’t get paid enough to buy houses/invest, I don’t blame them when they live different lives. Many of them choose to “experience” other things and travel instead.

    I don’t blame baby boomers but anyone that thought that people would want to work somewhere when there is no reason to work there anymore. Destroying workplace culture is another thing that corporate types overlook. (Shaving 2-5% off of the margins comes from somewhere, but the bean counters never knew what that 2-5% really did).

    Liked by 3 people

    • TechieDude · May 7

      “Using temporary labor or subcontractors for full time work of an indefinite length…”

      This is actually illegal. I’ve had many conversations with my tax accountant wife about this. The feds deem that person an employee. So there are parameters that have to be followed. The only place I’ve seen that work long term are accounting firms, of all things. It’s more on the accountant side than the company. It allows them to do work for their own customer base, avoiding conflict of interest.

      That said, I’ve worked places that used temps/contract labor. It’s used to weed out the numbnuts, because it’s a crap shoot when you hire someone these days. Companies want to make sure they got a good one before making things official. That and the overhead goes up exponentially.

      You’re right about workplace culture though. No one wants to endure a rainbow bozo explosion. We used to care about our craft. Now, it’s all bullshit social causes.

      Like

  4. luisman · May 6

    Reblogged this on Nicht-Linke Blogs.

    Like

  5. luisman · May 6

    I’m at 75-80% investments in US companies, including those I hate (like Alphabet, Facebook/Meta, Amazon, etc.), because you don’t need to like someone who makes money for you. I think Europe is largely lost. And China, Thailand, Malasia, maybe Indonesia have potential which no investor should ignore.

    Peanut gallery out.

    Liked by 2 people

  6. overgrownhobbit · May 6

    Just one: How does anyone know the proportions of non-,Hispanic whites? Are there field studies taking samples a la the rufus-sided towhee? No. It’s by ticky-boxes.

    It is now very advantageous to be anything *other* than “white”, to the point that universities offer coursework on the malicious evil that is Whiteness. Therefore, the option to check anything other than white that sorta-kinda applied is wide open. Doesn’t appear to be any cost to it either.

    Feature, or bug? Cui bono.

    Liked by 1 person

  7. Deacon Blues · May 7

    I wonder how many of those foreign born people in Canada were born in the United States. The number used to be quite high, although I have not looked in detail lately. One thing to note is that Ottawa speaks not a word about how many Americans live in Canada, many of which I believe can vote in US elections.

    On Millennials, the ones I work with seem to be late starters, financially. For instance, it seems they are waiting until their early thirties to start buying houses and investing, whereas my Gen X cohort was looking at those things in their mid to late twenties. It seems from my limited anechdata that they are more cautious when making a decision on real estate or investing, but once their mind is made up, they pursue their goals more aggressively.

    I think Millennials could be in charge when the western economies start experiencing what could be a giant freeing up of capital when Boomers pass away and their investments are cashed in by their beneficiaries. It’s basically a gamble that the Millennials will spend their inheritances, rather than reinvest or keep them invested. It could have big tax consequences if they cash-in their parents investments upon inheriting them. I keep reading rumours this will be a monster, but I take it with a grain of salt.

    On Canada, we’ve really stalled financially since the Coward Justin Trudeau came to power. We could experience a bump if the GAE is reduced to something not so global and the US has to rely more on Canada as a supplier of natural resources (energy commodities, oil and natural gas, are the biggies but there is a lot of timber, minerals and coal up here too). This is speculation at this point, but I’ll keep an eye open.

    Liked by 1 person

  8. Bwana Simba · May 7

    I don’t buy the Mad Max Apocalypse scenarios, but I don’t buy this rosy picture either. For one, it combines Generation Y with Millennials, which Brian Niemeier has deconstructed in depth Two, it ignores numerous studies on “millennials” getting married later, being less religious, having lower earnings, and the effects promiscuity and divorce has wrecked upon generations. Three, the stats it does show are not as amazing as they sound. A 1.7 birth rate is abysmal, and it is made worse by the sheer number of children born into single parent homes and the upper classes having less and less children while having then later in life (with all the wonderful genetic defects that come with that).

    Like

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  10. Max M Wiley · May 10

    Generally, in the US youngsters tend to be more radical in their youth, and then become more conservative as they age. There are many reasons for this, not the least of which is wealth transfer sounds awesome if you are one of the receivers, and way less awesome if you are in your prime earning years and are a payer instead.
    I think this analysis misses out on way too many factors to list, not the least of which is ongoing sociopolitical disruption and upheaval, which many cyclic views of history agree is coming to a head in the next decade or so. The ride looks rough, if the Davos crowd gets its way.

    Like

  11. mblanc46 · May 11

    Oh boy, the Millennials will buy even more Chinese made junk. If they can afford it on their barista wages. If the Chinese will sell it to them. A stock market boom is not an economic boom.

    Like

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