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Is The Economy That Weak?


Economic Trends

IS THE ECONOMY THAT WEAK?

First factor in the demographics

Recent sluggish business reports, combined with broad-based downward revisions of economic data, are fueling recessionary fears. But economists Roger E. Brinner and David S. Wyss of DRI/McGraw-Hill point out that such reports need to be interpreted in the context of a development that has received too little attention: a mild demographic slump that is affecting the U.S. and most other industrial nations.

In the 1970s, America's adult population expanded at close to a 2% annual rate and the labor force exploded at a 3% pace. By the first half of this decade, however, the 18-to-65-year-old contingent was growing at a scant 0.7% rate. And with labor-force participation by women finally leveling off, growth of the labor force had fallen to a 1.1% annual rate--a pace it is expected to maintain into the next century (chart).

Since economic growth over the long haul is determined by labor input plus productivity gains, the slowdown in growth of the labor force has inevitably lowered the speed at which the economy can expand. This is doubly true because government data revisions indicate that productivity growth in the expansion has averaged just 1.1% to 1.2% a year, far slower than in earlier expansions.

Even if productivity growth speeds up a bit, Brinner and Wyss contend that weak economic data need to be viewed more positively in light of the current demographic slump. Monthly gains of 100,000 jobs, they write, should be welcomed, not mourned. Such data "project not a temporary lull but sustainable growth for a long period."BY GENE KORETZReturn to top

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TROUBLE FOR CARS, HOUSING

But boomers may save the day

The two key industries whose fortunes are most likely to be adversely affected by slowing population growth over the next five years are housing and autos. That's because these businesses especially cater to adults aged 25 to 44--exactly the groups whose growth has slowed sharply in the 1990s.

DRI/McGraw-Hill notes that the number of households headed by 25- to 34-year-olds, which climbed at a heady 4.6% annual clip in the 1970s and rose at a 1% rate in the 1980s, has been contracting in recent years and will decline even more rapidly from 1995 to 2000. And the growth of households headed by 35- to 44-year-olds will slow to an average annual rate of 0.7%, compared with 2.2% in the first half of the 1990s and 3.9% in the 1980s.

For vehicle manufacturers and homebuilders, all of this spells sluggish sales growth through the turn of the century. Single-family home construction, says DRI, will flatten. With modest growth in the number of total drivers, demand for new vehicles is likely to rise slowly by historical standards.

The saving grace in the outlook is the explosive growth of aging baby boomers, who spend more lavishly on cars, appliances, and homes than do younger families. The relatively affluent 45- to 54-year-old cohort of households will expand at a 3.6% clip over the next five years. Thus, to ride out the demographic storm ahead, DRI warns, manufacturers and builders will have to adapt their products to the needs of this well-heeled group that will be upgrading the quality of its purchases.BY GENE KORETZReturn to top

MORE TEENS ARE LIGHTING UP

A decade-long decline has ended

To a large extent, the success of the battle to reduce smoking in the U.S.--and the health costs it entails--rests on discouraging the habit among teenagers. And by that criterion, the latest results of an annual nationwide survey by the University of Michigan's Survey Research Center indicate that the battle is being lost.

Last year, some 34% of high school seniors reported they had smoked cigarettes during the previous month. That's up from 28% in 1992 and 29% to 30% over the prior decade--a range the figure had fallen to after approaching 40% in the mid 1970s. Researchers note that 1995 marks the third straight year in which the percentage of high school smokers has registered an increase.BY GENE KORETZReturn to top


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