How the Coming Demographic Shift Will Affect the Economy

You're reading this article because it promises an analysis of how demographic changes will affect the economy. Most of you probably think I'm about to talk about aging baby boomers shifting into retirement.

But I won't. There's another demographic trend that could have a big impact on the economy. So much attention has been given to the aging boomers that this separate shift has gone mostly unnoticed, though it may be more important over the coming decade.

For the first time since 2000, the population of Americans aged 30 to 44 is about to begin increasing. Until this year it had been falling steadily for the past decade. There were 3.8 million fewer Americans aged 30 to 44 in 2012 than there were in 2002. But 2013 marks the inflection point where Census Bureau projections show that the cohort will begin growing again. By 2023, there will be an estimated 5.8 million more Americans aged 30 to 44 than there are today:

Sources: Census Bureau, author's calculations.

None of this is a surprise. After the baby boom ended in the 1960s, the birth rate plunged. The baby boom peaked in 1957, when 4.3 million babies were born. By 1976, that number was down to 3.1 million. The sharp drop-off in births between the 1960s and the 1970s meant that the population of Americans aged 30 to 44 would decline in the early 2000s -- which is exactly what happened. But the birth rate tipped back up in the late 1970s and 1980s. By the 1980s, Americans were back to having close to 4 million babies per year. That cohort is now approaching its 30s, so the population of Americans aged 30 to 44 is about to begin rising again.

That's important for economic growth, because we know a few things about Americans aged 30 to 44.

For one, they start a lot of businesses. According to the Kaufman Foundation, the median age of a company founder when beginning his or her current business is 40. This should make sense -- old enough to be experienced; young enough to be ambitious. And it bodes well for jobs growth. Despite what you might hear, most jobs growth doesn't come from small businesses, per se. Instead, new businesses are the key driver to new jobs. A separate study by the Kaufman Foundation found that from 1980 to 2005, "nearly all net job creation in the United States occurred in firms less than five years old."

The group of 30- to 44-year-olds also buys a lot of homes. The median age of a homebuyer is 39, according to the National Association of Realtors. The median age of a first-time buyer -- the group expanding homeownership rather than merely shuffling it around -- is 30. This will create more natural demand for housing over the next decade than there was in the last one. Still trying to recover from the housing bust, new-home construction is already far below average. It will need to rebound sharply just to keep up with normal population growth. Add in this demographic tailwind, and it could be a remarkable decade for the housing industry.

The group also buys a lot of cars. A decade ago, 28% of new-car purchases were by those aged 35 to 44 -- the highest of any age group, and more than the cohort's 22% share of the overall population. The recession pushed the average age of a new car buyer from 48 in 2007 to 51, according to industry analysis group Polk. But the 30-to-44 cohort may take the reins again, because their average income has rebounded from the recession faster than any other group in the working-age population. Factor in used-car sales, and those aged 35 to 44 on average spend more for vehicles than any other age group. Investors bullish on the U.S. auto industry tend to cite an aging fleet of vehicles that needs to be replaced. But there's another boost many are ignoring: growing ranks of prime-age car buyers.

Go down the Census Bureau's list of spending by age group, and our rising cohort leads in several categories. Per person, they spend the most on food. The most on housing services. The most on furniture, apparel, footwear, and entertainment. In many ways they are the driver of U.S. economic growth. And they're about to begin growing again for the first time in a decade.

The aging of the baby boomers and the strain it will place on entitlements will probably be the biggest demographic story of the next several decades, particularly after about 2030. But demographics might actually work in our favor over the coming decade, especially compared with the last decade. Be thankful.

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  • Report this Comment On February 26, 2013, at 11:24 AM, TMFDarwood11 wrote:

    I agree with the generalities. Yes, that demographic is expected to increase. Yes, they have tended to purchase homes and yes, a lot of stuff like cars.

    However, since 2003 student loan debt has increased from about $250 billion to $956 billion as of Nov. 27, 2012 (New York Fed).

    Currently, many banks prefer debt to gross income somewhere between 28% and 36%. There are programs for people higher than 36%. FHA uses 31% home debt to gross income and 43% overall debt to gross income. It's been reported that the U.S. government is formalizing standards for 2014.

    So, yes, there will be more young people who should and could be purchasing a home, etc. Yet it remains to be seen if they will be able to qualify for a loan for one. The rise in student loan debt is troubling.

    Here's a link to the NY Fed, for anyone interested. It includes three charts. One, entitled "Non-Mortgage Balances" indicates the rise of the student debt balances.

  • Report this Comment On February 27, 2013, at 9:05 AM, devoish wrote:

    As young adults the boomers were able to fund their home buying, car buying and investing by using two and a half decades of steadily decreasing prime rates ( ) to finance their purchasing and investing. Basically they added "found" money to the economy at lower cost to themselves multiple times as they refinanced their loans while prime dropped from 20% in 1980 to 4% in 2003.

    It was all of this "found" money that fed the growth of the last three decades and lowered the 10% unemployment of 1982 to 5% in 1988 ( )

    Today prime is at 3.5%, so I do not see it dropping from 20% to 4% to support this generation and inflate incomes and expenses the same way.

    Very significantly refinancing loans, secured or not, was a systemic way of increasing money supply by handing money directly and then through spending indirectly to the majority of Americans which fueled income growth in dollars, if not in real dollars ( ).

    In 2006 that pretty much came to a screeching halt and in 2008 shock waves went around the world.

    Since then, on the advice of a .5% minority who sell investments, our Congress has created a system that funds a 5%-10% minority who buy investments, not the majority who buy real goods and services.

    I think retail sales growth has only recovered in dollars, but not in volume as people are simply paying more for necessities. I cannot imagine it has recovered for real with unemployment higher and paychecks stagnant and our new college grads paying back loans instead of buying cars or the investments they need to retire without pensions and SSI.

    Add in the very real disruptions of global warming to our food and water and energy and disease and productivity losses and the very real fact that homeowners insurance does not make many individuals or an entire neighborhood whole after a disaster and I think the historical aberration of shared wealth built on a foundation of unions promoting good pay and Government support of social programs within a capitalist system seen in the mid to late 20th century is over.

    I think the next ten years will see the return of employees striking, even those for whom striking is illegal. We will see a return of paid union busters creating violence in peaceful marches to bring bad publicity and justify police violence against strikers and also violence from people striking for the freedom of good pay in support of a capitalist society.

    Best wishes,


  • Report this Comment On February 27, 2013, at 9:09 AM, TMFMorgan wrote:

    <<I think retail sales growth has only recovered in dollars, but not in volume as people are simply paying more for necessities. I cannot imagine it has recovered for real with unemployment higher and paychecks stagnant >>

    Auto sales, to take one example, have rebounded to pre-recession levels.

  • Report this Comment On February 27, 2013, at 9:16 AM, devoish wrote:

    I see auto sales as one example of a necessity.

    I tried to find data to post in support of that observation but I am out of time.

    Best wishes,


  • Report this Comment On February 27, 2013, at 10:40 AM, Balynevil wrote:

    I am more concerned over the impact of automation on this group. Not only for their prospects for manufacturing jobs that continue to be displaced by machines, but by increasing reliance on computer systems software to do a lot of the "thinking" that white collar pworkers used to do. When we talk about everything from e-file all the way to surgery being automated thanks to advances in both robotics and software developments, it makes me wonder where this group will find their place. Every new technology requires adjustments, my question really is whether this generation will adjust fast enough to keep pace with the rapid change that is taking place in the realm of labor. What shockwaves will these transformative changes bring about in society and thus the economy.

  • Report this Comment On February 27, 2013, at 6:06 PM, xetn wrote:

    It appears that banks may have started lending again as reflected in lower excess reserves at the Fed. If this is the case, price inflation will not be far behind. What happens to not just the subject demographic, but to all of them? (Especially, the retired, living on a fixed income.)

    A good look at the issue can be found at:

  • Report this Comment On February 27, 2013, at 6:07 PM, gpearson601 wrote:

    To what extent did Harry Dent consider this 30-44 age cohort in his dire predications of the DOW going to 6,000 in 2014(+/-)?

  • Report this Comment On February 27, 2013, at 7:12 PM, devoish wrote:


    I am not sure that this is the whole picture, but it seems to show a YOY increase in excess reserves, not a decrease.

    Best wishes,


  • Report this Comment On February 27, 2013, at 10:37 PM, wjarvis wrote:

    While this population is growing its income is shrinking. Cars may be a necessity. Living with parents may also be a necessity. I think you are overestimating the impact of this group.

    Things may be improving but I doubt we will be at per-2008 levels for a long time.

  • Report this Comment On February 28, 2013, at 9:10 AM, TMFDarwood11 wrote:

    In the auto sales versus home sales debate, it is currently easier to get a car loan than a home loan.

    As reported in the WSJ "A January Federal Reserve survey of senior bank-lending officers found 16% reporting they had eased standards for making auto loans in the preceding three months—compared with 6% for prime residential mortgages."

  • Report this Comment On February 28, 2013, at 5:43 PM, devoish wrote:

    "Auto sales, to take one example, have rebounded to pre-recession levels". - MH

    From 1999 until 2007 car manufacturers sold in excess of 16 million units, many years in excess of 17 million.

    2012 has climbed back to 14 million units.

    Best wishes,


  • Report this Comment On February 28, 2013, at 7:59 PM, TMFMorgan wrote:

    Pre-recession meaning December 2007, not to be confused with previous peak:

  • Report this Comment On February 28, 2013, at 8:59 PM, devoish wrote:


    That's kind of a fine line to walk. I'll acknowledge that the current "peak" of 14 million is close to being all the way back to the 2007 sales figure of 16 million, but 7 consecutive years of sales over 16 mil is not the spikey peak that this years sales total currently stands alone as.

    It is kind of hard to guess what the "right" annual sales total should be. Clearly the 7 years of 16 and 17 million units was driven by reckless lending at the hands of private lenders and investors who thought they were buying the more responsible loans of previous decades and never should have been so high. So 14 mil is a better number, but I suspect it is a peak of pent up demand after the low sales of 2009 and 2010 and in the end 13 mil is probably the "right" number to expect next year and then 12 after that because of the increased quality and longevity of cars ( the cars built in the 2000's are significantly better than the portion of cars still on the road over the average of 12 years that were built in the nineties) over the last decade and the reduced buying power of the USA. Maybe 11 mil depending upon where people live etc.

    But I do not think you have made a case for suggesting that today's boomlet of 30 year olds has comparable buying power to the boomers at 30.

    Regardless of different views, your articles bring out original ideas and information to consider with regularity, so thanks.

    Best wishes,


  • Report this Comment On March 01, 2013, at 12:42 PM, drborst wrote:


    You're usually so precise, but this sentence doesn't seem right.

    <There were 3.8 million fewer Americans in 2012 than there were in 2002.>

    Maybe you meant to say '3.8 million fewer Americans aged 30-44...'

    Also, I haven't read anything about this since the 80's, when they refered to the cohort born in the early 70's as the 'Baby Bust'... I really wish those who write about such things would come up with better names


  • Report this Comment On March 01, 2013, at 2:19 PM, TMFMorgan wrote:

    ^ You're right, good catch. Should be fixed soon. Thanks.

  • Report this Comment On March 01, 2013, at 2:24 PM, XMFBiggles wrote:

    <There were 3.8 million fewer Americans in 2012 than there were in 2002.>

    Those death panels are brutal, I tell ya.

  • Report this Comment On March 01, 2013, at 2:57 PM, Hookem2011 wrote:

    Do you have a plot that shows each age group as a % of total population for each of the past and projected decades? Seems like that would be a good way of looking at demographic trends.

  • Report this Comment On March 02, 2013, at 10:53 PM, ChrisBern wrote:

    Some say 40 is the new 30 and so forth.

    Maybe the point of many of these comments is that 30-44 is the new 18-25? :)

  • Report this Comment On March 03, 2013, at 1:16 PM, DividendsBoom wrote:

    I will be moving into the 30-44 demographic shortly and plan on doing my part and then some to help grow the economy. Might take a little past 30 for a lot of my fellow 20-somethings to get on board though. Agreed that 30-44 might be the new 18-25. Although when you only grow up in one generation, it is hard to compare that to past generations, I just cant imagine such a large percentage of the boomers being this unproductive at this age.

  • Report this Comment On March 03, 2013, at 1:17 PM, DividendsBoom wrote:

    when they were this age*

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