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Yesterday, we talked about some of the current economic trends that have carried the markets up but that may be shifting in the near term. Indeed, those negatives are potentially very real, and we need to keep an eye on them. But there are also several emerging positive trends that are likely to show up in the next 5 to 10 years that should help us ride out those changes. Consider this the Tigger response to yesterday’s Eeyore message.
The millennials are growing up
As a member of Generation X, I recall vividly the “slacker” meme that condemned all of my generation to working in video stores. I have been keeping that in mind when reading the commentary about how millennials are lazy, entitled, and so forth, and will always be content to live in apartments and never grow up. In fact, the kids are alright and are growing up right on schedule. In the next 5 to 10 years, they will be hitting their peak earning and spending years at the same time as the wave of baby boom retirements starts to wind down.
This will be a double boost, as the headwind of the boomers recedes even as the tailwind of the millennials picks up. Much of economic growth comes down to demographics, and we have been in a lull for the past 10 years. When that changes, the entire context of growth will change as well. Once vigorous youth starts to take charge of the economy again, the narrative, the sentiment, and likely the growth levels will change to something we have not seen in decades.
The great thing about demographics is we know what’s coming. The bad thing is we have to wait for it—in this case, for another 5 to 10 years.
The global economy
For all the talk of globalization—and it was and is real—we have never really had a global economy. What we did have was the U.S. plus: the U.S. plus China drove the Chinese expansion over the past 30 years, the U.S. plus Europe drove the European recovery and expansion post-World War II, and the U.S. plus commodity-producing countries drove emerging markets. Now, however, that is changing. With two other economies on par with the U.S. (in Europe and in China) and with other major regional economies (e.g., India and Japan), the U.S. is no longer the only engine of global growth.
We are starting to see the effects of that, as Europe is now growing faster than the U.S. and China continues to expand. Indeed, faster U.S. growth can arguably be attributed to the faster growth elsewhere in the world, which is the point. Historically, global growth has followed the U.S. Going forward? Growth elsewhere in the world will lead that in the U.S.
Ideally, this will result in a more stable global economy, no longer dependent on the U.S. for growth. Even better, this might lead to the kind of trade-driven virtuous circle where all economies benefit. We have seen this over the past 30 years, where the U.S. arguably paid a price for the benefit of other countries. With those other countries poised to contribute to U.S. growth in a meaningful way, now is the time when we might end up harvesting the benefits.
Long-term vision
These are the two major positive trends poised to keep making things better over the next decade. While we certainly have challenges, particularly in the next couple of years, the positive trends will keep growing during that period. There are also additional trends that arise from the big ones, such as the development of a global middle class and the globalization of technology development.
For all of the very real worries, the longer-term vision is getting increasingly better. Eeyore is worth listening to, but Tigger has something important to say as well.
