He reasons that population growth is 0.3% and real GDP per capita growth has been 1.2%. Together, that gives us 1.5% growth.
That’s not even close to the 3% to 4% growth rates the White House and economists keep forecasting!
My math gives me a similar result: slowing growth rather than booming growth like we’ve been promised.
Workforce growth is projected to be zero for many years to come, and even negative in the next several years.
Productivity rates have been 0.5% and falling.
How do you get 4% growth out of that?! Especially now that we’re at or near full employment?
Quite simply, you don’t!
Any way you add up the numbers, there’s no way to get sustainable, real growth rates of 3% to 4% over the coming years or decade.
Yet the stock market has bought into the growth scenario due to tax cuts that won’t see substantial investment in real expansion.
We’re running at a below-average 78% capacity… and that’s up from a very low 75.5% in March 2017. We don’t need more.
And already, according to some surveys I’ve seen, many companies are using the tax cut benefits to increase profits above wage increases or expansion!
The bond markets haven’t bought into this new growth scenario as much. They’re typically more realistic.
I see five reasons why the promised growth won’t come to light. I discussed them in the May issue of Boom & Bust, which you can find here if you haven’t read it yet. Today, I’ll share one of those reasons with you…
Generational Cycles of Productivity: Zero or Negative Rates Ahead
A growing population or, more accurately, a growing workforce is one way to grow economically.
The other is increasing productivity – the same workers produce and earn more.
Well, it’s a no-go for us on both fronts.
The trends here have been falling since late 2003. Productivity is now as low as 0.5% and will fall further into around 2019 or 2020.
The logic here should be obvious. New workers become more productive after they enter the workforce around age 20. They grow because they’re eager to learn and advance, but also as they bring new technologies into the mainstream.
Eventually though, that productivity peaks. Older people become increasingly more resistant to change and tend to get stuck in their ways.
The chart shows the peaks in productivity of the Bob Hope generation in the fourth quarter of 1962, at 5.1%. Then it shows the peak in productivity of the Baby Boomer generation in the third quarter of 2013, at 4.4%.
The lowest point in productivity was at -0.7% in 1980.
We can expect to hit a similar low point again around 2020. That’s a 5.5%-plus differential in one generation cycle!
That’s how much of a difference the aging of a generation makes!
To read about the other four reasons we won’t see that promised 3% to 4% growth, read the latest issue of Boom & Bust.
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