The Importance of Demographics Now
The Importance of Demographics Now
What comes to mind when you see a headline with “Demographics” in it? For me it used to immediately shout “behaviors”. Like “Ok, Boomer” or “Millennials are privileged”. After diving deep into the effects of demographics on macroeconomics I can’t indulge another take on behaviors. Defining generations is nice shorthand to describe a group of people that were born in the same general timeframe. (Clarification here, in the context of macroeconomics I am referencing quantification of the age aspect of demographics not race, geography, and socioeconomic aspects which are more important for businesses in go to market strategy.)
You should care about the impact of demographics to be informed about why economies did so well as the Baby Boom generation were moving through their life cycle. More importantly you should care right now as Baby Boomers are leaving the workforce and taking their money out of capital markets. I know that you have heard about this, but it is worth taking the time to understand the deep implications.
I will start with very brief historical story telling. Post WWII there were a lot of babies born. I mean A LOT. The typical classification of the Baby Boom generation is people born from 1946 to 1964. 80 million babies, which means by 1970 they were about 40% of the U.S. population. In industrial economies kids under the age of 18 are an economic drag. They don’t work, they need food, shelter, clothing, education, they are expensive! The 70’s was a draining economic environment for many reasons, but certainly raising this generation was the overarching influence. From there let’s step through the next several decades:
Bring on the 80’s when Baby Boomers entered the workforce en masse along with their higher levels of education as well as higher participation of women in the workforce. At this point they are living a highly consumptive life, buying cars, homes, paying on college debt, they are borrowing. The boon stoked the global economy, especially as momentum built into the latter half of the decade. Talent was widely available which also primed the productivity growth of the 90’s.
Now we join our Boomers in the 90’s. Remember in the year 1990 they are ages 25-44. Still spending money consuming more than ever driving a demand based economic environment. On the supply side they are participating in an environment of consolidation, globalization, and applying new thinking to business processes. In parallel the breakdown of the Soviet Union, the banking crisis in Japan, and uncertainty in the future of the Eurozone delivered unprecedented amounts of capital to the U.S. monetary system. I like to say “It would have been really hard to mess up the 90’s economy”.
Moving along to the 2000’s. Staying with our demographics here the Baby Boomers were at a point in their lives when their kids had moved out, they were paying off debt, their wealth was accumulating and it had to be invested somewhere. Not surprising with the U.S. awash in cash two bubbles were born, the dot-com and Housing. Rising to the peak this money fueled the craziness as well as sensible investments in improving the structural foundations of businesses in general. Boomers were living their best life while delivering on their passion for building things.
We can look at the 2010’s as a period of rapid shock recovery from the Great Recession moving into an environment of steady economic growth. The Baby Boomers were at the peak of their earnings potential still adding to consumption of goods and hard assets. Their money was still in play in the equity markets as they looked forward to a golden retirement. The successful businesses that they built throughout their careers saw steady performance. Even to the point that at the end of the decade a jarring global pandemic became almost an economic hiccup.
Here we are in the middle of the 2020’s. Our Boomers that blessed the economy for decades are now serious about retiring. Removing their talent and sheer labor mass from the workforce. Removing their money from high growth potential investments to conservative portfolios. Starting to withdraw and spend their accumulated wealth while paying much less in taxes than they did. This is a precursor to my expectations for the 2030’s.
Looking forward to the 2030’s expect that the Baby Boomers still want their lifestyle intact. A political gerontocracy is inevitable to save government entitlements that they helped create resulting in an enormous impact on underlying economics. The expected “transfer of wealth” will be eaten away by inflation due to required monetary deleveraging. For this decade of reconfiguring it will mostly be economically unpleasant.
This story is really amazing. All of us participated in decades of economic conditions that are probably a once in a millennia phenomenon. It helped to create business as we know it. Now we are all facing a new business environment driven by this demographic effect, plus monetary debt reckoning, plus colliding geopolitical factors. We still have the coattails to ride for a few years that gives us time to review the strategic fundamentals of our businesses.
Now is the time to perform a deep review of your strategies. There are many complexities to consider beyond the day to day work of making things run. Step way back to take a long view and begin to put actions in place for your future. An engagement with Economics Designed expands your ability to evaluate your potential strategic actions.
This is the power of strategically designing the economics of your business!
Expectations for the 2030’s
Expectations for the 2030’s
We are headed toward a rough business environment in the 2030’s, a kind that none of us have experienced before. You have probably read or heard some headlines about the factors that are sounding alarm bells. It is important to take the time to dig deeper into the fundamentals of why some of the biggest financial thinkers are predicting a large adjustment. I continue to research and reflect on the three main drivers:
Demographics have been the story of global success for 35 years, now they bring an abrupt inflection point. The Baby Boom generation is not only finally retiring from the workforce they are also withdrawing their accrued wealth from financial markets to use for living expenses.
The big debt cycle in the U.S. is nearing the phase of required deleveraging which will deeply impact inflation, interest rates, and growth prospects. Not only is government debt increasing exponentially we are also faced with hard decisions on how to pay for the associated interest. The primary way to deal with this is to “print money” at high levels which will create latent inflation and increase interest rates. This will also devalue the U.S. dollar for an extended period until equilibrium is reached.
Geopolitics will continue to be a distraction as all mature economies will be dealing with the very same issues. Add in that the U.S. is decoupled from reliance on the global energy market which is driving our focus inward. In this changing environment there will need to be a counterweight to Chinese and Russian aggression which keeps the U.S. engaged. Our highly integrated global supply chains will be affected more than ever.
These macro level themes can seem too big to contemplate as part of your strategic business review. Let’s put this in terms of potential impact:
There will be a talent and labor shortage even while economic performance starts to turn down. Now is the time to focus on your talent pipeline and your differentiation as an employer of choice. Also, get ready for wage increases of 25-30% over the next four years. People are your best asset.
Compounded cumulative inflation over the next four years will be around 30%. Build input cost increases into your business plan. Become really good at increasing your prices on a cadence to adjust for added input costs. Strategically plan for continued increased cost inputs now.
With increasing interest rates for the foreseeable future there will be pressure on your borrowing profile. Now is the time to review the current state of your financing as well as explore options to minimize the impact of increased rates in the next few years. Review capital investment needs to improve productivity and differentiation as well as necessary working capital. Stabilize your balance sheet and borrowing position now.
There will be an extended recession in the 2030’s, some economists are even labeling it a depression! While we are in the midst of a fairly strong economy it is difficult to step back and imagine being in that place. Focus on your business fundamentals and future differentiation now.
This might all sound like Chicken Little “The sky is falling!”. Even if the dire nature of these expectations is off by 50% it is worth your attention. Going beyond typical annual strategy planning to do a deep strategic review of your vulnerabilities and preparedness is well worth the effort. Now is the time so that you have the runway for your team to implement strategic actions.
Let’s have an extended conversation about these expectations including going deeper into the research and thinking. Bringing it all together while focusing on your particular needs will give you the insights that you need. An engagement with Economics Designed expands your ability to evaluate your potential strategic actions.
This is the power of strategically designing the economics of your business!
The Launch of Economics Designed
Designing the economics of your business
You have only known one version of business environment in your career. Demographics worked with the largest generation ever impacting decades of consumption, capital creation, and productivity. The economics of the big cycle of monetary systems has been solid just as long even with bumps like expensive wars, the great recession, and a pandemic. The established global order made geopolitics relatively stable that enabled trade to take off. That is all changing.
When was the last time you stepped back and really thought about your business to check if it is headed where your leadership team wants it to be? Even when companies take the time for that reflection and planning it is difficult to step out of the day to day immersion to think big. Let’s be clear. I am not an expert on every industry, situation, or nuance of what you are managing through. My special capability is learning enough about the complexities of a business and then work through strategies for implementation.
This is especially important right now as we will be facing a business environment that we have never experienced before. Understanding the drivers of Demographics, Economics, and Geopolitics at a deeper level will help make sense of the cautionary headlines. That is where our conversation begins, to get grounded in the realities that 2030 will force us to deal with. Expectations for an extended recession, inflationary pressures, high interest rates, and a need for talent. That sounds like Chicken Little and “the sky is falling”, but understanding the fundamentals behind the situation through my research will help guide your leadership.
Working together on a state of the strategy is our initial engagement. This is after your leadership team has time to reflect on their understanding of the near future scenarios that I describe. To get at this important first part of strategy planning there are four steps that we work through:
Listening. Spending time with your team to hear more about the current state of the business as well as shared goals for the future. Asking enough questions and taking enough notes for us to frame the big things that will be required.
Describing. Succinctly describing the situation including the people, the market, the capabilities, the structure, and the gaps. The things that we identify here may seem obvious to everyone that is immersed in the day to day, but are viewed differently from an experienced outsider. This is on me to not write a book that you have already read, rather give a one page summary with opportunities described.
Reviewing. We get back together and review to make sure that there generally speaking there is focus on the right set of opportunities. No need to get hung up on specific details here, we need 70% understanding to start heading in the right direction. In implementation there will be a lot of learning that will help adjust the opportunity understanding as well as prioritization.
Planning. Getting to actions is the tough part as always. Really important here is to target 3-4 areas of focus that are truly strategic and not just running the business. Maybe even avoid calling them initiatives which can become unbounded and never ending. The action plans here will have a clear leader and team members identified for implementation. Clarity of scope and desired results with the associated business impact is done up front.
Using an agile for business approach for the implementation is the most effective way to manage the team. Getting to results along the way to learn and adjust the next actions builds momentum along with efficiency. Continued engagement with prioritization will get to a more confident position for your future.
Launching Economics Designed as a business advisory firm is exactly what I want to be doing. Taking over 30 years of my strategic business and leadership experience to help companies plan the future is my passion.
This is the power of strategically designing the economics of your business!