The U.S. Economy’s Big Baby Problem

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Information about The U.S. Economy’s Big Baby Problem
News & Politics

Published on March 7, 2014

Author: kynize



Last September, the U.S. government announced that our birthrate fell to "another record low"
in 2012, following a long, steady slide since the Baby Boom after World War II.

The U.S. Economy’s Big Baby Problem Derek Thompson March 5, 2014 Last September, the U.S. government announced that our birthrate fell to "another record low" in 2012, following a long, steady slide since the Baby Boom after World War II. It goes without saying that, morally speaking, there's nothing wrong with this. It's natural, in a way. All over the world, birthrates tend to fall along with economic development, for numerous reasons including (a) the move away from a labor-intensive small-farm economy and (b) women's ascendance in the workforce, which uses time that used to be devoted to child-rearing. Families in richer countries tend to have fewer kids. In places like Japan and Western Europe, national populations are actually

peaking. The thing about an increasingly childless economy is that it has major implications for consumption. Just look at this new data from a Gallup survey released today on the average daily spending of families. Even after you control for income, age, education, and marital status, families with young kids spend more every day. These are the sort of spenders you want in a weak economy following a great deleveraging. What are parents spending on? Not just books, toys, and games. The Department of Agriculture (weirdly enough) annually surveys the many ways we lavish our kids with spending, to the tune of about $14,000 a year. The overwhelming majority of money goes to the basics: housing, food, transportation, and education. Housing is kinda funny, because young children tend not to have their own housing units, unless the parents are extremely well-off and the children are terribly misbehaved. The survey estimates the housing portion of spending by trying to account for a few factors: the cost of an extra bedroom, the cost of moving into safer communities with better schools, and the cost of buying homes with larger yards. It's rough, but there it is.

And, for a bit of trivia, here's a look at how the cost of raising kids has changed of the last 50 years. The major action here is that food and clothes got really cheap relative to child care and education (more of that here). The upshot is that when we think about economic growth, some of the most discussed variables on

editorial pages and cable news include policy choices like Obamacare and tapering and tax rates, or international events like China's shadow banking system and the Crimean invasion. And that's fine: policies and global events do shape lending and spending behavior. But buried underneath these headlines is the glacier of demographics, the steady and unyielding force of human numbers to shape the economy. The drop in U.S. fertility rates in recent years has almost certainly had a negative effect on consumer spending (and, in turn, lower birthrates are probably an outcome of the recession). In particular, childless couples don't need space for more kids so they're less likely to buy homes in the suburbs, depressing demand for housing in an economy that badly needs to sell more homes. Once again, couples and families can do whatever they want, it's their lives. But writ large, smaller families and less household formation deprives the U.S. economy of housing and transportation spending, which has historically accounted for half of family expenditures. You can't legislate demographics. But it doesn't mean you shouldn't worry about it. Office Supplies Giant Staples Closing 12% Of North American Stores NBC News March 6, 2014 Staples, the largest U.S. office supplies retailer, will close up to 225 stores in North America by the end of next year because of slumping sales caused by shoppers turning to mass-market stores or going online. The company's shares fell more than 14 percent on Thursday, after Staples posted weaker-thanexpected fourth-quarter results and lowered its profit forecast for the current quarter. It said it will shut 225 stores of its 1,846 stores in the United States and Canada -- roughly 12 percent. "Our customers are using less office supplies, they're shopping less often in our stores and more online, and their focus on value has made the marketplace even more competitive," Chief Executive Ronald Sargent said.

Staples said it had initiated a cost reduction plan expected to generate annualized pre-tax savings of about $500 million by 2015. The company and rival Office Depot have been struggling to keep shoppers from turning to mass market merchants such as Wal-Mart and online retailers like Staples has been shifting its focus to new categories such as business technologies, breakroom supplies, and copy and print services from traditional office supplies like paper and toner. Average Wage Growth Slowest In 5 Years Mike Flynn March 7, 2014 Friday's report from the Labor Department that the economy added 175,000 jobs in February was better than economists expected. After two very weak reports in December and January, expectations had been lowered for job creation in the month. While the overall number of jobs added was good news, details in the report give caution for future job growth. For the month, average weekly wages grew at their slowest pace in 5 years, suggesting no real future growth in the economy. Average weekly earnings for production and non-supervisory employees actually fell in the month to $682.65 from just over $683 in January. For all employees, average weekly earnings inched up about 60 cents to $831.40. Those earnings are up just 1.3% since last February, the slowest annual growth since the recovery began in 2009. Annual growth in average weekly earnings has been declining since 2010. In that year, average earnings grew 2.9%. Growth in the next three years dropped to 2.3%, 2.1% and 1.6% respectively. February's increase in average wages was just 1.3% higher than the year before. Part of the slowdown in wage growth is likely attributable to the drop in hours worked each week. In the past year, 17 of 19 industry sectors tracked by the Labor Department experienced a decline in the average number of hours worked each week. With wage growth generally stagnant, it is hard to envision a pick-up in economic activity as we enter Spring. Consumer spending accounts for around three-quarters of economic activity. With wages growing slower than consumer inflation, it is hard to see a sharp uptick in consumer spending.

The Collapse Of High Tech Is Killing The Economy Rex Nutting March 7, 2014 Everyone has a pet theory explaining why the economic recovery has been so weak, but here’s one overlooked factor: The productivity revolution driven by computers, software and the Internet is fading, and nothing has yet emerged to take its place as an engine of growth. For all of the incessant buzz in the markets about the latest tech start-up, few businesses are investing much in high-tech equipment or software. Investments in information processing equipment and software are growing at the slowest pace in decades, just a fraction of the booming growth rates of the late 1990s. See the Bureau of Economc Analysis data. High-tech investments were a major driver of the economy in the 1980s and 1990s. Businesses were spending a lot on new equipment, software and research, and those investments were paying off by boosting output. But now 60 years of electronics-led productivity could be grinding to a halt. The slowdown in high-tech investment today means a slower growing economy tomorrow. Some economists, notably Robert Gordon, claim that we’ve reaped most of the benefits of the electronics revolution. They say productivity growth is destined to be slower in the future, which means a slower rise in living standards. Read Gordon’s seminal paper “Is U.S. economic growth over?” I’m not so foolish as to pretend to know what the future will hold. I believe many sectors of the economy are just beginning to take advantage of cheap, mobile computing and communications services. What’s more, technological advances in other areas — biotechnology, energy, nanotechnology, robotics — have the potential to be just as transformative as the electronics revolution. But that’s the future. The present and recent past show a sharp deceleration in high-tech investments. Perhaps more troubling, investments in basic research and development have slowed to the lowest rate in 20 years, reducing the chances that the next big breakthrough will happen in America. The nation’s

stock of intellectual property — such as software, patents and research — is growing about 2.5% per year, only half the pace of the 1980s and 1990s, when many of today’s cutting-edge technologies were invented. Business investment in general has been weak as the economy recovered from the 2008 recession. With demand growing only slowly, most businesses don’t see much urgency in investing in new equipment, software or processes. Meanwhile, government investments in R&D are falling. One big factor restraining growth in high-tech investments is that most products just aren’t getting much better. In the 1980s and 1990s, each new product cycle represented a giant leap forward in speed and usability, following Moore’s Law that semiconductor performance doubles every 18 months. Prices for high-tech goods fell rapidly, which encouraged businesses to invest heavily But now, faster chips and minor revisions to software just don’t have the same payoff for businesses. The leap from MS-DOS to Windows 3.0 was huge, but few businesses have rushed to adopt Windows 8, because Windows 7 works just fine. For most purposes, the hardware and software are as fast as our wetware can use. Most of the action in the tech world now is on consumer products, which are fun and flashy, but don’t do anything to increase the economy’s productivity. MarketWatch Productivity in the nonfarm business sector has slowed, and is expected to remain weak in coming years. INFOWARS.COM BECAUSE THERE'S A WAR ON FOR YOUR MIND

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