In US, working age population is larger than ever

From Prime Working-Age Population At New Peak, First Time Since 2007 at Calculated Risk:

The U.S. prime working age population peaked in 2007, and bottomed at the end of 2012. As of January 2018, according to the BLS, for the first time since 2007, there are now more people in the 25 to 54 age group than in 2007.

Demographics is a key reason GDP growth has been slow over the last decade.

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the “baby boomer” generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through January 2018.

As pointed out in the original post, the size of this group surged in the 70s, 80s, and 90s, something not always considered when comparing GDP. This could be a sign of increased GDP in the years to come, though the last time this group peaked in population was 2007.

What might the next bear market look like for investors?

Great piece from Ben Carlson where he poses & answer 6 questions about the next bear market. He begins by putting things in perspective, then looks at how various areas may react in the next bear market.


How bad will things get?

In fact, the median drop was 26 percent. A crash is always possible, but your baseline for a bear market shouldn’t be a huge meltdown

Will emerging markets outperform the U.S.?

Grantham’s view is that the relatively undervalued emerging markets should hold up better in a downturn than the relatively overvalued U.S. shares. This is a development most investors likely aren’t positioned for if they’re basing allocations on historical risk-reward characteristics.

Will managed futures provide positive performance in a down market again? …Managed futures were one of the few strategies that held up well in 2008 when everything else got hammered by providing positive returns during a market crisis. According to the BarclayHedge CTA Index, these funds were up more than 14 percent even as stocks around the globe fell 40 percent or worse for the year.

Will commodities provide diversification benefits?
Like most risk assets, commodities fell off a cliff during the financial crisis. But unlike these other assets, commodities are still languishing far below their highs from the previous peak.

How will cryptocurrencies react? ..The rise in cryptocurrencies has corresponded with a bull market in stocks. And while cryptocurrencies have experienced a number of bear markets and crashes over the past few years on their way to remarkable gains, we have yet to see how they will handle a bear market in stocks.


Not near a real estate peak

However – even though investment in single family structures has increased from the bottom – single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

via Q4 2017 GDP Details on Residential and Commercial Real Estate at Calculated Risk

What are the chances of a recession?

From Bill McBride’s post Is a Recession Imminent? at Calculated Risk, a look at the likelihood of a recession soon. (hint: no)

However, just because this is a long expansion, doesn’t mean the expansion will end soon. Expansions don’t die of old age!  There is a very good chance this will become the longest expansion in history.

There are several reasons this has been a long expansion. Recoveries from a financial crisis tend to be slow since it takes years to resolve all the excesses. Also, there was an early pivot during the recovery to fiscal austerity that slowed the pace of recovery. Importantly, the Federal Reserve didn’t overtighten like in the ’30s (a lesson learned). And housing, always a key cyclical sector, didn’t participate early in the recovery since there were so many foreclosures. This delayed the usual boost from housing, but housing now a key driver of the expansion.

McBride has a good track record and includes some of his key leading indicators for predicting recessions.