The Economy is Improving, but May Face a New Speed Limit
While it might not feel like it yet, the economy is getting better. On Thursday, the Bureau of Economic Analysis announced the U.S. economy grew faster than expected in the second quarter of this year.
Here's the thing, though. Even as employers add jobs, we're about to enter an era with the lowest percentage of working Americans since 1973. Below is a Congressional Budget Office projection, from a new set of charts they've released here, showing the labor force participation rate—the number of people working or looking for a job—through the year 2024. As you can see, despite the economic recovery, it has a distinctly downward trend.
Why doesn't a better economic climate mean more workers? The boomers, largest generation in American history, is on the cusp of retirement, and will soon begin to drop out of the workforce in even greater numbers. Over time, this will have an dampening effect on the economy—though by how much is disputed. The CBO predicts that GDP growth will average around 2.2% per year, noticeably less than the growth we got used to in the 1980s and 1990s.
Another way to visualize the change is something called the dependency ratio, which measures the proportion of the population that aren't of working age (below 18 or over over 65). As FiveThirtyEight's Ben Casselman points out, that number is about to increase from 59% in 2010 to 75% in 2030.
As you'll notice from the above chart, we've been a demographically fortunate nation of late, but we're about to lose that tailwind. On the other hand, this country has faced big demographic changes before: Look the at the jump in the dependency ratio from the 1950s to the 1960s. Back then, an increasingly prosperous nation spent part of its wealth on kids. Those kids grew up and made the economy even larger, and soon we'll have to spend part of that prosperity on their retirement.