Tuesday, July 28, 2009

The end of strong U.S. GDP growth?

Americans, especially those Boomers, are spending less. That's bad news for an economy that is over two thirds driven by consumer spending.

When 79 million people—nearly a third of Americans—start spending less and saving more, you know it won't be pretty. According to consulting firm McKinsey, boomers' conversion to thrift could stifle the economy's hoped-for rebound and knock U.S. growth down from the 3.2% it has averaged since 1965 to 2.4% over the next 30 years. "We would have gotten here in 5 or 10 years as boomers retire, but we pushed it up," says Michael Sinoway, managing director of consulting firm AlixPartners.
3.2% growth down to 2.4% growth is a decline of .8 percentage points. Multiply that by the U.S.'s 2008 GDP of $14.3 trillion. That's over $114 billion less in GDP per year, which will compound over the 30 year projection. We'll need to find other ways to grow our economy.