I met Manesh Nathoo at my "Secure the Future" tour in Australia in February. He's been a follower of my economic research and market research for years. Recently, he asked me a demographic trend question about a particular chart in my book, The Demographic Cliff, called "Generation Population Size in the U.S." He wanted me to clarify the seemingly contradictory statements between what was represented in the chart and my claim that the baby boomer generation was larger than its successor ‑ that their purchasing power was more important.
Here's the demographic trend chart he's referring to…
So let me clarify…
Yes, there are more echo boomers than baby boomers. The former is larger in sheer size. However, the baby boomers produced a steeper and bigger wave, and peaked higher, making them by far the more powerful of the two generations. They have the greatest purchasing power of the two.
From my point of projecting trends in the economy and markets, it is the acceleration and height of the generation wave that is more important than the total number of people in a generation.
Think of it this way: What is more damaging? A single tsunami or a high tide? Obviously, it's the tsunami.
So here's what I see when I look at each generation and consider the impact they'll have on the economy and market…
Note: I always adjusted for past and future immigration when considering birth and population statistics, so immigrants that are living and working here are counted as if they had been born here.
The baby-boom generation peaked in 1961 at 4.9 million births. The echo boomers only peaked at 4.6 million births in 2007. That's a 5.6% difference.
More important is the size and rise of the baby-boom wave compared with the echo-boom wave that followed. From the bottom of the baby-boom wave (starting from 1933) to the top (which peaked in 1961), there was an 88.46% increase in the number of births. For echo boomers, the rise from the bottom in 1973 to the first peak in 1990 was only 36%.
This means baby boomers have power in acceleration - the growth rates in their trends are much higher - so they tend to have greater purchasing power and move the economy and the stock market higher or lower as they move through their predictable spending cycle, and in sector after sector.
There may be more echo boomers, but they're spread out over more years, so their impact on the economy (and their purchasing power) will be muted when compared to that of their predecessors.
Sure, there are more echo boomers around: 138.4 million versus 108.5 million baby boomers in the U.S…and that's the case because the echo boom started from much higher numbers of immigration-adjusted births and the generation's time frame is four years longer than that of the baby boomers...
But the echo boomers simply do not have the acceleration power their parents did. They won't create as many powerful innovations, nor a boom as strong as from 1983 to 2007. They'll do their bit and move the economy and markets higher, but they won't come close to achieving the extremes we saw, thanks to the baby boomers.
That's why, from my point of view, the baby-boom generation is so much more important than the echo boomers (excuse my bias from being one).
We will never again see a boom like the one from 1983 to 2007, where the Dow rose by 24.8 times. The next boom, from as early as 2020 to 2036/37, may see the Dow rise by a mere five to six times.
My market research shows that our stock markets are likely to move sideways from 2014 to around 2055, when the last echo boomers peak in their spending.
We won't see bubble-like markets like we did from 1995 to 2014. It will not go down in history as the Roaring 2030s or the Roaring 2050s. More like the mewling decades.
The real action will come from emerging markets, especially the larger ones, like India.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.