Quarterly Report: Baby Boomer and Millennial Impact Leads the Economic Forecast for LAEDC
The economy is gearing up for a major shift as the huge baby boomer generation enters retirement and the even larger millennial generation begins taking a greater position in the workforce.
There are 77 million baby boomers, typically described as those born between 1946 and 1964, and 82 million millennials, born between 1979 and 1999—many to baby boomer parents.
The shift between those leaving the workforce and others ramping up their careers kicked off an economic forecast hosted by the Los Angeles County Economic Development Corp. on Sept. 30 at the Omni Hotel in downtown Los Angeles.
“[Millennials] are our children, they are our workers—and they’re going to buy our homes eventually,” said Dowell Myers, the director of the Population Dynamics Research Group at the University of Southern California, who was one of the speakers at the event.
The event included the findings of the LAEDC’s Kyser Center for Economic Research Economic Forecast for September 2015.
A rebound in housing and construction is expected to be fueled by demand from first-time millennial buyers. According to the LAEDC forecast, “Millennials now outnumber [baby] boomers, with the oldest millennials now in their late 20s and 30s, the prime period for forming new households and becoming first-time homeowners.”
As first-time buyers, millennials are also expected to drive an uptick in items such as furniture, appliances and home décor items, which should drive “a significant ripple effect through the economy,” the report said.
Millennials’ impact on the local economy could be even more pronounced because both the birth rate and immigration in Los Angeles County have begun to level off.
“We need more workers, but our housing prices are a barrier,” USC’s Myers said. “We’re not getting migrants, so we have to depend on the ones who are already born here. We haven’t activated the millennials. Until we do, we won’t have a full recovery. The solution for our housing problems will go hand in hand with the solution for our workforce problems.”
The LAEDC is bullish on the economic recovery in the U.S. overall, predicting gains through the rest of the year and into 2016. A number of indicators point to a recovering economy at the local, state and national level.
But Robert Kleinhenz, chief economist for the Kyser Center for Economic Research at the LAEDC, said not everyone is convinced about our economic health.
“We’ve got an economy that’s doing okay if not better than okay,” he said. “But many people do not perceive it that way. We’ve got the Great Recession so far in our rear-view mirror, but the perception is that we really haven’t made that much progress.”
Good news can be found in the energy sector. Domestic energy production and the global oil surplus have eliminated some the “risk associated with disruptions to the supply of energy,” the LAEDC report said.
“Don’t expect $100-per-barrel oil prices anytime soon,” Kleinhenz said. “Maybe in the next decade.”
Uncertainty remains as “political and national security developments” around the world continue to threaten to disrupt regional and global economies. Other areas of concern include the slowdown in China’s economic growth, Japan’s recession, and the euro zone’s challenges with high debt and unemployment.
“China is making a transition from industrialization and an export economy to one that is more internal,” Kleinhenz said. “That transition will take some time—years, maybe decades.”
Something else to watch is when the Federal Reserve decides to raise key interest rates, which could lead to inflation. The Fed is looking to keep inflation around 2 percent, but Kleinhenz said he doesn’t expect that to happen until at least next year.
“Keep in mind that inflation is sort of like blood pressure—you’ve got to have some,” Kleinhenz said.
The economist also noted that higher interest rates have the potential to affect international markets more than the domestic market.
In California, the recovery process has already begun. In some cases, the state has surpassed gains made on the national level. Since 2012, the state has been adding jobs at a faster rate than the nation as a whole, according to the LAEDC forecast.
“The U.S. is now in what economists call the full employment range,” Kleinhenz said, adding that it took “excruciatingly long to get here—but we’re here now.”
And California’s gross state product growth of 2.8 percent last year outpaced the national growth rate of 2.4 percent, the report said. A similar increase is expected for 2015.
As of February 2014, California “recovered all the wage and salary jobs that were lost during the recession,” the report found.
Another sign of improvement is in tourism, where total visitor counts increased 3.4 percent on an annual basis last year and are on track to increase by 2.3 percent this year. Domestic travelers spent $93.9 billion on California travel-related goods and services, while international visitors spent $22.7 billion in 2014.
Last year, Los Angeles County saw a record 44.2 million visitors, which represented a 4.8 percent increase over the previous year. This year, the county expects to see 45.1 million visitors, representing the fifth consecutive year of record-breaking visitor volume. The largest number of international visitors are from Mexico and Canada, with China in the top spot for visitors from overseas.
According to the LAEDC, last year the apparel industry employed 70,100 workers. Between January and July, those numbers crept up 1.8 percent with an additional 300 jobs added in manufacturing and 970 added in apparel wholesaling. But those figures do not take into account independent contractors. As of 2013 (the most recent figures available), there were nearly 8,000 independent contractors working in the apparel industry in Los Angeles and Orange County in manufacturing and wholesaling textiles, apparel, footwear, leather goods, and jewelry. The employment numbers also do not include the ancillary industries to the fashion industry, such as import/export agents, transportation, warehousing, equipment leasing and finance companies that specialize in the apparel industry.
The rising cost of Chinese labor and the ability to quickly turn merchandise in the U.S. has some companies “experimenting with bringing more of their production back to Los Angeles,” according to the LAEDC forecast, but the report noted that “local apparel manufacturing employment is not likely to significantly reverse course.”
Still, the LAEDC recognized the region’s position as the nation’s apparel manufacturing center.
“Together, Los Angeles and Orange counties employ the largest number of apparel workers in the United States and are one of the few places in the U.S. where apparel continues to be manufactured on a large scale,” the report reads.
This is particularly true for high-end items requiring “specialized skills or processing” and quick-turn fast fashion.
“There is also a small but active community of designer-owned boutiques that specialize in locally designed and manufactured fashions emphasizing well-made, local and sustainably sourced apparel,” the report said.
Southern California’s design community includes nearly 4,650 fashion designers, who help to meet the global demand for “Made in LA” merchandise.
“We have more [apparel industry] jobs located here than perhaps any other place in the country,” Kleinhenz said. “It’s a signature industry that we need to observe even as it seeks to be more efficient to be globally competitive.”