Latest / Market Pulse / Is Your Business Ready for the Changing Face of the U.S.?
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- Market Pulse Podcast: Visa Transcript Rissa Reddan (00:01): Welcome to our latest Market Pulse podcast. The purpose of the Market Pulse podcast series is to provide the critical insight you need. Now in today's uncertain economic environment, Equifax is here to help you make more confident business decisions with timely economic consumer credit and small business insights. The Market Pulse podcast series is just one of our insight-packed resources to help you stay ahead and quickly adapt at Equifax. We know that smarter insights drive smarter actions. My name is Rissa Redden, and I am your host. I am joined today by Wayne Best, chief economist at Visa for a discussion about Visa's new white paper titled, The Golden Years Planning for the Changing Face of the United States. Wayne, welcome. Wayne Best (00:41): Thank you very much. I'm glad to be here. Rissa Reddan (00:42): For our listeners today. Could you please introduce yourself and give a bit of background on your areas of expertise? Wayne Best (00:49): Sure. I'm the chief economist at Visa. So the Worldwide's payments company. I handle this role in a global role and work with all of regions. I have a team of about 15 people, including people located in each of our major regions. And our role really is to look at what's happening with the economy, coupling it with some of our unique data sources and then coming up with interesting insights or thought leadership about ways to look at the economy in different ways than maybe others have looked at it. And obviously again, the key reason why you're able to do that is we've got data that no one else has. Rissa Reddan (01:25): Fantastic. And I am eager to dive into this topic and to hear about your recent white paper, The Golden Years: Planning for the Changing Face of the United States. And I'm curious as well, what brought about this piece of thought leadership? What problem were you hoping to solve, or what question were you hoping for that drove the development of this paper? Wayne Best (01:46): It's a good question because if you think back about the last several years now, almost two years since the pandemic started, most of the planning that our clients have been looking at have been, frankly, what's going to happen in the next month or the next quarter? Maybe even as far as the next two quarters. And we thought it was important to step back at this stage of the recovery well into the recovery to understand better what's going to happen, frankly, over the balance of this decade. And so the research that we decided to undertake was to look at where we see the economy going and what that means for consumers and what it means more importantly for businesses as they plan for this changing face of the US consumer. Rissa Reddan (02:31): And could you walk us through some of the findings? Wayne Best (02:34): Sure. So I think I start with really looking at one of the biggest demographic shifts that's in front of us. That frankly, not a lot of people are thinking about or talking about. And that is the population growth is really a longer term trend to watch. So back in 2020, we had the census, right? Everybody remembers it. They came knocking it on your door or they did you remotely because of COVID. But we all got counted again. And we found from that source of data that from July of 2019 to July of 2020, the population in this country grew at just 0.35%. In other words, one third of 1%. Now that's the slowest population growth that we've seen since 1900. No, not 1990, 1900. If I go back and look at population growth that we've seen in the past, back in the fifties and sixties, it was close to 2%. Over the seventies and the eighties, it slowed to of about one, one and a half percent. But of late it's been slowing quite dramatically. Wayne Best (03:44): And this is the slowest level of population growth that we've seen over that period of time. Now, there are a couple reasons behind that. First off and most important births. We're just not having as many kids as we used to. Another factor is, you know, we have a aging baby boom population. They're getting older, large source of people, largest generation in history until the millennial generation came along, and they're getting older and they're starting to pass on. So we have a number of deaths that are expected between 2020 and 2030. And finally the last factor, which is also very important for our economy is our net migration trends. Those have slowed really dramatically. We're just not seen as many immigrants come into this country, contribute working, et cetera, which adds to all of the factors. So the heyday of stable population growth frankly, is really over. Wayne Best (04:37): Now another longer-term trend to watch is frankly, the aging of the population. And we do this by looking at the composition of the population by age. So let's look at 18 to 64-year-olds, generally working age population. And back in 2016, they represented 62% of the overall population. But by the time we get to 2030, that's going to slow to 58%. in that same time period, the age of 65-year-olds or the proportion they are representing of the overall population, I should say is going to go from about 14% to as much as 22%. So this is going to have some very profound impacts on the labor force participation rates that we see in this country. I mean, let's face it, we're getting older. And the labor force really is indeed going to suffer. Rissa Reddan (05:31): Wayne, does this mean with the aspects that are shifting that you described, is a decline in GDP inevitable? Wayne Best (05:45): It certainly is something that we have to concern ourselves with. Let me add one more factor that will help explain that too. As we look at the potential growth in the economy over the balance of this decade, and that is this pandemic. It added another shock to the labor force. Overall, you remember the old adage of about 10,000 people were going to turn 65 every day. That's been happening over the last seven years and it's probably going to continue over the next seven years. But this pandemic actually accelerated the retirements that we've seen in this workforce. People not in the labor force now 65 plus is almost 2 million more than what we would've expected in normal times with the adages that I've just talked about. And why is that? So, you know, you look at some of the aspects of people that are in their sixties and deciding in a pandemic environment, if they want to work. Let's say I'm a kindergarten teacher and I've got a bunch of kids that I take care of and do all the things that a teacher does. Wayne Best (06:48): Probably more amazing than I think we all would expect. And now all of a sudden the pandemic starts and you tell me, I have to teach kindergarten to your kindergarteners on a Zoom call. Not likely to be something I want to do. And so we saw a lot of people, a lot of school teachers actually drop out of the labor force and there are many other examples of it just like that. So this workforce is shrinking further with this dramatic increase in retirements. And when we pulled all of these factors together and determine what the potential GDP growth is, it's a function of technology, capital stock and labor. Those things specifically happening. So to your point, Rissa, the long run potential growth rate is frankly going dramatically slow. We're going to a see real potential GDP growth going from 3%-plus back in the '90s to 2.5% over the last couple of decades to 1.8% or so in the current period. That's a dramatic shift. Wayne Best (07:50): And it's because of all these factors that are leading to this changing face of the US, that frankly is going to hit everybody upside the head, if you will, without even thinking about it. Slower population growth, aging of the population, smaller labor force, recent surge in retirements, and again, that slowing immigration factor. The biggest implication of all of this of course, is we're going to see consumer spending growth, which is going to be a lot slower than what we've seen in the past. No longer we going to all this low hanging fruit on which to pick from in terms of potential customers. And that will be a dramatic shift that we all need to plan for in all of our businesses. Rissa Reddan (08:29): Wayne, something that I'm curious about I'd love to get your perspective on it. At Equifax, we released a paper and it was on small business during the pandemic. One of the findings of that paper was a record number of new business formations. And I'm curious, I mean, that might offset some of the GDP. There might be some offsetting of the population demographics that you were just mentioning, but what's your perspective on that and on that entrepreneurship sector? Wayne Best (08:57): First off, it's been unprecedented. The amount of new business formations that we saw normally in a recovery period, early stages of recovery there just isn't that type of business investment. Not only in small businesses, but large businesses also. This time was different. And it has a lot to do with kind of the what we've coined, the three R's of what's happening in this recovery period. There's been a massive amount of re-skilling. There's been a massive amount of resignations. And there's also been a lot of reinvention. So while we've seen a massive growth in the number of new businesses, let's be frank, we've also lost a lot of businesses. So while those new businesses may be creating goods and services that would be beneficial to the overall economy. and some of them may be able to export some of those goods and services to other countries, we're still going to be fixed in this United States with the amount of population growth that we're kind of stuck with right now. Rissa Reddan (09:59): So Wayne, going back to the paper, one of the aspects of the paper that I found particularly fascinating is the data provided on peak spending categories. When should I anticipate I'll be spending the most amount on wine as I age? But I make light of that. I mean, you've got some really interesting data that looks at spending over a lifetime, and I'm really curious to hear a little bit more about that. Wayne Best (10:25): Sure. So this is work that we've been actually working on and doing for, I guess, 15-20 years now. And it's the fact that people have very predictable spending patterns over their lifetime. Everybody thinks they spend differently than everybody else, but on an age basis, it's really quite amazingly fixed. As of today, the peak spending of consumers in the United States, and I should mention this data comes from not only our own proprietary data, but also the consumer expenditure survey data, which looks at what thousands of households do every year on hundreds and hundreds of different kinds of items. We've mined that data to try to better understand some of these trends, and the peak spending in this country occurs between ages 46 and 54. A little bit older if you're higher income, but on average, it's around 47, 48. And this information advances that peak spending advances about one year, every decade on average. Wayne Best (11:25): Now, if we look at what's been happening in terms of the predictable spending habits, as of today, people are getting out of college at age 22, getting married seven years later at age 29, having their first baby at age 30, 31 buying their first home, their first starter home at age 33 to 34, a little bit later if they have student loan debt. And of course we all know what happens after the age of 65. But what happens is, if you look at the kinds of things that we spend our money on over our lifetimes, they also hit some levels of peaks, whether it be jewelry right prior to getting married, infant accessories after having that first child lawn and gardening equipment, which peaks at around age 43, 44 in this country. And there you go at age 62, we hit our peak and spending in wine purchases. Wayne Best (12:13): There you go. So what happens after that? Well, maybe they're drinking alcohol or something as opposed to wine. But I make light of the fact that there are these predictable spending habits. And when we start to think about this consumption patterns over a lifetime, how important that is relative to everything I've just described about the slowing consumption patterns. This can provide some viewpoints into the kinds of businesses that you want to be going after. Or the types of consumers that you want to be going after, depending on what type of business you currently have. So if you're in lawn and gardening equipment, you gotta be focusing on people at age 42 to 43, because that's when they peak in their on and gardening equipment purchases, and many, many other categories, including airline fairs and financial services and nursing home care, all those things as you might expect. Rissa Reddan (13:04): Well, and certainly that resonates with me as a marketer that why wouldn't I target my marketing efforts to that data that you've just walked us through. But also from a business standpoint that why wouldn't this be part of annual planning exercises or five-year strategic plans because of the predictability that you just described? Wayne Best (13:24): I think the additional point there, Rissa, is that we need to make sure that we're thinking through our plans and thinking through our business much more segmented than what we've done previously. Good old segmentation, that marketing buzzword from the '90s that everybody hated, it's back. And it has to be back now because the overall size of this economy, that's potential growth, the amount of consumption is just not going to be at the pace that we've seen previously. So unless you're segmenting your business and thinking about these various customer relationships, things like developing plans to reach consumers that say key points in their lives, millennials entering home buying phase or boomers entering retirement. That's going to be that much more critical. It also suggests that we could see new interests again, that explosion of new entrance into the business into the marketplace that we've seen in the United States potentially peeling off some of these things. So a competitor that you have today in your particular business may have new competitors that are trying to pick off the most profitable portions of your business in the future. Even more reason why you need to be thinking through some of these trends. Rissa Reddan (14:36): Well, and I think you raised such an interesting point too, Wayne, around short-term thinking versus long-term thinking. And I think that the pandemic has you know, really put that focus on sort of getting through the day or getting through the week and to look up and to look at the horizon instead. It feels like a bit of a relief quite frankly. Wayne Best (14:57): Well, it certainly is a fresh view into it again, especially given that the focus that we've had over the last two years of next month or the next quarter. Rissa Reddan (15:05): That's exactly right. Getting back to the paper, what kinds of, of demographic shifts will we be seeing in the future? As you think about, you know, you mentioned millennials and gen X consumers becoming primary spenders, what are the implications of that? Wayne Best (15:19): So we kind of put this together in thinking about it relative to each of the generation groups, separating them by low and high income and low and high levels of consumption. Now up and to this point, of course, the high income, high consumption consumers have, frankly been the boomers. And they've been that way for a long period of time. And we've spoke extensively about this over the last 5, 6, 7 years, that many marketing programs that are in place by many businesses often exclude the boomers. All the focus has been on gen X and the millennials. But let's not think let's not forget about the fact that they are still relatively high income, high wealth relatively. And they're still a very key contributor to the overall levels of spending. We actually coined this the graying of America, but certainly the aspect of the boomers in terms of that spending level. Gen X, not as big as the boomer population, also in high income, high consumption levels, hitting some of their peak spending currently, and millennials will hit that sooner or later. You know, the median age of a millennial right now, 32 33. Wayne Best (16:27): One of the reasons why is I mentioned why we're seeing such record levels of existing homes, sales with the data that just came out this month because of the fact that millennials are hitting their peak home buying years. But they're not moving into the high income just yet. That's going to come over time. So we're going to see this massive rotation over the balance of this decade, where boomers, frankly, are going to rotate into the next level, which is going to be relatively good incomes, but their consumption patterns are going to slow dramatically. And the gen X and millennials will fit the bill of the higher incomes and higher consumption. Gen Z still relatively far away yet. Going to be large population wave. We'll start moving into more levels of consumption over the balance of this decade. But once again, that group will not be at the levels of income that will really make as critical a difference. So this great rotation in income and consumption patterns really needs to be considered because that's certainly what's coming, has not been, what's been in place really over the last couple of decades. Rissa Reddan (17:36): And Wayne, what was the biggest surprise for you coming out of the data with this particular white paper? Wayne Best (17:43): I think the biggest surprise is again, that continued focus on just millennials for most businesses. You know, it is a very large population wave and many businesses are absolutely fine tuned focused on, on those also. But again, I want to bring up two points. One is the consumption patterns, the predictable patterns that we see over your lifetime and where millennials are at right now. And if you're in a business that's not millennials are at right now, then you need to think about what to just, if you're going to stay in your line of business or your lane, you got to make sure that you're actively hitting that area and providing additional value to those particular consumers to make them successful in the future. And I guess the other big factor really just continues to be that lack of focus, surprisingly, in the marketing aspects of boomers. Wayne Best (18:34): They're still here and they're still spending. And once the service related spending, because by the way, most boomers have bought everything that they want or have been given it as gifts over the years. That's just one of the things that happen. I can speak to that. But you know, it's services, it's quality of life, the types of things that you want to see and, and places you want to go. As that starts to explode that whole service sector that we see is really, really primed for takeoff hopefully in the balance of this year and as we get into next year and beyond. Rissa Reddan (19:03): Well, and certainly with the data that you bring to the table, Wayne, I was just reflecting on the pay pandemic and pent up desire to travel. And I would expect that, you know, that's still coming that, that wave of travel and people, you know, desires of getting to places that they have not been able to visit over the past couple of years. Wayne Best (19:27): I think that's absolutely the case Rissa. You know, I think I'm going to make one other point here. And that is importantly, as I talked about the potential growth of the economy over the balance of this decade, I said in 20 between now and 2030, about 1.8% real potential GDP growth. These projections importantly are not destiny. These are the potential growth patterns. Business cycles could potentially change these. We could change some of the rules. For example we could incentivize larger family sizes. I mean, let's look at what's happened in China with regards to the one child per family edict that was in place for years and years. They increased that now. And so now families have the ability to have more than one child, but what have they done? So we have to assume whether or not that's really going to have the type of impact. But it's something that could be considered. Another one is the policies that we have in place to increase immigration. That could also increase that net migration, increase the population, thereby having a larger labor force also has to be at least considered. And one final one, you know, we could look at social security reforms incentives to work longer. Those three factors could really have a big impact on the projections that we provided and really allow it to be a much bigger population growth wave now, as we look at the balance of this decade. Rissa Reddan (20:50): Wayne, what's something that we should do differently or think about differently as a result of reading your new paper. Wayne Best (20:56): I think again, the segmentation aspect is really critical. We need to anticipate a shrinking market. Consumption growth overall is going to be slowing. I'm not saying it's not going to be growing. It's just going to grow at a slower pace than what we've seen. So you've got to look for ways to increase market share by targeting and growing new segments and frankly choosing which segments to actively participate in. Sometimes that's a difficult decision. You have a business plan and you've typically gone after the same type of customers. Well, they may not be as many of those around and you may have to rethink some of those strategies. We see this often in many of the high tech companies and really any business that decides to expand their footprint or the areas that they're going to cover. And some of them have aggressive goals that X percentage of their revenue over a certain period of time will come from new products and services. That's exactly the innovativeness, the investment that's going to be required in the future to really be successful. Rissa Reddan (21:58): This has been another phenomenal market pulse podcast. Thank you so much for joining us Wayne Best, chief economist at Visa. Any last comments or thoughts before we sign off? Wayne Best (22:11): I just it is great to be able to share some of this new research. It is available on our website at visa.com/economicinsights. That's all one word economic insights. If you follow us on, if you follow Twitter, we're on visa, chief econ. We don't put out a Twitter feed for every new data source that comes out, but every new piece that we write, we also include there. And on our website, you can actually see how to subscribe to this information all basically available to you at no cost. So additional insights that could provide leading business trends and getting you thinking little differently about what the future might hold. Rissa Reddan (22:49): Great. Wayne, thank you so much for joining us today for our Market Pulse podcast and for this fascinating conversation. I really appreciate it. Thank you. Wayne Best (23:03): Thank you Rissa. That was great being here.