Trends and Projections for the Future
From an economist’s perspective, shifting focus from the next few months or years to a long-term horizon changes almost everything. Many of the events and statistics currently making headlines may determine how the economy will perform in the very near term, but they exert little influence over the span of decades. Whether the Federal Reserve raises interest rates at the upcoming meeting or if the latest inflation numbers are above or below expectations can mesmerize markets for a brief span, but these specific incidents are not going to matter much in 2050. By the same token, some trends result in changes that are barely perceptible on a daily basis but can have profound consequences when viewed over the course of decades.
A number of factors drive the long-term economic outlook for the United States, Texas, and Texas’ metropolitan statistical areas (MSAs), some of which are yet unforeseen. If you were to think back 25 years, we would not have expected 9/11 or COVID-19, both of which continue to have significant effects on business actions and activity. We did know, however, that the human genome was likely to be mapped soon and baby boomers would get older. Trying to discern what our economic future might look like is treacherous but also essential for many types of planning. Some projections and trends present challenges or opportunities that will affect growth in the decades to come
The demographic composition of the population is changing, due in part to the aging of the baby boom generation. Born between 1946 and 1964, the large post-war cohort began to reach retirement ages more than a decade ago, with about 10,000 turning 65 every day. By 2030, all boomers will be beyond typical working ages. Of the generations that followed baby boomers, millennials now represent the largest age group. Born from about 1982 to 2000, millennials are currently in their prime working years.
Labor shortages have been exacerbated by the retirement of the baby boom generation. In addition, people nearing 65 were less likely to go back to work following the pandemic disruptions. Essentially, COVID-19 sped up patterns already in place. When the millennials begin to retire starting in about 2047, similar labor force challenges will almost certainly arise.
Another aspect of the aging of the baby boomers is that the number of people age 65 and older in the United States will continue to grow rapidly. Although the older population has been growing for the past 100 years, the decade of 2010 to 2020 recorded the largest-ever 10-year numeric gain in the 65-plus population—an increase of 15.5 million people. It was also the largest-ever relative increase, from 13 percent to 16.8 percent of the total population. Before 2010, it took 50 years (1960 to 2010) for the older population’s share to grow by the same number of percentage points.
The rapid growth was largely driven by aging baby boomers, but that was not the only factor. Medical advances have increased life spans and, therefore, the numbers of Americans in older age groups (a trend that has been disrupted by COVID-19). At the same time, birth rates have been decreasing for decades. The shortage of workers is not transitory, and solutions may impact technology deployment, workplace characteristics, investments in all levels of education, and immigration policy.
In addition to the labor force challenges occurring as baby boomers retire, the growing older population will have substantial implications for health care and social services. Medicare and Social Security will also be affected. Sustainable solutions are needed, and economic performance could be affected by the effectiveness of strategies utilized.
The US national debt has now reached more than $33 trillion (and rising). Although the United States has carried debt since its inception (literally since 1789), it has grown rapidly over the past few years. Large spikes were caused by the Afghanistan and Iraq wars, the 2008 Great Recession, and the COVID-19 pandemic (during which federal spending increased by about 50 percent). Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.
It will likely be impossible to reduce the debt in any meaningful way in the short term as we have evolved a system in which the federal government collects about 75 cents for every dollar it spends. At the same time, a hefty component of expenditures is not at the discretion of the administration or Congress. Large categories such as Medicare (16.2 percent of spending this year) and Social Security (15.8 percent), for example, are obligations based on past legislation. Interest on the debt is about 10 percent and rising. Realistically, we cannot alter spending and revenue patterns in the near term in a manner that will “balance the budget” without creating massive dislocations, which would endanger safety and health on the spending side and human sustainability on the taxation side.
Even with these challenges, however, it is important to address the fiscal situation to avoid compromising future performance. In addition to the interest portion of spending becoming increasingly larger, other categories are set to grow given demographics. While the world will likely maintain its appetite for US debt due to growing global uncertainty, the potential for “crowding out,” which is when government borrowing essentially soaks up resources and displaces private sector activity, will become a major concern if the current trajectory of increasing debt cannot be curtailed. There are responsible actions that we can take to substantially slow this escalation, but they will require both bipartisan cooperation and a capacity to look decades beyond the next election cycle.
Innovation, Technology, and Productivity
A key to growth in the US economy is innovation. From developing new technologies to commercializing research discoveries, the United States has long led the pace. In fact, our ability to do “the next big thing” is probably the single biggest contributor to our relatively consistent progress since World War II. Going forward, it will be crucial to maintain an environment that supports and nurtures emerging technologies and industries.
Increasing productivity will also be important. Advances such as the explosive growth of artificial intelligence have the potential to shift processes across a large spectrum of industries. The degree to which these tools can be optimized is one determinant of the degree of growth in business activity. There are many other important factors (climate, energy, and geopolitics, to name a few) that will come into play.
The Perryman Group’s current long-term projections indicate that total US employment is likely to grow by nearly 79.1 million net new positions from 2022 to 2050. Population is forecast to increase by more than 57.9 million (0.57 percent annually). Over the long term, inflation is forecast to moderate, trending back down at levels around 2 percent, although variations are a certainty.
Key Texas Industries
Energy has been an important part of the Texas economy for more than a century. In addition to vast deposits of oil and natural gas, the state has more recently become a leader in renewable energy (primarily wind and solar) and emerging areas such as hydrogen and carbon capture. Long-term projections indicate that while renewables will become increasingly important to US electricity production, the need for conventional fuels will persist through 2050 and beyond. It is likely that exports to developing countries will be one reason for the continued demand, including the need for liquefied natural gas.
Texas is also seeing a surge in technology investments as firms engage in “onshoring” to provide more supply chain resiliency. Several major projects involving semiconductor facilities are underway, involving tens of billions in capital investments. The state is also the site of major campuses for a variety of technology companies. Emerging as a hub for chip fabrication and other technology-oriented industries will spur activity in supplier networks, research labs, and many supporting industries.
Another industry where Texas is increasing its prominence is in biosciences. Several recent initiatives have the potential to greatly enhance the state’s presence in segments ranging from research to pharmaceuticals to related manufacturing. The US Department of Health and Human Services’ Advanced Research Projects Agency for Health (ARPA-H) recently named Dallas as the site of one of three hubs working toward medical breakthroughs in treating diseases such as cancer, Alzheimer’s, and diabetes. The initiative will involve entities in other parts of the state, and has the potential to serve as a catalyst to spark growth in a key emerging segment of the economy.
The Texas economy is projected to expand at a pace notably faster than the nation as a whole over the long-term forecast horizon (through 2050). Key sources of output growth are expected to be manufacturing and mining (primarily oil and gas). Almost 6.7 million jobs are likely to be added, with the largest numbers of new jobs in the professional and business services and health and social services industry groups.
Texas’ Metropolitan Areas Outlook
The state’s largest metropolitan areas drive job growth, with about 8 of every 10 new positions added in the Houston/The Woodlands/Sugar Land MSA, Dallas/Plano/Irving Metropolitan Division (MD), Austin/Round Rock/Georgetown MSA, Fort Worth/Arlington/Grapevine MD, San Antonio/New Braunfels MSA, McAllen/Edinburg/Mission MSA, or El Paso MSA. Several smaller metro areas are also likely to contribute significant numbers of new jobs.
The pace of expansion is expected to be highest in the greater Dallas and greater Austin areas, boosted by diverse economies with a technology slant. The rate of growth will vary widely, but The Perryman Group is projecting at least some employment growth over the long term for all Texas MSAs.
There are a number of challenges and opportunities facing the national and state economies. Although several of these situations are unlikely to linger, others will almost certainly be with us for decades. On the whole, the outlook is decidedly positive, but the efficacy of the approaches to the issues addressed here will play a large role in determining future economic growth and prosperity.