Ask any political junkie, and they'll tell you that the 2016 presidential campaign season has been one of the
strangest they've ever experienced. The rise of billionaire/reality-TV star Donald Trump and Vermont Senator
Bernie Sanders, the wild-and-woolly TV debates, and the Twitter wars and pundits being just flat-out wrong at
predicting much of anything have been unprecedented in American history. Even things as predictable as the
stock market didn't react to a Trump win the way millions of analysts had forecast.
However, if we set aside the drama, we may discover that the most important thing we can learn from this
election season has nothing to do with the candidates or the results. Instead, the key takeaways, in our view,
are: (1) how the two megaforces of globalization and demographics have changed our country, and (2) the
influence they will have on our national and global economies for years to come. It would be wise to pay
attention to this.
WE'RE LIVING IN A GLOBAL VILLAGE
First, let's look at globalization. We've heard a lot of talk about trade, trade agreements and jobs, especially
from the eventual winner, Donald Trump. However, unless you've been personally affected, much of it seems
more abstract than real. So let's make it real.
There's little question that we have reaped economic benefits from globalization. Trade liberalization alone
increases our annual GNP by $300 billion to $500 billion, according to the Peterson Institute. Trade creates
new jobs while destroying old ones. In 1992, 14.5 million, or 10.4%, of all jobs were tied to trade. By 2014,
that number had grown to 41 million, or 21.7% of all jobs, according to Business Roundtable. But many of us were
unaware that globalization also gave us the benefit of lower prices on personal goods. The following chart
indicates what happened to the prices of some commonly purchased goods between 2002 and 2012:
Yes, these consumer benefits have their downsides. Globalization's first tradeoff has been domestic job losses,
which were hard to miss on the campaign trail. The chart below shows manufacturing job losses by sector
between 2000 and 2015. While a number of sectors have been hit, a few have been decimated:
When we see that 31% of all automobile workers have lost their jobs since 2000, we can understand why
Michigan and Ohio voters were angry, which ultimately decided the election. When we observe that 71% of all
textile and apparel jobs have been lost, it's easy to relate to concerns voters in the Carolinas expressed at the
The second trade-off has been lower wages. The next chart shows the change in real wages by sector
between January 2009 and December 2015. While wages haven't grown dramatically for any sector (except
financial services), individuals in the services sectors (financial services, information, education/health, leisure/
hospitality) have clearly fared much better than those in the construction, manufacturing and auto sectors:
So globalization is a double-edged sword. Many individual companies and investors have benefited from rising
stock prices tied to increased corporate sales and profits. But it has been devastating for a number of U.S.
cities, workers and families. During this election cycle, we've heard the voices, and seen the pictures, of many
of those affected individuals.
For the first time, the Millennial generation (individuals between 18 and 43 years of age) will match up with the
Baby Boomers (born between 1946 and 1964) in population size. As the Baby Boomer population decreases, the
Millennials will take their place in history as the largest generation of Americans. What many don't understand
is that we're just beginning to see what happens when the Millennials flex their cultural and political muscles.
Looking back, it's easy to see how the Baby Boomer generation dramatically affected our country and the
economy. According to a 2008 McKinsey & Company study, Baby Boomers broke all previous generations'
records for attaining the highest levels of education and the highest incomes. Therefore:
- As consumers, Baby Boomers have been the dominant spenders for two decades and have
spent more at every age than prior generations. They have thus driven the growth of industries
such as personal electronics, recreation and healthcare.
- As investors, Baby Boomers have prospered from unprecedented stock and real estate market
growth. As the value of their assets rose, their spending increased, and the generation's savings
rate fell to all-time lows. Now, as they look ahead to the end of their careers, they will change the
face of retirement in America.
Like Baby Boomers, the Millennials will make their mark on the country by influencing our culture and
economy. They have been particularly visible in their support of Democrat Sanders and his message. In the
Michigan primary in early March, exit polling found that 81% of Democratic voters aged 18 to 29 cast their
ballots for Sanders. In New Hampshire, 83% of Democratic voters chose him.
According to a 2014 Pew Research Center study, Millennials also look different than the preceding generations.
For example, they are:
These results shouldn't be surprising.
- more ethnically diverse: 43% are nonwhite, compared to 28% of Baby Boomers;
- less religious: 35% have no religious affiliation, compared to 17% of Baby Boomers;
- inclined to marry later in life: 26% of Millennials between 18 and 33 are married, compared to
48% of individuals in that age range in 1980.
This generation was shaped by the shock of 9/11 and the Great
Recession. Yet, Millennials are more supportive on such issues as gay marriage and are more open to different
ways of life than previous generations.
This past election season, the Millennial generation made itself heard—and this is just the beginning. While we
can't be sure where they will take us, we do know they will be a socioeconomic force for many years to come.
Globalization and demographics—two megaforces and hot topics this election—will continue to influence the
markets in the future.
WT Wealth Management's game plan?
To continue to keep our eyes and ears open for sectors and companies
that develop in the best ways, so we can help our clients capitalize upon these forces, invest accordingly, and
grow their portfolios.
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