2022 And Beyond: A Restructured Economic Future and Demographic Certainties

We have long since passed the maelstrom of 2020, a year of deep trauma spawned by the worst cyclical economic contraction since the Great Depression. 2020’s pandemic-driven recession became the final member of America’s infamous economic trilogy: the three greatest economic setbacks of the 20th and 21st centuries the Great 1930s Depression, the Great 2007-2009 Recession, and the Great 2020 Contraction. All are in the rearview economic mirror as 2022 beckons.

However, more so than past recessions, the Great 2020 Contraction - whose impact was greatest in New Jersey and New York City - dramatically changed the economy. It disrupted and transformed all industries and markets. As we all experienced, COVID-19 was a“gasoline on the fire” accelerant. It was a watershed moment for the world of work, as it accelerated remote, out-of-the-office, work-at home practices. It also accelerated the surge in e-commerce, the bricks-and-mortar retail meltdown, and millennial residential suburbanization. These transformational changes all took place as a cyclical upswing was well underway.

The Cyclical Recovery

The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) specifies the exact beginning and end points of economic contractions in the United States. On July 19, 2021, it declared that the pandemic driven recession had technically ended in April 2020. Since it started in February 2020, the recession’s two-month length made it the shortest on record, despite the extraordinary depth of its job losses and human pain.

This October (2021) thus marks the 18th month of economic recovery and expansion - fully one and one-half years since the recession ended! However, it should be pointed out that recessions are precisely defined as periods of broad-based economic contraction that end when decline stops and growth resumes, no matter how long it will take to get back to pre-recession conditions. For example, in labor market terms, between April 2020 and June 2021 - the first 14 months of recovery - New Jersey recaptured only 59 percent (423,200 jobs) of the 717,200 jobs lost during the two-month recession. The nation recaptured 70 percent.

Despite this lagging job growth, abroad cyclical economic upswing has already reached a key milestone. On July 29, 2021, the U.S. Bureau of Economic Analysis (BEA) reported that the nation’s total economic output had surpassed its pre-recession peak: U.S. GDP (gross domestic product) - the featured measure of the total output of the economy increased at a seasonally adjusted annual rate of 6.5 percent in the second quarter (April-June) of 2021 and reached a record high of $22.7 trillion. As was also the case in the aftermath of the Great 2007- 2009 Recession, economic output recovered long before the employment losses were fully recouped. Baseline expectations are for the breakneck pace of GDP growth to ease but still remain strong well into 2022. And, as the expansion matures, it will undoubtedly continue to encounter headline uncertainties and headwinds - such as the COVID-19 Delta variant, lagging vaccinations, labor shortages, continued supply-chain bottlenecks and delays and the persistence of elevated inflation. But such potential speed bumps are always present during long expansionary periods. Growth trajectories are never smooth nor unencumbered, but it takes significant disruptive events to derail them.

The Long-Term Restructured Future

With a firm base established in 2021 and 2022, there is an outside possibility that the decade of the 2020s could encompass a technology-driven “super cycle” similar to that of 100 years ago. In 1921, the nation exited a severe, highly disruptive 18-month long recession that had followed the 1918 Spanish Flu. That marked the start of a transformative social and economic period (1921 to 1929) popularly known as the Roaring Twenties, a decade of unprecedented growth and prosperity driven by rapid economic and technological innovation.

Fast forward 100 years to 2021: Will history now repeat itself? Will a post-pandemic “Roaring 2020s” unfold? Will the coronavirus engines of disruption be transformed into engines of economic creativity, innovation, and advancement? These should not be dismissed as “over-the-rainbow” fantasy questions. COVID-19 unleashed technological and economic mega-forces that will make it highly unlikely that we will return to pre-pandemic economic normals. Our world is being structurally transformed, providing new opportunities going forward amongst continued challenges.

Future Demographic Certainties

Demographic change is much less uncertain and less volatile than the economic change we have been through. For example, generations are firmly embedded in the age structure of the population, and they continuously age through predictable and sequential stages of the life cycle. Disruptions are usually the result of unexpected changes in generational lifestyle preferences as inexorable life-cycle progressions take place. The most visible demographic disruption of the past year was the acceleration of heretofore urban-centric millennials or Gen Y (the supersized generation born between 1981 and 1996) into the suburban housing arena, where many released their accumulated housing-buying power.

Millennials (between 25 and 40 years of age in 2021) comprise the digital age’s first generation. They had already entered the family-raising stage of the life cycle but belatedly had just begun their suburban odyssey before COVID-19. Many had been sitting on the decision-making fence, but the pandemic pushed many of them off the fence. As a result, suburban housing demand surged, and zoom towns emerged. While some of the current homebuying ebullience was borrowed from the future, family-raising millennials will remain the dominant housing market force in the years ahead as they move into the top-line workforce. But the progression of other generations will also help define the future.

Following in age behind millennials is Gen Z(or post-millennials), born between 1997 and 2012; it can be considered the mobile internet’s first generation. Between 9 and 24 years of age in 2021, it will be the replacement demographic cohort for suburbanizing millennials exiting live-work-play (LWP) urban environments. Gen Z is the most diverse (racially and ethnically) of the housing market generations, and it will constitute the entry-level workforce and the new source of digital talent for the balance of the decade of the 2020s.

Just ahead of millennials in age is Gen X, the undersized population cohort once known as the baby bust, that was born in the 1965 to 1980 period. Between 41 and 56 years of age in 2021, they are now the epicenter of the trade-up housing market and are ascending to the leadership ranks of all organizations.

Concurrently, the fabled baby boom (the colossal post- World War II generation born between 1946 and 1964) has largely exited the family-raising stage of the life cycle. Many empty-nester boomers (between 57 and 75 years of age in 2021) have been resizing in the housing market. The pandemic has pushed a number of those that had still been in the workforce into retirement, contributing to the general problem of labor force shortages and unfilled jobs. While still a potent economic force, the baby boom’s once unquestioned 20th-century dominance is now history.

One final demographic cohort is Gen Alpha, the first generation in which every member was born in the twenty-first century. Thus, the label of alpha - the first letter of the Greek alphabet - is certainly appropriate. The first alpha was born in 2013 and turned eight years old in 2021. (The generation is still in “production” as an end date has yet to established.) Since alphas are largely children of millennials - and grandchildren of baby boomers - their shelter needs can be viewed as a key driving force propelling millennial suburbanization. While their millennial (Gen Y parents comprise the first generation born and reared in the digital age, and Gen Z(post-millennials) comprise the mobile internet’s first generation, alphas are the first generation that will come of age in the era of artificial intelligence (AI) and robotics.

Although not totally immune to cyclical economic forces, the future demographic trajectories defined by the aging of these generations can be anticipated with confidence. They will continue to redefine the shapes of housing and economic markets going forward. Of course, a second “Roaring Twenties” would make this redefinition a very positive prospect.