Citigroup's announcement of 11,000 layoffs Wednesday is only the latest episode in the continuing saga of The Incredible Shrinking Finance Industry, signalling a much smaller role for banks in the U.S. economy.
Global banks have shed more than 160,000 employees since the beginning of 2011 and almost 500,000 since the onset of the financial crisis.
The chart at left highlights the steadily rising influence of U.S. FIRE (finance, insurance and real estate) sectors as a percentage of gross domestic product. According to the U.S. Bureau of Economic Analysis, the FIRE sectors have grown from 13 per cent of GDP in 1954 to over 21.1 per cent of the world's largest economy. The trend, however, appears to have crested in 2009.
The financial crisis is the obvious cause but it may not be coincidental that the dominance of finance appears to have peaked at a specific demographic point – the maximum size of the age group at peak earnings (age 40-49) relative to the 60-and-older group. Admittedly, it takes a speculative eye to make the connection from our chart. But it does stand to reason that as the percentage of the population at the stage of their lives when they both earn and invest the most declines, the financial services industry will begin to shrink at the same time.
As a percentage of GDP, the FIRE sectors have averaged 17 per cent since 1954. It would certainly not be a huge surprise if, in the years ahead, an aging population results in a financial services industry closer to this average, a mere fraction of its current size.