More cheery news about the economy’s long-term prospects

Those who remember the demographic warnings Mark Steyn delivered as early as 2006 are unlikely to be surprised by this Bloomberg Businessweek story, which explains how changes in the American population mix spell trouble for long-term economic growth.

Retired Ford Motor worker Tony Fransetta scrimps on every expense now that he earns about one-third of his final pay since leaving the auto company in 1990. “There is no magic bullet,” says Fransetta, 77, who lives in Wellington, Fla., near West Palm Beach. “I have cut vacations and travel. You have to manage your food very closely. You don’t go out and buy expensive cuts of beef. You have to catch things on sale.”

As millions of baby boomers join Fransetta in retirement, income growth will provide less oomph for the economy in the next 20 years. The labor force that remains will include a growing share of workers with less earning power.

Together, the trends will act as a brake on consumer spending, which makes up 70 percent of the gross domestic product of the U.S. “If we don’t change, we are grinding to a halt,” says James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management. “The capability of the economy, its potential to grow, is far less.”

Long-term growth of about 2 percent a year over the next two decades is likely, down from 3 percent in the late 1990s, says Dean Maki, the chief U.S. economist for Barclays (BCS) and a former economist at the Federal Reserve Board. At a meeting in September, the Federal Open Market Committee, which determines Federal Reserve policy, projected long-term growth of 2.2 percent to 2.5 percent, down from 2.5 percent to 2.8 percent in its November 2010 forecast.

As more workers retire and the pool of active ones grows less quickly, smaller advances in payrolls will be enough to hold the unemployment rate steady. Researchers at the Federal Reserve Bank of Chicago projected in June that the unemployment rate will stabilize with job gains of about 80,000 a month, rather than earlier estimates of 100,000 to 150,000.