Wednesday, June 6, 2018

America's Collapsing Fertility

There is a looming issue that will have an impact on everything in the global economy.  Japan is already feeling the effects and major economies including China and the United States are lining up for their "turn at bat".  Unfortunately, there is almost nothing that can be done about this issue; central bankers will be incapable of reversing the impact and governments will find themselves helpless in the face of the upcoming crisis.  While it almost seems laughable to those of us that are Baby Boomers who spent our formative years growing up in an ever-expanding population (remember the warnings about population overgrowth?), human beings, particularly in developed nations, simply aren't procreating enough.  A recent study by the U.S. Centers for Disease Control looks at the looming demographic issues that will change the future for millions of Americans.

In the 2017 edition of the National Vital Statistics which looks at the provisional 2017 data on U.S. births, the CDC provides us with a clear picture of the changing birth and fertility rates over the past 50 years.  Here is a graphic from the report showing the number of live births and the fertility rate for the United States since 1970:

The provisional number of live births in 2017 for the United States was 3,853,472, down 2 percent on a year-over-year basis and the lowest number in 30 years.  To put this into perspective, back in 1987, there were 242,289,000 Americans compared to 326,965,105 on December 31, 2017, an increase of 84,676,105 or 34.9 percent.  In other words, 35 percent more Americans produced fewer children than they did back in 1987.

From the Census Bureau, here is the 2016 population tree for the United States:

Here is what the population tree looked like in 2000:

As you can see, the population tree for the United States is looking more and more top heavy as the years pass, the mark of an aging population that is not being replaced at the same rate as it is aging.  

Here is graphic comparing the population trees for the United States from 1960 and a projection to 2060:

Just for fun, here is the current, rather top-heavy population tree for Japan:

...and here is a graphic showing Japan's dropping fertility rate:

Welcome to our future.

Here is a graphic showing how the number of older adults (aged 65 and older) will outnumber the number of children by 2035:

By 2030, all baby boomers will be older than age 65 resulting in a population that has one-in-five older adults. 

According to the Institute for Family Studies (IFS), the American total fertility rate is nearing its historical low as shown here:

What is particularly interesting is that the decline in fertility varies greatly with ethnicity/race as shown here:

While all of this may seem rather academic, from Japan's experience, a declining birthrate has massive economic and social impacts.  Here are three examples of what could happen:

1.) the demand for housing will decline, resulting in declining or stagnating housing prices, since the housing market is predicated on the "greater fool theory" (i.e. if there are no greater and younger fools, the demand for housing will, at the very least, not increase).

2.) the funding of social entitlement programs and pension plans will fall on the shoulders of fewer and fewer workers.

3.) the demand for equities could change as older Americans look to invest their savings in less risky assets.

In any case, thanks to the fertility collapse, the United States of the future will be a far different place.  All we need to do is look at the example of Japan and its moribund economy over the past three decades to see what lies ahead for Americans.

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