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.

The Debt Burden of the Next Generation

Recently released population data from Japan has me thinking about the future, particularly as it relates to the social safety net and the growing levels of government debt.

According to e-Stat, Japan's statistics portal, the estimated population of Japan was 127,520,000 on December 1, 2012.  This is roughly even with the July 1, 2012 estimated population of 127,561,000.  Looking at the country's population distribution is even more interesting as shown on this table:

You will notice that 24.3 percent of the population or 30.99 million people are over the age of 65 and 12 percent of these or 15.3 million people are over the age of 75.  Less than 74 million people or 58 percent of the population would be considered "working age", between the ages of 20 and 64.  It is these people that are generally considered to be supporting those who are over the age of 64.  This means that for every retired Japanese citizen, there are less than 2.4 workers paying into the social support system and, by extension, into sovereign debt servicing.  In fact, the working age population for Japan is expected to fall to the same level that it was at in the 1950s by 2050, a scenario that is groundbreaking for demographers as it sets an example of what will likely happen to other developed economies in the world.

Here is a bar graph showing the population and population growth rate for Japan since the 1920s from the 2010 census:

Excluding the post-World War II high point in the early 1950s when Japan's population grew by nearly 16 percent, the population growth rate peaked at just under 7 percent in the mide-1970s.  Since then, the population growth rate has steadily declined and is now at its lowest rate since the 1920s.

Here is a graph showing that Japan has, by a relatively wide margin when compared to Canada and the United States, the highest percentage of the population over the age of 65.  Coming in second and third place are Italy and Germany with 20.4 percent.  Both Canada and the United States have roughly 13 percent of their population 65 years old and older, however, as you will see, that age group is growing and will continue to grow in both nations:

Now, let's look at some data for the United States.  Here is a graph showing past and projected population growth rates, birth rates, death rates and net immigration rates for the United States noting that the population growth and birth rates have fallen since the 1950s are are likely to continue to fall modestly into the future:

Here is a table showing past and projected population sizes by age group for the United States:

Here is a table showing the same population data in percentages:

Like Japan, by 2050, more than one in five Americans will be over the age of 65.

Here are three final graphics showing the population pyramid for the United States in 1950, 2000 and the projection for 2050 keeping in mind that the younger a country's population, the more the population pyramid resembles a typical, broad-based Christmas tree:

Notice, as in the case of Japan, the number of older Americans increases as the number of younger Americans decreases relative to each other.

Now, let's take a look back at a series of population pyramids for Japan:

The pyramid for both the United States and Japan looked very similar in 1950 with a very broad base and a very narrow top.  By the time we get to the new millennium, the pyramids for both countries look somewhat different but in both cases, the base of the pyramid is relatively small compared to the 1950 data; in fact, Japan's 2007 pyramid looks relatively similar to America's 2050 projection.  At some point past 2050, it is quite likely that the population pyramid for the United States will look similar to Japan's 2050 pyramid, more closely resembling an upside-down Christmas tree as a result of a relatively low birthrate and a lowered death rate.  A study by the United Nations Population Division estimates that 44 percent of the world live in countries with a fertility rate that are below the population replacement rate (i.e. they will ultimately have an inverted population pyramid like Japan's).  This means that the average age of the world's population will continue to rise and that the world's population will eventually begin to decline.

Unfortunately, in both Japan and the United States, ever-growing government debt loads will prove to be a problem as fewer and fewer working age people provide tax revenue to their respective governments.  We already know that this will impact entitlement programs in the United States but the issue of generational debt is rarely addressed.  Right now, Japan is the world's second-highest sovereign debtor with a current gross debt-to-GDP level of 234.5 percent and outstanding nominal debt of 983.3 trillion yen or $12.29 trillion.  With the $16.4 trillion debt in the United States growing by roughly $2.7 billion every day, this burden will eventually fall on the shoulders of fewer and fewer working Americans if population growth follows the Japanese model as it most likely will.  This is why it is particularly critical that Washington put their overspending ways behind them as soon as possible.  Right now, all we are doing is putting an unbearable burden of growing debt on the shoulders of those who haven't even started working and remitting payroll taxes yet.   

Ten Billion of us in 2100 - U.N. World Population Prospects

A very lightly covered recent story was the release of the United Nations "World Population Prospects: The 2010 Revision" report in early May.  This fascinating study gives us some insight into how our world will look in the future and how population distribution will change over the next 90 years.

On with the data.  Over the short term, the United Nations projects that the world's population will reach 7 billion people by October 31st of this year.  Using their medium variant of population growth, the United Nations projects that the world's population will reach 9.306 billion by 2050 and 10.124 billion by 2100.  Here is a chart showing their population projections using the medium variant which is defined as the variant where the fertility rate in all countries of the world converges to the replacement level:

Much of the population increase is projected to come from high-fertility countries, 39 of them in Africa, nine in Asia, six in Oceania and four in Latin America.  According to the study, very small variations in fertility rates can produce major changes in population over long periods of time.  For example, in the high projection variant where fertility increases to a mere one-half child over the medium variant (the replacement level of fertility), the world's population will reach 10.6 billion in 2050 and 15.8 billion in 2100.  In the low projection variant where fertility decreases to just one-half child below the medium variant, the world's population will reach 8.1 billion in 2050 and will decline over the next 50 years to 6.2 billion in 2100.  I find it rather amazing how having one-half child more or less can have such a massive impact on the world's population over a 90 year period.

Today, 42 percent of the world's population lives in low-fertility countries where women are not reproducing enough to ensure that they have at least one daughter that survives to the age where she will procreate.  An additional 40 percent of the world's population lives in intermediate-fertility countries where, on average, women have between 1 and 1.5 daughters and the remaining 18 percent of the world's population lives in countries where an average woman has more than 1.5 daughters.

Low-fertility countries include (among others) Japan, Canada, Russia, Australia, China, Japan, Brazil, Chile and all of the European countries except Iceland.  Medium-fertility countries include the United States, India, most of South America, northern and southern Africa, India, Turkey and Saudi Arabia among others.  High-fertility countries include most of the countries in central and sub-Saharan Africa, Pakistan, Afghanistan, Syria, Palestine, Syria and Yemen.

Here's an interactive map that you can use to see how fertility rates change with time.  I've taken one time slice from the present to show how sub-Saharan Africa has by far the highest fertility rates in the world today:

Obviously, the highest population growth potential in the future is in the high-fertility countries.  Between 2011 and 2100, using the medium variant projections, the population of the high fertility countries will more than triple from 1.2 billion to 4.2 billion.  Over the same time period, the population of the intermediate-fertility countries will increase by only 26 percent from 2.8 billion to 3.5 billion while the population of the low-fertility countries will decrease by 20 percent from 2.9 billion to 2.4 billion.  Here is a graph showing the population projections for each fertility group of countries:

Note that the populations of the low and medium-fertility countries peaks before the end of the century and then declines while the population of the high-fertility countries continues to rise well past the year 2100.  A prime example of population decline is found in the case of China.  China's current population of 1.33 billion is expected to rise to a maximum of 1.4 billion people around the year 2030 and then decline steadily because of their low fertility rate.  On the other hand, India which is a medium-fertility country, will see its population peak at 1.718 billion in 2060, making it the world's most populous nation in history.    By the year 2100, the low and medium-fertility countries will see their populations decline at about 0.3 percent per year in sharp contrast to the high-fertility countries which will still see population expansions of approximately 0.5 percent per year.

The growth in population will have a massive impact on the world's economy, especially among the world’s developing nations.  Much of the unrest in the Middle East in recent months can be attributed to a very high birthrate and declining child mortality rates in the 1970s and 1980s.  A large cohort of young adults in their 20s and 30s are now unable to support themselves because they cannot find meaningful employment.  This is certainly the case in Egypt where, despite the fact that many younger adults are university educated, they cannot find jobs that will allow them to start their own families.

As well, many people are skeptical of the very idea of "peak oil" and are most certain that the world's oil explorers can keep finding, developing and producing ever greater quantities of oil.  If the United Nation's medium variant projection is, in fact, correct, the 80 to 100 million barrels of oil per day that the world may produce over the next 25 years, will be insufficient to satiate the needs of nearly 9 billion people unless alternatives are found.  On top of the energy issue, the world has a finite area of arable land; should the population reach the 10 billion mark, more than 40 percent above today's level, my suspicion is that without massive scientific intervention, the production of food will have long past fallen short of meeting everyone's need.  It will be interesting to see if Malthus is proven correct and that increases in food production are arithmetic meaning that eventually the world's population will reach the point where it can simply no longer be fed.

The world is going to be a very different place in 2100!