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“One Day Soon, The Sun Will Not Rise”

Wednesday, December 6, 2017 16:25
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Authored by Chris Hamilton via Econimica blog,

When the Q4 US resident population data is released, something that has not happened in the post WWII era will take place.   The population of adults aged 15-64 years old will decline.  This was not supposed to happen and will put an end to seven plus decades of continuous population growth which has meant a growing workforce, a growing consumer base, and growing tax base.  A growing core US population, something considered as sacrosanct as the sun rising, will not happen.  On a year over year basis, where there once were up to 3 million more homebuyers than the previous year, 3 million more car buyers than the year before, 3 million more potential customers…there will be likely be thousands fewer.

Many will assume this is a demographic issue of boomers exiting the working age population… but actually demographics is simply the early onset of a disease that will only progressively worsen. 

This is truly a population growth issue, not simply a demographic distribution problem.

The economic system the US and world have adopted are dependent on perpetual growth on a quarter over quarter and year over year basis.  Two negative quarters (or even zero growth) and a recession is called and all the Federal Reserve’s and federal governments tools are employed.

Given the importance of growth, the most important factor in growing the economy is the rising demand represented by a growing population.  But the US fertility rate has been negative for 45 years (chart below) meaning the native population (plus immigrants) have continually failed to replace themselves.

This means US population growth has simply been a story of immigration. 

And until 2000, N. America was the primary destination for the majority of the world’s immigrants.  However, since ’00 and particularly since ’05, the migration patterns have significantly changed.

From 1950 to 2000, there was a clear relationship of rising numbers of emigrants departing the Caribbean, Central America, South America alongside rising quantities of immigrants entering the US.   However, the massive inflow of migrants from 2000 through 2005 was a one off. 

The inflow of migrants into the US since ’05 has slowed significantly while the outflow from Mexico (the primary source of global immigration from 1950 to 2005) has fallen 90%.

In a nutshell, since 2005, Mexican’s (on a net basis) have nearly ceased leaving Mexico.  A fire hose of primarily 15-45yr/old population growth that for 50+ years was departing Mexico and spraying into America has been reduced to a trickle.

What was from 1995 to 2005 a net inflow from Mexico into the US of perhaps a half million annually had decelerated to perhaps fifty thousand.

And best guestimates have it that during the current 2015-2020 period, Mexican’s (on a net basis) are leaving America.

The impact since the immigration flows have slowed have been quite dramatic.  US fertility rates continue to fall while stocks blast into outer space (chart below of Wilshire 5000 representing all publicly traded US equities vs. US fertility rates). 

This is unique in that during each previous bubble run-up, fertility rates rose as the population felt more capable and willing to start families.  The current period seems to indicate the wealth and recovery since ’08 are only true for a diminishing number.

The chart below is US household net worth versus the fertility rate.  The theme of recovery represented by the 40%+ increase in US household “wealth” above the ’08 bubble peak is entirely inconsistent with fast falling fertility rates and large declines in immigration since ’08.

Couple the slowing immigration with the long flattening US childbearing population (chart below).  The year over year change in that population peaked in 1975, adding 2.3 million, and the most recent uptick likely peaked in 2011 and the growth is again decelerating until it turns negative around 2030.  As an aside, the annual childbearing growth is likely half of what is estimated below.

Combine a flat childbearing population with negative fertility rates, plus waning immigration, and the engine to a growing American consumption based economy is running on vapors.  The same is true globally, detailed (HERE).

This is the story behind the twisted economy and convoluted (decidedly un-free) markets we are currently experiencing. 

This situation has no easy or painless resolutions nor any true means to invest (there are many means to game the actions of federal governments and central banks but few means to truly organically invest).


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