Michael Fung, CFA Senior Vice President, Portfolio Manager
Source: J.P. Morgan Asset Management
The Great Financial Crisis reduced job opportunity and hampered social mobility. The economy needed more than six years to recoup all the jobs lost, however labor participation is still far below the pre-recession highs. A record number of people fell into long-term unemployment which made them less employable. A large percentage of homeowners owed more than their depressed house value and were unable to move and seek better opportunities. These poor economic conditions caused a meaningful drop in the marriage rate and births.
Source: Center for Disease Control and Prevention
Demographics have imprinted slow growth into our economy which is difficult to erase. As shown in the table above, nearly 600,000 fewer babies were born in 2019 than in 2007. Alongside the growth in online shopping, people having fewer babies has already hurt traditional storefront retailers. Toys “R” Us, the country’s largest dedicated toy and baby retailer, went bankrupt in 2017. In the coming years, brick and mortar teen retailers may face a similar fate if online retail has not already overtaken them. Twelve years from now, half a million less American kids will graduate from high school meaning less public educational employment. More colleges may close their doors from lower enrollment. Declining population in Japan hindered sales and profit growth of businesses and reduced economic vitality. Our economy could face a similar fate.
The Trump administration also contributed to slower population growth by tightening standards for immigration. As a result, the working population growth derived from immigration slipped to 0.2% from 0.6%. J.P. Morgan Asset Management forecasts that working population growth should further decelerate to 0.2% in the coming decade. However, immigration policy could be reversed by the new administration.
The path of US demographics is not necessarily destined to follow that of Japan. Strong employment and robust wage growth may heal our demographics challenges. However, achieving such an ideal outcome, has perplexed most economists and politicians. Russia provides an example of a different solution. It has been one of the few countries in the Western Hemisphere to have succeeded in reversing a declining fertility rate. Vladimir Putin’s regime enacted generous birth legislation to encourage larger families. Policies included payment for the birth of a child, extending the duration of paid maternity leave, paid childcare benefits for up to 18 months, and subsidies for preschool education. Annual births in Russia have since jumped nearly 50%. Mitt Romney’s proposed $350 monthly payment per child and Democrats’ support for a fully refundable child tax credit show positive momentum in reducing the burden of raising children.
The US does not need dramatic improvement, but stabilizing the current fertility rate would be helpful in sustaining healthy economic growth and renewing the aging workforce to help support the programs and social safety nets that the growing elderly demographics will need. We continue to monitor the impacts of changing global demographics across industries and geographies, particularly as it relates to investment trends and asset allocation shifts.
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