In Case You Haven’t Heard…

Our population is getting older and doing so at a quicker pace than was projected in the past. For the first time in U.S. history there are more people over the age of 65 than under the age of 5.

Here in Vermont this has led to a recent downgrade in our sterling AAA bond rating by Fitch to AA+, which pulls Vermont in line with the rest of the New England cohort. Fitch reasons that Vermont now has the third oldest population in the country leading to slower projected economic growth with more social programs and less tax dollars available for funding. Vermont is an old state and very well may be the canary in the coal mine for the rest of the globe.

The historical pattern for fertility has typically followed a roughly 100 year trajectory whereby newer countries peak at around six children per family and level out at the naturally sustainable fertility rate of around two children. This fertility evolution stretched about 88 years in the United States. But the pattern unfolded at a much quicker pace in places like China and South Korea, where moving from six to two happened in only 22 years (See illustration.) In fact, in South Korea things have now dropped below the 2.1 naturally sustainable population level, leading experts to predict total population in that country to be 30 million by the year 2100. That’s a whopping 40% decrease from current population of 51 million.

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But there are areas of the world population that still are growing quickly, mainly in Africa. Small farmers make up 70% of the Sub-Saharan African population and extra hands to help out are in high demand. One sure way to increase a workforce on these farms is through childbirth. As the saying goes, “children have two hands but only one mouth.” But even in these pockets of the world the downward trend in fertility is moving more quickly than was originally anticipated.

As countries mature opportunities for education and career alternatives lead to lower fertility and focus on less tangible things, like spending quality time with children. Raising a child is expensive which in turn drives fertility rates down. This is a First World problem.

We are also thinking differently as we move from generation to generation. 2019 will mark the first time that Millennials will outnumber Baby Boomers. Generally speaking Millennials are more socially liberal. Same sex marriage, interracial marriage and legalization of marijuana are all things Millennials see as the norm. They are also less focused on raising a large family and more interested in their careers, which at the moment are dominated by the tech industry.

So what does this all mean? The positive is hopefully these population changes will be good for the environment. But it also means we may need to start to think of things a bit differently. There are two main drivers to economic growth; population growth and productivity. If we aren’t having enough babies then the only other way to grow population and in turn the labor force is through immigration. Immigration broadens the talent pool for future innovations leading to greater productivity, propelling our economy forward.

So perhaps the investment opportunity lies in companies that focus on improving productivity and less on those companies producing products and services in the discretionary consumer sector, which relies more heavily on ever increasing populations. These products geared towards improving productivity include automation, robotics and technology.

The patterns clearly show a slowing in worldwide population growth and as previous generations have always shown economic adjustments will be made to account for the new reality. Who knows, we may be closer to the first robotic President than we think.