by Gary Alexander

December 2, 2021

There are many kinds of growth. Here’s one everyone seemed to ignore last week – population growth.

First, the good news: Last Tuesday, we heard that the U.S. economy grew by 2.3% in the third quarter, up from a 2.1% estimate last month. (This was the third and presumably final word on the subject.) An even better piece of news was released on the same day – or so it seemed. The Census Bureau revealed that the nation’s head count grew by only 0.1% in the previous 12 months, so nearly all of that GDP gain was a “per capita” GDP gain as well. With the first-half GDP up 6.5% and the Atlanta Fed’s GDPNow model for the fourth quarter up 7.2% as of mid-December, we’re looking at 5.6% growth for the full year. That means we may enjoy 5.5% per capita GDP growth in 2021, which could be a 38-year high (or longer).

Here’s more good news: Third-quarter earnings growth was spectacular. According to Ed Yardeni and his team, “revenues per share rose 13.9% year-over-year and earnings rose 39.3%. Most impressive is that the profit margin (which we calculate from the revenues and earnings data) ticked down only 0.1 points to 13.6% from Q2’s record high of 13.7% notwithstanding rapidly rising costs, labor shortages, and supply disruptions. That implies that companies overcame these problems by raising their prices and/or by boosting their productivity.” This implies strong pricing power during the recent surge of inflation.

Now for the bad news: We are dying out, as a nation. We are going the road of Japan, Italy and Russia – toward Zero Population Growth (ZPG). In the last 12 measurable months, between July 1, 2020, and July 1, 2021, the American population grew at its slowest rate in at least a century, and probably the slowest since the Civil War. Our growth due to “natural increase” (births over deaths) was only 148,043, which is just 0.04% of the nation’s 332 million people. Add to that the net (legal) migration of 244,622 (a number usually around one million) and you have a 392,665 gain, or a 0.12% increase, the lowest since at least 1918, when America suffered 500,000+ deaths from the Spanish flu and 100,000+ deaths in World War I.

This is also the first year that net international migration (the difference between the number of people moving into the country and out of the country) has exceeded natural increase for a given year.

There was a simiar “birth dearth” in the 1930s Great Depression decade, when families didn’t think they could afford another mouth to feed, but nothing like today. Last year’s death count from COVID-19 is one major culprit, but this slowing birth rate is a continuing trend, based on our widespread fear of the future – fears about bringing new children into the world due to global warming, reputed overcrowding of the planet, a reputed increase in poverty among the young, fear of immigration, or just any general fear.

We could use a leader like FDR in the 1930s, who began his first term by saying, “We have nothing to fear but fear itself.” We are not likely to see leaders like that on the national stage anytime soon.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

However, we do have state leaders who preside over a 50-state experiment in hope vs. fear. In particular, two states dominate the positive and the negative trends in the 12-month period, dominated by Covid:

Texas gained the most ground: With a population of 29,527,941 in 2021 (second only to California), Texas had the largest annual gain, increasing by 310,288 (+1.1%). The growth in Texas in the last year was primarily due to gains from net domestic migration (+170,307) and natural increase (+113,845).

New York suffered the largest annual decline, decreasing by 319,020 (-1.6%). The bulk of New York’s declining population in the last year was attributed to negative domestic out-migration (-352,185).

Why the divergence? Governors in Texas and Florida have generally sounded hopeful while avoiding lockdowns, thus attracting population, while leaders in New York and California have generated fear and lockdowns – and mistakes in handling the elderly and ill – thereby losing the most people in 2021.

What Happens to Countries That Shrink Their Population?

In the long-term wake of World War II and the dawn of the Cold War, America had a “baby boom,” while many of the defeated nations chose not to have children anywhere near the rapidity of previous generations. For a while, Germany and Japan rebuilt their economies rapidly, with America’s generous help, and their economies soared with the sweat of their remaining youth and middle-aged population, but when their demographic time bomb began to catch up with them, their economies began to slow down.

As of 2020, the oldest populations among the major nations were the Axis nations of World War II.

As a result of their aging population, there are fewer young people in the labor force and fewer young people contributing tax dollars to the support of the growing population of retired elderly. In coming decades, it will be difficult for these and similar nations (mostly in Europe) to afford paying generous pensions and medical expenses to the longer-living seniors in their nation. The natural extension of that dilemma is the raising of taxes and/or the retirement age, or funding rising deficits via currency inflation.

Among the 220+ recognized nations, here are the six major nations with the slowest “natural increase” (births over deaths) in the last five years, 2015-2020, compared with their average GDP growth in an overlapping six-year period which does not include COVID years. All are sub-par GDP growth rates.

I don’t have room to cover all of these cases – and many European nations have seen an influx of Middle Eastern immigrants since 2015, with some net negative results (see the book “Peril” by Ayaan Ali Hirsi), but one example of a homogenous nation with a shrinking population and near-zero immigration is Japan.

In the 1980s, the world seemed to be saying that Japan would be #1 by 2000. Books on their management methods dominated the business book best-seller’s lists. The Tokyo stock market hit a bubble peak at the end of 1989 which it has not approached since then. What happened? In part, they stopped having babies.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There are many other factors involved, but the lack of available workers cut into their manufacturing base and raised their salaries, making their products less competitive overseas, cutting into their GDP growth.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Will America go the way of Japan and Italy with an aging, sclerotic economy? Only time will tell. It takes a generation for the impact to be fully felt, so we have time to make more babies (and money).

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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