Sunday, December 10, 2017

"One Day (Last Friday), The Sun Did Not Rise"

This week I wrote a quick note regarding the changing sources of US population growth HERE.  I believed that come January, when the Q4 15-64yr/old resident data was released, the first core population decline since WWII (and perhaps in the nations history) would take place.  The likelihood of this event was considered about as likely as the sun not rising.  I received a lot of e-mail telling me I was wrong and that Millennials were the largest population in US history, so this couldn't be true.  Turns out I was wrong!  The decline actually showed up last Friday and in greater numbers than I had expected.

The updated chart showing the annual growth change in the US 15-64 year old population is below.  As of the third quarter update available on the St. Louis FRED, the 15-64yr/old US working age population declined by <230,000> from the same quarter a year ago.  Not much of a decline for a core population in excess of 200 million but the outright decline replacing decades / century's of constant growth is very important.  The 2008 waterfall in core growth was tied to the loss of the housing bubble and availability of low skill, low education employment for immigrants in the US.  It appears the 2017 waterfall is tied to the Trump presidency, his jawboning, alongside stronger implementation of border controls.  Not only are illegals not coming (on a net basis), but a net outflow among the 12 million illegals already in America appears to be underway.

For reference, the 15-64yr/old population represents over 60% of the US population, about 90% of all the employees, and as the chart below highlights, average peak earnings / spending occur when the head of the household is 45-55 years old (more than double those under 25yrs/old or 75+yr/olds).  By the time the head of the household reaches 75yrs/old (where the majority of US population growth will take place now through 2050), their average income and spending are halved and their willingness to use credit to amplify their consumption is next to nil.
Given the importance of the core population, the chart below highlights total 15-64 year old population versus the year over year change (quarterly basis) from 1970 to 2017.


Again, same as above but from a little tighter view from 2000 to 2017, with an added trend line for the change in year over year population.  The sharp changes to the year over year chart are typically the immigration adjustments made annually in January.
The decline in core population growth has two causes, four plus decades of negative birth rates coupled with decelerating immigration.  To highlight how reliant the US has become on immigration for population growth (also known as a growing consumer base in a consumption based economy), the chart below shows the decelerating growth of the native core population vs. inflow of immigrants (average annual change, per 5yr periods).  This represents all current residents, here legally or otherwise.  Census estimates for 2017 called for core population growth on the order of 600k, however, absent ongoing levels of net new immigration the core population of the US appears to be in outright depopulation.

There are a multitude of changing factors limiting emigration from South of the border (particularly Mexico).  The lack of real wage increases in the US, changing nature of US jobs requiring high skill / high education, and changing laws / enforcement are just a few of the factors resulting in far fewer of the mismatched low skill, low education migrants moving North.  In fact, since 2015, a net outflow of illegals from the US is likely.

The chart below shows the sources of emigration from Latin America since the 1950's but the deceleration since '05 is hard to miss.

With the minimal natural population growth coupled with decelerating immigration...the core population is in decline.  A nation with massive trade deficits and an economy reliant on ever greater debt fueled consumption will truly be up against the wall to conjure "growth" against a declining consumer base.

To round out this picture, a look at the now declining year over year change in core population versus continuing gains in year over year employment among the core.

Interestingly, with a declining core population versus rising employment among the core, the quantity of employable persons among the core is likely to peak in 2018 and perhaps this will begin to put significant inflationary pressure on the quality of wages?  Inflationary pressure and depopulation simultaneously???
Putting these changes into a larger perspective, as I have noted before, the Census has been making huge cuts to their population growth estimates since 2008...and based on the above, looks like even larger cuts are upcoming.

As a reminder, the charts below detail the changes to the Census estimates since 2008.  Total population growth from 2014 to 2050 was cut 32%.

There was essentially no decrease in the estimated growth among the 65+yr/old population (chart below).

Crucially, the decrease in estimated growth among the childbearing population was a massive <53%>.

And the impact on the youngest population segment, almost a total collapse in estimated growth of <85%>.

These estimated cuts to growth among the under 45yr/old population are still far too optimistic, as the data since 2014 has revealed.  Due to continuing record low birth rates and slowing immigration (particularly of the illegal variety), significantly larger population downgrades of the child bearing population and number of children they produce are inevitable.

The changes in the 45+yr/old population vs. the child bearing population is shown in the chart below.  The changes in the 45+yr/old population are essentially set through 2060 (obviously, all this population already exists and will be transitioning over) while the Census medium and low estimates for the child bearing population are represented by the dashed lines.  If current trends hold, the reality is that even the low variant is likely too "optimistic".  National depopulation of the under 45yr/old population vs. surging 45+yr/olds...this is not a good economic combination.

A different snapshot of the absence of growth among the foundation of the US population, the 0-4yr/old population, vs. the swelling ranks of the elderly, 70+yr/olds.  FYI...the 0-4yr/old estimate through 2050 is the average of the Census medium and low population estimates.
Finally, the spread eagle formation visible in the chart below between the now declining consumer population and all the federal government and central banking activities resulting in record asset prices (the chart shows the Wilshire 5000, representing all US publicly traded stocks).

This situation, as the federal government and Federal Reserve know well, is unlike anything the US has ever seen.  It is unlikely to end in a "market correction" or "crash"...in fact, outright and de facto policies appear to be in place to ensure asset values only continue moving inverse decelerating and declining consumer populations domestically and the same is true globally.  As for why immigration is not and will not likely be the answer going forward, please consider THIS.  Absent some unexpected intervention; rising inequality, social discord, and global anger toward these policies are likely to accelerate political and military conflict unlike the world has seen for a generation.