Record Low U.S. Birth Rate Parallels Japan

Fewer babies born per capita are pushing the U.S. toward zero population growth.  This began happening in Japan around the time it moved from an era of rising prices to one of price stability or very mild deflation, despite repeated “quantitative easing” by the Bank of Japan.  Bloomberg reports (LINK):

Recession Left Baby Bust as U.S. Births Lowest Since 1920

The U.S. birth rate fell to a record low last year…

The country’s birth rate fell 8 percent from 2007 to 2010, according to a Pew Research Center report…  The decline continued last year to the lowest point since records began in 1920…

The U.S. birth rate in 2011 was 63.2 per 1,000 women of childbearing age, according to preliminary numbers. That’s down by almost half from a peak of 122.7 in 1957 during the postwar baby boom. The rate steadily fell before stabilizing at 65-70 births per 1,000 since the 1970s…

In Japan, where one in four people will be 65 or older by 2015, birth rates began dropping when the economy began booming in the 1970s.

Livingston, the Pew study’s author, said the decline in fertility probably will slow as the economy rebounds, though rates won’t climb back to the historic highs of the middle 20th century.

The comment from Ms. Livingston that birth rates likely will increase as the economy rebounds is not a direct quote, but exemplifies the zeitgeist that “the economy” (an abstraction) will “rebound” (assuming it really has).  This is the opposite side of the coin that “everyone knows” that ZIRP was temporary and could not last.  But here we are, with the Fed promising that ZIRP will last at least a total of seven years from its late-2008 inception.  If the combination of a fresh recession and the appointment of the “dovish” Janet Yellen to succeed Ben Bernanke as Fed Chairperson comes to pass, people may look at the demographic trends and finally accept the thesis that the U.S. was following the Japanese example- but with higher price inflation, amongst many differences.

Another macro theme that points in that same direction regarding the general price level is that now that President Obama has been re-elected, presumably the U.S. is going to drastically tone down its military role in Afghanistan.  At that point, the U.S. will be more or less at peace.  Except for the aftermath of the Viet Nam War, when demographics were robust, every time the U.S. has been at peace, stable or declining prices has been the norm.

There are a number of trends that are pushing prices lower.  The tech revolution is one.  This goes far beyond the Internet.  Robotic manufacturing  and 3D “printing” can drive production costs much lower.

Savers and investors have often fought against or simply refused to “believe in” the evolving trend in interest rates, aka the bond bull market that is the least publicized truly major long-term, massive bull market I have ever heard of.  It’s amazing to think that at 14% interest rates, a zero-coupon Treasury bond in 1981 would have cost about $2 and matured last year at $100.  That’s a 50X return, exceeding the return from stocks, with no risk and no need to ever watch the price.  (The return would have been even higher if every 5 or 10 years, the investor had sold the bond and bought another 30-year bond, and that might be the better comparison with stocks.)

While little in the financial world would surprise me at this point, it appears plausible to think that at some point, we could see a 2% yield on the 30-year Treasury bond and a 4% dividend yield on the S&P 500 index.

Investors may be well-advised to watch demographics along with other macro trends that have profound effects on price levels and economic activity and that may not have fully been discounted by the financial markets.



7 comments to Record Low U.S. Birth Rate Parallels Japan

  • John B.

    Considering the last census in Canada in 2011, I´m happy we are not dealing with the same problems like you. We will be experiencing the same problems with the death of the generation of the post-war baby-boomers, which I think will have negative impact on the economy and especially on the RE market. Especially dangerous from this point of view is to take mortgages now and plan to invest in housing, because this can turn out to be the worst decision in your life (as it was proved in many parts of USA like Miami). With the prolongation of life, we will have to face same problems like Japan, but this can be dealt with by inviting more immigrants from abroad (or forcing our women to have more babies). The pressure is growing and there will be enough incentives for them to come here, even if our system ends up in a long crisis.

  • [...] Fewer babies born per capita are pushing the U.S. toward zero population growth.  [...]

  • D

    In a global world, a declining US birth rate only means less people to pay into the ponzi scheme of SocSec & Medicare. Other nations will continue to have higher birth rates, and global population will continue to grow. Resource use will simply shift in various ways, but I am nit sure I buy into the ‘declining prices’ segment with the FED in full print mode. I fully expect ‘real prices’, especially in food, to increase.

  • D- My thesis has been since early 2009 that the US financial structure was headed “Japanese” but with higher inflation, as is the right and almost the “duty” of the country that maintains the world’s major reserve currency. If “real prices” rise 1% a year, that is still a rise, and if nominal economic growth materially underperforms expectations, that could leave the 30-year TBond and related instruments outperforming equities.

  • mak

    The US census, I’m sure did not look at the hidden population of mexicans that exist in the country and the unlimited source from south of the border. We may not have skilled labor, but we will have the population.

  • Ron

    Merely adding more people is not a real solution. Which people you add is far more important than how many.

  • Joe

    Lucky for us we have UNPARALLELED influx of ILLEGAL IMMIGRATION