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Demographics, Birth Rate, and the Covid Baby Bust are Quite Deflationary

Let's discuss the inflationary and deflationary impacts of the ongoing baby bust accelerated by Covid.
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Civilian Noninstitutional Population 2021-09

Civilian Noninstitutional Population

The Civilian Noninstitutional Population is defined as those age 16 and older not in an institution (e.g. prison, armed service, nursing homes) residing the the 50 states plus the District of Columbia.

Civilian Noninstitutional Population 2021-09A

Essentially, CNP is the working age population except that most people aged 16-22 are in high school or college, thus not working full time.

Birth Rate Per 1,000 Persons

Birth Rate Per 1,000 People 2019-04

16-Year Lag

The spikes and declines in the birth rate correlate to changes on the first chart with a 16-year lag.

The latest data for the above chart is as of April of 2019. In other words, birth rate data predates Covid.

The Pandemic Caused a Baby Bust, Not a Boom

Scientific American reports The Pandemic Caused a Baby Bust, Not a Boom

When the COVID pandemic led to widespread economic shutdowns and stay-at-home orders in the spring of 2020, many media outlets and pundits speculated this might lead to a baby boom. But it appears the opposite has happened: birth rates declined in many high-income countries amid the crisis, a new study shows.

Arnstein Aassve, a professor of social and political sciences at Bocconi University in Italy, and his colleagues looked at birth rates in 22 high-income countries, including the U.S., from 2016 through the beginning of 2021. They found that seven of these countries had statistically significant declines in birth rates in the final months of 2020 and first months of 2021, compared with the same period in previous years. Hungary, Italy, Spain and Portugal had some of the largest drops: reductions of 8.5, 9.1, 8.4 and 6.6 percent, respectively. The U.S. saw a decline of 3.8 percent, but this was not statistically significant—perhaps because the pandemic’s effects were more spread out in the country and because the study only had U.S. data through December 2020, Aassve says. The findings were published on Monday in the Proceedings of the National Academy of Sciences USA.

Birth rates fluctuate seasonally within a year, and many of the countries in the study had experienced falling rates for years before the pandemic. But the declines that began nine months after the World Health Organization declared a public health emergency on January 30, 2020, were even more stark. “We are very confident that the effect for those countries is real,” Aassve says. “Even though they might have had a bit of a mild downward trend [before], we’re pretty sure about the fact that there was an impact of the pandemic.”

Covid Accelerated the Existing Trend

Covid accelerated the already declining birth rates. 

Given the 16-year lag between births and the civilian noninstitutional population coupled with the aging of the workforce there will be fewer and fewer workers supporting retired workers on Social Security. 

Notice the relatively steep decline in the birth rate starting in 2008 and continuing through today. 

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That impact will start showing up in 2024 and last a minimum of 12 years.

How long depends on whether the birth rate picks up after Covid. I highly doubt the birth rate will pick up.

Deflationary and Inflationary Impacts

  1. Inflationary: Shortage of workers increases wage pressures
  2. Deflationary: Fewer workers support an increasing number of retirees
  3. Deflationary: Older workers need more assistance, buy fewer things, travel less. 
  4. Deflationary: More government debt and deficits. Government spending has a negative impact on real GDP.

Regarding point one, please consider Dominos Reports There’s No One to Deliver the Pizzas, Plus Mish Anecdotes

However, the net impact of the four points is rather deflationary, not inflationary.

Point 3 relates to demand destruction that kicks in as people age. It accelerates at age 70 or so. Note that all baby boomers will be 65 or older by 2030. The vast majority of them will be retired, living off savings or Social Security (and good luck for the latter).

Lacy Hunt accurately discussed point 4 in Hoisington Management's Third Quarter Review.

For discussion, please see Lacy Hunt Sticks With His Message: Lower Bond Yields On the Way

A Word About Fed Policy

For discussion of landlords, serfs, and tenants thanks to the Fed, please see Investors Rush to Buy Nearly 1 in 4 Homes

Thanks For Tuning In!

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