The Real Threat For Investors: U.S. Population

by: Nick Chiu

As of November 3, 2012, the resident population of U.S. is projected to be 314,700,000 (see the screen shot below captured directly from U.S. Consensus Bureau).

The current projection is based on the following:

  • One birth every 8 seconds
  • One death every 13 seconds
  • One international migrant (net) every 44 seconds
  • Net gain of one person every 15 seconds

However, the U.S. birth rate had been plunging since the recession started in 2007, and it fell below population-sustaining levels in 2010. It's projected to fall to a 25-year low this year and not recover to pre-recession levels anytime soon, according to the consulting firm Demographic Intelligence, as reported by Bonnie Kavoussi from The Huffington Post. It will cost a middle-income family nearly $300,000 to raise a child born today from infancy to age 17, when accounting for projected inflation, according to the Department of Agriculture. The situation is made worse as 38 percent of all unemployed workers in the U.S. are between 20 and 34 years old, according to the Labor Department. From economic standpoint, we can say the rate of "supply" is decreasing for the future working population.

Baby Boomers

While 76 million baby boomers, broadly defined as people who were born during the demographic post-World War II baby boom between 1946 and 1964, began to cross the age of 60 around 2005, the trend of decreasing existing working force began.

Decreasing birth rate and increasing aging baby boomers are negatively impacting the economic growth. This effect will spread out to all economic sectors, including housing, education, healthcare and many others.

According to the Age Wave Theory, it suggested an economic slowdown when the boomers start retiring during 2007-2009, as reported by Reuters in 2008. Looking back, 2008 and 2009 were terrible if not devastating for stock investors due to the financial crisis. Are sub-prime mortgage and derivative products the cause for the financial meltdown or was it the result of huge accumulation of wealth during the golden era of baby boomers? I would say both.

It is also projected that by 2020, 25% of employees will be at least 55 years old, as reported by L. Casey Chosewood, MD from NIOSH Science Blog. Furthermore, according to the 2011 Associated Press and surveys on baby boomers:

  • 60% lost value in investments because of the economic crisis
  • 42% are delaying retirement
  • 25% claim they will never retire.

While the above numbers are subjected to further research and validation and may not reflect the full picture, it is safe to say that baby boomers will retire at a slower speed. It's hard to tell if it's good or bad for the current economy, but it is estimated that baby boomers control over 80% of personal financial assets and more than half of all consumer spending. They buy 77% of all prescription drugs, 61% of over-the-counter drugs, and 80% of all leisure travel. If baby boomers stay working, they will stay spending. With the current economy, I dare not to say leisure activities will increase; however, healthcare and medication demand will continue to grow with the aging trend. A few quality investment targets in the healthcare industry will be presented and summarized in my next article.

The Numbers

Going back to our first number of 314,700,000, the projection assumption of one birth every 8 seconds may become longer with the slowing birth rate and the one death every 13 seconds may also become longer with advancing healthcare and treatment technology. To grow the economy, we need to have more babies and take good care of baby boomers. For investors, this U.S. population trend will be a good indicator of where the money is shifting to. No doubt, healthcare is the new gold mine.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long healthcare sector