In this guest post, Toby Nangle, the Global Co-Head of Multi Asset & Head of Asset Allocation, EMEA at Columbia Threadneedle, wonders whether rising wages caused by changes in demography could ultimately end the productivity slump.
Weak productivity growth has puzzled economists and policymakers but it doesn’t seem to have hurt investors: the period 2009-2016 might even be called “the Goldilocks Slump”. Ample slack in job markets ensured little bargaining power for workers, whilst central banks battled deflationary impulses with a combination of low (or negative) rates and asset purchases. The net effect has been falling real yields and tight risk premiums.
But productivity growth does matter. And we are nearing the point where its absence will be of overwhelming importance to financial market investors. Read more
Suppose, even after reading those posts, you still agree with Alan Greenspan (and Toby Nangle, Charles Goodhart, etc) that slowing growth in the world’s working-age population necessarily implies a bigger share of output headed to workers and faster rates of inflation. Don’t worry. There are even more reasons for scepticism. Read more
We previously covered some of the problems with the claim that household savings affect valuations by looking closely at what happened in Japan. The short version: corporations more than made up the decline in personal savings rates through a combination of higher profit margins and less investment. Aging and population shrinkage imply less demand for capital as well as less supply, so the net effect on yields is far from obvious.
As it happens, there’s lots of evidence from outside Japan on the weak (or nonexistent) linkage between demographics and asset valuations. Read more
The number of Japanese aged 15-64 peaked in 1995 and has since shrunk by 11 per cent over the subsequent two decades, whilst the 65 and up crowd has grown by about 86 per cent. In other words, Japan just spent the past twenty years going through something slightly more extreme than what all the “high-income countries” together are expected to endure over the next fifty years, according to the United Nations Population Division. Its experience should be instructive. Read more
In 1989, Greg Mankiw and David Weil attempted to link changes in the US population with changes in demand for housing and house prices.
They argued that the big increase in real house prices in the 1970s could be attributed to the maturation of the generation born during the postwar baby boom. This also implied the subsequent baby bust would push house prices progressively lower over the next several decades: Read more
It’s misleading to compare macroeconomic aggregates across countries with very different population growth rates, which is why so many analysts get it wrong on Japan. While we were doing some of the data work for that previous post, however, we thought you might appreciate a visualization of how Japan’s population has aged and why it is poised to shrink a lot over the next few decades:
Credit Suisse’s global demographics research team came out with a new note on Friday featuring some enlightening charts about the US economy. It provides a handy way of evaluating the country’s lackluster performance since 2000, as well as a few longer-term trends.
As the CS team notes, GDP growth can be decomposed into three distinct forces: growth in the population of working-age people, growth in the number of hours worked by each working-aged person, and productivity growth. Read more
If India continues its current path it will face a catastrophic shortage of jobs, creating a young and angry population, and with it conditions for social unrest and economic disaster. Whether India exploits or is undermined by its demographics will likely be determined by the policy choices over the next two administrations. It simply cannot afford a repeat of the last five years.
That’s from a recent Espirito Santo note that makes for refreshing reading compared with the usual demographic dividend stories that cruise through our inboxes every few days. Read more
End the ‘one-child policy’, get some 9.5m extra people. Nice policy if you want to give your population a bit more control and if you have one eye on a declining working age population.
According to a few news organisations in China late last week, citing those close to the National Population and Family Planning Commission, the government may relax its one-child policy in the very near future. Families where at least one parent was a single-child might be able to start upping their families headcounts in late 2013/ early 2014 with a full revision in 2015 (a date that has been mentioned before).
Nomura’s Zhiwie Zhang gave the reports quite a bit of weight (our emphasis): Read more
George Magnus, senior economic advisor at UBS has always been fond of demographics. In fact, he’s always warned the world about the dangerous side-effects of an ageing society, with specific reference to the case of Japan.
As he reminds us in a note on Wednesday: Read more
We’ve been combing through an interesting new Pew report on attitudes towards a number of economy-related issues.
Among the dominant themes are that people in advanced economies are more likely to report increasing inequality in the past five years, while respondents in emerging and developing economies had more faith in their prospects for economic mobility than their developed-country counterparts. Read more
We’ve recently heard an interesting suggestion that China’s ageing population — generally a bad thing for growth — might also have the positive side-effect of inducing a transition away from the country’s unusually high ratio of investment to consumption. But will it? Read more
Here’s a table from a fresh IMF paper pondering the country’s Lewis Turning Point, the moment when people streaming into cities from farms will be fully absorbed, industrial wages will take off, and — an estimated 350m jobs later after it began — the era of cheap Chinese labour will end. Click to enlarge. Read more
After all, more people working in cities generally means more productive workers, hard to argue with that. But Beijing’s traditional policy of encouraging urbanisation through greater infrastructure investment is getting ever diminishing returns. If the government really wants more people to move to the cities, argues Wei Yao at Société Générale, it must start treating its new urbanites better. Read more
If increased proportions of older workers are squeezing out some of the younger would-be workers there could be a significant downside in the longer term — ironically, due to the ageing population. Read more
From Steven Englander at Citi — a little observed factoid regarding employment trends among the older demographic:
We are taking one small slice at this subject, starting with the little noticed fact that employment to population ratios among older individuals have gone up in recent years, in contrast to the so-called prime-aged 25-54 cohort, where employment to population is much lower than earlier. Figure 1 shows the percentage point change in the employment to population for the three age groups since 2007. Read more
To what extent has Japan’s soft growth over the past 20 years been due to its population ageing? And to what extent unfavourable demographics can be offset by increases in labour market participation (especially by old people) and/or labour productivity gains?
Citi’s Nathan Sheets and Robert Sockin have put together a very useful comparison of (mostly supply-side) measures for the US, Japan and eurozone that examine these questions. They’ve “decomposed” real GDP-per capita down into labour productivity, employment rate, labour force participation, and the share of the working-age population. Read more
Making babies is fun and good for economic growth (sexing up a lede has never been so easy). Nomura has taken a shot at calculating just how significantly population changes can hit GDP. Their conclusion is that:
[A]lthough a population decline will dent GDP growth and inflation, the degree of correlation is not that high and the negative impact may not be as large as some observers fear.Read more
This chart from Credit Suisse is included in a note about the graying of America and the developed world’s demographic problems and future runaway deficits and frightening old-age dependency ratios and blah blah bliggity blah…
These are difficult issues and we’ll continue to write about the financial and economic implications of same, but this blogger returned from holiday about five minutes ago and feels like looking on the bright side of things for just one post. So instead we’re going to think about this in the happier and more obviously humane context of living standards rising and people living longer: Read more
Hey, we’re all for it – and it’s more politically feasible than wider substantive reform on illegal immigration, in part because its entrepreneurial and societal benefits are intuitively easy to grasp. Read more
Fascinating data point via the Brookings Institution:
The new Census results show 49.8 percent of infants under age one are members of a race-ethnic minority – up from 42.4 percent in 2000. Given this trajectory, and the fact that the Census was taken well over a year ago, it is almost certain we have now “tipped” racially, and more than half of all national births are minorities. More than a quarter of infants are Hispanic, Blacks and Asians comprise 13.6 and 4.2 percent, respectively. Nearly one in twenty births were reported to be two or more races.
A decent review of a theme we’ve been exploring recently, courtesy of Moody’s Analytics:
Several important demographic trends will influence US activity for some time. They include (i) the slower growth of Americans aged 15 to 49 years, which is a population cohort that shows a comparatively strong correlation with the growth of real consumer spending, (ii) the record slow growth of the working age population, (iii) the much faster growth of older workers relative to younger workers, and (iv) the breakneck growth of those 65-and-over vis-à-vis the number aged less-than-65.
I propose a different [ratings] modeling approach for advanced economies that focuses on their primary risk factor: the impact of population aging on social insurance spending. The approach leverages the wealth of budget, economic and demographic data and forecasts available for these countries. While the remainder of the discussion focuses on the US, it should be equally applicable to major European economies …
So writes Marc Joffe, a former senior director at Moody’s Analytics now turned consultant. Read more