Pandemic Baby Boom Turns Bust
Written by Nancy Johnshoy, CFA, Senior Vice President - Portfolio Manager & Market Strategist
I am one of seven children — a large family even in the 1960s. One hundred years earlier, in the 1860s, it was typical for families to have between 6 and 9 children. At that time, parents considered many children to be an economic asset since they could work the farm and at least some would survive to care for them in their old age. Starting around the 1920s, the large family began to vanish as industrialization created more work for women outside the home.
Following World War II, the United States experienced a greatly elevated birth rate, adding an average of 4.24 million new babies to the population every year between 1946 and 1964. This generation of “Baby Boomers” was the result of a strong postwar economy, which boosted Americans’ confidence that they could support a larger number of children. By the mid-1960s, the “typical” American family included 2.4 kids. According to United Nations’ data, birth rates in the U.S. declined an average of 2.4% annually between 1959 and 1978 before modestly increasing over the next 10 years. As of 2020, the birth rate per 1,000 people in the U.S. had fallen from 24.27 in 1950 to just less than 12.
Some conjectured that the pandemic would result in a baby boom in 2021 like after World War II. Evidently, pandemic togetherness had the opposite effect and resulted in more of a bust than a boom as many couples chose to defer pregnancy instead. Researchers now estimate that the U.S. will see between 300,000 and 500,000 fewer births in 2021 than in 2019. The pandemic may impact longer-term birth trends, as well, since researchers at the Guttmacher Institute found that 34% of American women postponed plans to have children or decided to have fewer children due to the pandemic.
While fertility rates are declining, average life expectancy is increasing. The first of 78 million Baby Boomers reached 65 years old in 2011. Since then, the “65 and older” population increased by over a third. Today, 16.5 percent of the total population is aged 65 or older, but by 2050, experts estimate they will represent 22 percent of the population.
There are economic implications to these two trends. Gross Domestic Product (GDP) growth is a product of two factors: growth in workers plus growth in real output per worker. A declining work force presents a challenge to future GDP growth. Further, entitlement programs currently account for 38.5% of all federal spending. Social Security, the largest federal budget item, is funded through payroll taxes. Until 2010, Social Security collected more in tax revenues than it paid out in benefits. For every beneficiary withdrawing from the fund, there were 3.3 younger workers paying for it. This dynamic is shifting; over the next 30 years there will be fewer and fewer workers per retiree to support Social Security.
China is the most populous country in the world, with a population of over 1.4 billion people. China’s working-age population is set to undergo a marked decline. After reaching 925 million in 2011, China’s working-age population is forecast to fall by 225 million by 2050. China recently announced that married Chinese couples are now allowed to have up to three children, revising the two-child limit policy in place since just 2016. Prior to 2016, a one-child policy was enforced for many decades. Despite the revision to the policy in 2016, China’s birth rate has continued to decline. The official statement said that the “three-child policy is conducive to improving the age structure of the population, increasing the supply of a new labor force, easing intergenerational contradictions, and invigorating Chinese society.” Population experts say this move came too late to reverse the negative effects of China’s quickly aging population.
Although not as dire as the situation in China, the United States will be challenged by the negative effects of an aging population. In the decade ended in 2019, the United States’ growth in working-age population, those between the ages of 16 and 64, was .4% per year. This is a significant decrease from the preceding 30 years’ growth, which averaged annualized growth of over 1.1%. According to the Census Bureau, the U.S. workforce is projected to grow by .2% annually in the decade ending in 2029. Worker shortages notwithstanding, optimism is warranted because, faced with increasing scarcity of labor, companies are drawing on automation technologies , which, in turn, boost productivity.
Closer To Home
A little microcosm of the U.S., my own family’s story of shrinking generations is maybe more dramatic than most. My husband and I had two children — 10 fewer than our parents combined only one generation earlier. Our family, thankfully, won’t experience the potential economic issues I mentioned because we planned for our future. Our care and support won’t fall on their backs during our retirement years!