From a growth perspective, it doesn’t matter if the world is 7.5 million or 7.5 billion persons…it only matters how many more there are from one year to the next. Economic growth (or the ability to consume more…not produce more) is about the annual growth of the population among those with the income, savings, and access to credit (or governmental social pass-through programs). That’s what this trade war is all about and why it’s just beginning. First it was a fight for decelerating growth…but now it’s about a shrinking pool of consumers.
Nowhere is this decline in potential consumers more acute than East Asia (China, Japan, N/S Korea, Taiwan, plus some minor others). I have previously detailed China’s situation HERE but the chart below shows the broader East Asia total under 60 year old population (blue line) and annual change in red columns. Peak growth in the under 60yr/old population (consumer base) took place way back in 1969, annually adding 22 million potential consumers. As recently as 1988, an echo peak added 19 million annually but the deceleration of growth since ’88 has been inexorable. Then in 2009, decelerating growth turned to decline and the decline will continue indefinitely. What began as a gentle decline is about to turn into progressively larger tumult. By 2030, the under 60yr/old population will be 9% smaller than present. East Asia’s domestic consumer driven market is collapsing in real time and it’s reliance on exports greater than ever.
The chart below shows the total 0-65 year old global population (minus Africa and India…blue line) and the annual change in that population in the red columns. Why excluding Africa/India? Because they represent nearly all global population growth, consume less than 10% of the global exports, and haven’t the income, savings, or access to credit to consume relative to the rest of the world. Growth (x-Africa/India) peaked in 1988, annually adding 52 million prime consumers. However, the annual growth of that population has decelerated by 2/3rds to “just” 17 million in 2018. Before 2030, the under 65 year old population will peak and begin shrinking.
Simply put, West and East are fighting over a soon to be shrinking pie. Of course, individual companies will perform better than others…but on a macro basis, global demand will be falling indefinitely aside from the debt and monetization schemes federal governments and central bankers can conjure.
From an asset appreciation viewpoint, consider the decelerating (and soon to be declining consumer population) vs. accelerating asset appreciation. The chart below shows the same annual under 65yr/old population growth (x-Africa/India) versus the fast rising Wilshire 5000 (all publicly traded US equities, yellow line) and global debt (red line).
Next, consider the decelerating annual global population growth (as a percentage of total population x-Africa/India) versus the supposed infinite 7.5% appreciation of assets (chart shows the Wilshire 5000 continuously growing at 7.5%) versus fast decelerating consumer growth. Clearly, anticipated asset appreciation is all about rising debt and monetization…not organic growth.
Finally, a peek at the situation in the US. The chart below shows fast decelerating annual growth of the under 65 year old US population as a % of total population (black line), the ebullient Wilshire 5000 (shaded red area), actual and anticipated 7.5% appreciation of US stocks from 1970 through 2025 (dashed yellow line), and total disposable personal income representing the actual economy (blue line).
Infinite growth models are running headlong into very finite limits. Invest accordingly.