Aurum Wealth Management Blog

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Demographics Driving the Bus

By Michael McKeown, CFA, CPA – Director of Research

Demographics are quantifiable characteristics of a given population.  Such a simple explanation for something that explains so much about the trends in our world.  This affects real estate prices, corporate planning, state and local taxes, and much more.

In just 15 years, the demographics around the world will look very different.  Due to lower fertility rates, the dependency ratios of retirees to workers will be higher than ever.  In some countries such as Japan and parts of Europe, the majority of the population will be retired.  Only certain areas of the world will have populations considered young, such as Africa, the Middle East, and India.

Turning to the United States, over the next 15 years, the Conference Board projects that 22 states will lose its workforce population. The losses are concentrated in the Northeast and Midwest with the winners being the Southeast and West.

The working-age population trends are due to net changes in the 18 to 64 year-old age group, deaths, international immigration, and domestic migration.

What demographic note would be complete without a discussion of the “M-word” – Millennials?  Larger than both the Baby Boomers and Gen-X, Millennials are those born between 1980 and 1995, comprising 83 million people.  This group along with the evolving technology landscape in which the group grew up, is the reason why there will be less shopping malls in the future, changes in the workplace, and greater emphasis from all on social media platforms.  Corporations and small business that do not plan for the shift will be left in the dust.



One area getting less attention, because it is such a slow process, is the peak spending years that the millennials will enter over the next 15 years.  The largest generation in history will continue to see rising incomes and increase spending as they hit their mid-30s.

Source:, Consumer Expenditures Report 2014

The table above shows that spending ramps up slowly and then increases quickly from ages 35-44 as families form and more money goes to housing, education, and consumer products.  This matters for inflation and interest rates, as a respected quantitative analyst showed that even beyond money supply, the number one driver of growth and inflation is not Federal Reserve policy, it is demographics. This is pervasive across time and countries, showing robust statistical significance.  It is another reason investors should be wary of interest rate exposure given the low premium currently being earned compared to history for bonds.

To wrap up, one of my colleagues at Skoda Minotti, Scott Swain, attended a very interesting presentation by demographer Ken Gronbach.  Below are a sample of his notes:

  • Africa is where the opportunity is, 1 billion population now, will grow to 4 billion if they can raise average age of death through better nutrition, disease control, reducing violent deaths.
  • China is in trouble with a very small population ages 0-36 due to population controls starting 36 years ago and 90 million men of marrying age with no one to marry.
  • Russia is also in trouble with a 1.41 fertility rate, which is very low, makes Russia a net death country on an annual basis.
  • Generation Y is flooding the labor market, will have to open lots of small businesses in order to survive.  Labor will get cheap again, making US manufacturing more competitive.  Gen X was so small salaries rose for manufacturing jobs to attract bodies.
  • 25% of the people in Ohio, baby boomers, will retire and leave Ohio, and move south.  Florida real estate should do very well, Ohio will suffer from smaller tax receipts.
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