Trickle-Up Economics (Smead)

Trickle-Up Economics (Smead)


by William Smead, Smead Capital Management

Major magazines have a history of putting a topic on their cover at the end of a long-term trend. For example, “The Death of Equities” was a Business Week cover in late 1979, near the end of a miserable stretch in the US stock market. Time’s recent cover story, “The Childfree Life”, got us wondering about the economics of childbearing in the US? Does Time’s cover mark the end of a trend? Can the US economy succeed without homegrown population increases? Will economic success driven by the current demographics in the US trickle down to unemployed blue collar workers? What does this cover, “The Childfree Life”, mean to investors in the US stock market?

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We will argue in this missive that demographic trends, difficult economic times and an emphasis on college education have temporarily interrupted childbearing, as Americans adjusted to the existing culture. The timing of when one marries and has children is markedly different today than it was 30 years ago. Today, women get married at an average of 26.9 years old and men marry at an average of 28.7. In 1980, it was 24.7 for males and 22.0 for females.

Here is what Time’s writer, Lauren Sandler, wrote in her recent cover piece:

The birthrate in the U.S. is the lowest in recorded American history. From 2007 to 2011, the most recent year for which there’s data, the fertility rate declined 9%. A 2010 Pew Research report showed that childlessness has risen across all racial and ethnic groups, adding up to about 1 in 5 American women who end their childbearing years maternity-free, compared with 1 in 10 in the 1970s.

Smead Capital Management is located in Seattle, Washington. Seattle is one of the most environmentally sensitive and savvy places in the US. We regularly wrestle with regulating natural resource industries against the backdrop of economic growth. For instance, the spotted owl was put on the endangered species list and it greatly affected and modified the behavior of major timber companies. Certain salmon species are endangered and we have modified our use of the streams in which they spawn. Should we put babies on the endangered species list? Is the US going to follow Europe and see homegrown population shrink? The answer to us is a resounding no.

First, the demographics of childbearing seem prepared to go through the roof in the next five years. There are 86 million Americans between 18-37 years old, which mean an average age of 28. It is the largest population group in the US. With the once in a lifetime economic cleansing, financial meltdown and staring into the abyss we did in 2007-09, the folks between 25-35 years old hit a wall. They naturally postponed marriage and babies for economic reasons like unemployment, fear of unemployment, housing depression and outright economic fear.

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