America’s Birthrate Declines in 2015

Recent data culled by the Centers for Disease Control and Prevention showed an unexpected drop in births in the US in 2015, which fell by 1% from 2014, contrary to the forecasts of demographic analysts. Moreover, the US fertility rate in the first quarter of 2016 fell to 59.8 births per 1,000 women aged 15-44, tying 2013 figures for the lowest fertility rate on record. The figure translates to less than six births for every 100 women, prompting talk that America is currently mired in a baby bust.

America’s current general birth rate is 13.42 births per 1,000 citizens, according to the CIA World Factbook, a figure which is down 10% from 2007.  For comparison, Mexico’s birth rate is 42% higher, or 19.02 births for every 1,000 citizens.

Closer examination of the figures reveals a dramatic change in the ages that women have children today and provide insight into the declining birthrate. There has been a precipitous drop in teenage pregnancies and pregnancies among women in their 20s, both of which have played a large role in driving down the US birthrate. To put it differently, millennials, who have not been having children, are largely responsible for the declining numbers.

A 2015 study by the Urban Institute found that the birth rate for women ages 20-29 fell by 15% between 2007 and 2012. “If these low birth rates to women in their twenties continue, the U.S. might eventually face the type of generational imbalance that currently characterizes Japan and some European countries, but it is too early to predict or worry about that eventuality,” the report noted.

Social changes have pushed women to bear fewer children and put off pregnancy until later in life. Moreover, the economic pressures exerted by the 2008 recession have likely played the biggest role in disincentivizing childbearing among millennial women. While abortion may seem like a likely culprit for this demographic shift, abortion rates have actually declined since the 1980s, according to The Wall Street Journal.

It will soon become apparent whether millennial women will eventually have more children. The most common age in the US is currently 24 or 25, according to The Wall Street Journal, which means there is a sizeable portion of millennials who may decide to become parents in a few short years.


The BIS Warns of Record-High Banking Stress in China

The Bank for International Settlements has recently released a quarterly report warning that China’s “credit to GDP gap” has reached a record 30.1%, indicating that the world’s second-largest economy faces mounting debt and credit pressures. According to the BIS, levels elevated beyond 10% signal high banking strain in an economy. In the United States, for instance, readings surpassed the 10% threshold in the lead-up to the financial recession.

The elevated credit to GDP gap suggests excessive credit growth in China and the possibility of a financial implosion. Should such an event occur, the repercussions would greatly damage the global economy. According to the Telegraph, “outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control.”

China’s total debt has reached 255% of GDP, having ballooned by 107% in the past eight years, and continues to grow, while corporate debt alone has hit 171% of GDP. Though China’s leadership has promised to limit debt growth, it has been hardpressed to follow through on its pledge given that debt has sustained the nation’s economic growth. Government spending on infrastructure and real estate has also proven to be less productive and failed to contribute meaningfully to GDP.

Some analysts have taken to prescribing bank recapitalization and reducing reflexive stimulus spending to artificially sustain growth on the part of the Chinese government. China’s central bank issued a statement earlier this year averring that investors would be able to maintain reasonably high levels of capital in the event of a serious banking shock. The fear, according to the Telegraph, is that a surge in capital outflows may force the central bank to sell off foreign currency to bolster the yuan, “automatically tightening monetary policy” and sparking a vicious cycle.

Significant doubts remain as to whether the government can extricate the nation from its precarious situation, though state control of the financial system may conversely prove to partly mitigate the risk of a banking crisis.


U.S. Median Household Income Grew by 5.2% in 2015

According to the Census Bureau, household median income in the US was $56,516 in 2015 whereas the highest recorded level of household median income was $57,909 in 1999, a sum that has been adjusted for inflation.The latest numbers were derived from an annual Census Bureau survey of 95,000 households.

However, the Census Bureau also reported that in 2015, the middle and lower classes of America enjoyed the best year of economic growth in decades, though this did not completely erase the losses of the 2008 recession.. Real median household income grew by 5.2%, from $53,700 in 2014 to $56,516 in 2015– the largest such increase ever recorded by the bureau. Median household income outpaced average income, which grew by 4.5% to $79,263.

Furthermore, the poverty rate decreased by 1.2% in 2015, the steepest such decline since 1968, with 3.5 million fewer impoverished Americans than in 2014. Lower income homes disproportionately large income gains, with households in the 10th and 20th percentiles, respectively, seeing 7.9% and 6.3% increases. Households in the 90th percentile, conversely, saw 2.9% income growth. The expansion of health insurance coverage also continued, with the percentage of uncovered Americans falling by 1.3 points to 9.1%.

The gains can be attributed to a stronger labor market, reduced inflation, and rising wages (particularly with regard to minimum wages). Employers added 3 million more jobs while the unemployment rate fell to 5%. The improvements also suggest that America’s economic recovery following the 2008 recession is beginning to spread more broadly, which is a major bone of contention in the current presidential election.

Incomes did indeed increase across gender, racial, and ethnic groups. However, they did not change significantly in rural areas, while cities saw a 7.3% jump in income levels, and the South enjoyed weaker growth than the West.

Median household incomes are still 1.6% lower than they were in 2007, adjusting for inflation, and 2.4% lower than the peak reached in 1999.


Illinois’ Largest Pension Plan Reduces Discount Rate to 7%

The trustees of the Illinois Teachers Retirement System (TRS) pension plan, the largest public pension in Illinois, voted to lower the discount rate from 7.5% to 7% on August 26, 2016, thereby forcing the pension plan to increase its annual contribution by $421 million to $4.3 billion per year. Had the 7% assumption been in effect earlier, Illinois would have been on the hook for another $421 million for the 2017 fiscal year.

The TRS currently has less than half the assets need to cover all of its benefits and commitments. Illinois governor Bruce Rauner’s administration has warned that the reduced discount rate may have a “devastating impact” on education and social services. His spokesman issued the following statement regarding the vote: “With less than two hours’ notice, Illinois taxpayers including our social service providers and small business owners were just handed a bill for nearly a half-billion dollars. While questions remain about the legality of today’s action, it further underscores the need for real pension reform in Illinois. The continual need to ask more and more from taxpayers proves yet again the current pension system is fatally flawed and must be changed. “

TRS Executive Director Dick Ingram has argued that the legislature has the power to change the law and limit taxpayer contributions in defense of the rolled back predictions. “While some seem to think otherwise, nothing we are considering today is precipitate or rushed. We are following well-established procedures that are consistent with good actuarial practice and conform with the recommendations of the state actuary,” Ingram told the board before the vote.

The move to lower the assumed rate of return was driven by mediocre returns in global equity markets and lower bond yields, which have taken their toll on pension funds. This has in turn put added pressure on state governments. Illinois, for instance, is $111 billion in debt to its five pension plans and has the lowest credit rating of any US state, and its divided government has clashed over ways to overhaul the retirement system. CALPERS reported gains of less than 1% for the fiscal year ended June 30.

TRS last lowered its rate two years ago in June 2014, from 8% to 7.5%, costing the state over $200 million. Rauner has argued that such sudden and unforeseen reductions have had severe financial repercussions for the state.


U.S. Existing-Home Sales Fall For Second Straight Month in August

Sales of pre-owned homes fell again in August, for the second month in a row, U.S. housing inventory continues to dwindle. Such sales of existing homes, as opposed to newly constructed ones, fell by 0.9%, at a seasonally adjusted annual rate of 5.33 million, according to the National Association of Realtors. According to a survey conducted by Reuters, economists had forecasted sales rising 1.1 percent in August to a 5.45 million-unit pace. The number of unsold homes on the market fell to 2.04 million in August, and inventories were down 10.1% compared to a year ago. Economists also revised July’s sales rate down from 5.39 million units to 5.38 million units.

Sales of existing homes rose only in the Northeast region during the month of August due to greater supply, as opposed to the West, South, and Midwest. At the current sales pace, it would take around 4.5 months to exhaust all existing inventory, which is well below the 6-month benchmark due to diminished inventory. Inventory has been down, year-on-year, for the past 15 months. Supply constrictions have pushed prices upward, with the median sales price hitting $240,000, 5.1% higher than it was in August 2015. High prices, tighter credit, and an increase in real-estate investment have conspired to crowd first-time buyers out of the market, even though they comprised 31% of the market in August.

There are some positive signs for the market, with healthy job gains, a 5% unemployment rate, and a slight increase in wages (though they are stagnant relative to home price).

The drop in home buying “is somewhat surprising given the broader economy continues to create jobs,” according to Lawrence Yun, NAR’s chief economist. “We go back to the same bottom line: lack of inventory choices and prices rising way too fast.” Although housing starts fell in August due to inclement weather, CNBC reported an increase in permits issued for single-family dwellings.