New Hampshire’s Demographic Winter has an Economic Price

New York Stock Exchange / (NYSE)
photo credit: George Rex

A new study, “Demographic Changes, Financial Markets, and the Economy,”does not paint an encouraging picture for the future growth of New Hampshire’s economy now entering Demographic Winter (where a shrinking number of young people cannot support current population levels).  From the study:

It seems natural that the shifting composition of a nation’s population ought to influence GDP growth and perhaps also capital markets returns. Entrepreneurialism, innovation, and invention tend to be associated with young adults. Accordingly, GDP growth should perhaps be best when there is a preponderance of young adults in a population. Investing for retirement is associated with middle-age, with a shift in preferences toward bonds with late-middle-age. So, stock and bond returns might be best in populations with growing rosters of these age groups, respectively. Our data—spanning over 60 years and 22 countries in our main tests and roughly 175 countries in out-of-sample robustness checks—support all of our priors . . .

Children are not immediately helpful to GDP: they don’t contribute to it. Nor do they help stock and bond market returns in any meaningful way: their parents are likely disinvesting to pay their support. Young adults are the driving force in GDP growth; they are the sources of innovation and entrepreneurial spirit. But, they are not yet investing as they are overspending against their future human capital. Middle adults are the engine for capital markets returns; they are in their prime for income, savings, and investments. And senior citizens contribute to neither GDP growth nor stock and bond market returns, as they disinvest to buy goods and services that they no longer produce.

Therefore, according to this study, New Hampshire is currently in its demographic prime of middle adults.  However, the demographic picture will soon start to dramatically shift to the 65 and older crowd–which already spiked 20 percent in the last 10 years. Moving forward this means, at best, a stagnation in GDP growth or, at worst, negative GDP growth.

New Hampshire needs to find a way to keep or get some younger blood in the state ASAP before Demographic Winter begins to eat away at the economy–not to mention state and local government revenue. Yet, in the long term, that means strengthening New Hampshire’s families such that we start having more babies.

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