Weekly Reflection for June 2, 2023

The Week - An Update in Charts

Optimism returned this week. Congress agreed on raising the debt-ceiling and like a true compromise, no one side or faction was totally happy but everyone got a little something. Investors expect the Federal Reserve to refrain from raising rates when they meet again on June 13th.

Both chambers of Congress have passed the debt-ceiling bill to raise the limit, not a moment too soon. President Biden will sign it soon and is addressing the nation tonight.

As of this past Tuesday, the federal bank account was scraping bottom and breathing fumes. Although tax receipts were able to give it a little lift, spending was dwindling it down fast in the last few weeks. The U.S. Treasury is holding an auction, aka new borrowing for replenishment, on Monday.

There has been an uptick in late payments on consumer debt such as credit cards and auto loans that is becoming more of a trend, not a blip. On the one hand, we are far from the ugliest period of 2008-2010, but not as good as we could be given the strength of the jobs market.

Beef is the latest egg, a product skyrocketing in price and still in high demand. However, beef production is deliberately set to shrink over the next few years. Ranchers say it is too expensive to replace the livestock they slaughter. We have fewer cattle in the U.S. now than we did 10 years ago.

Also in decline, sheep.

Below, we look at the declining U.S. birth rate and the economic knock-on effects having less of us will bring. New Zealanders are thinking about their relationship to sheep and economics. With the wool industry in a slump and prices dropping (by half since 2013), herders are shifting to forestry. Thus, less sheep and less baaa to go around.

After six years of declining births, which included an especially low rate during the first year of the Covid-19 pandemic, 2021 was a bumper crop for babies. 3.7 million new little lives burst onto the scene. The bump was not to last; by 2022 births were down again and back on the downward trend. The 2021 bump will probably not make much difference to our overall population growth in the long run, say experts. Plus, it is well known that we are long past “peak baby”, which was 1957 and 4.3 million births with overall U.S. population at 164 million, half of what it is today.

The other side of the calculation for population growth is deaths. Many states are still registering more deaths than births. Although preliminary data shows our overall rate of death slowing, in large part to better Covid-19 control, deaths are still higher than pre-pandemic.

The U.S. has flatlined when it comes to population. Taking out net migration, we are below replacement rates. In theory, an average birth rate of 2.1 keeps population steady. The U.S. has been below this level for most of the last 50 years. Immigration

has otherwise kept population growing. In the last few years, even migration has not participated and we have leveled out around 333 million souls. This has interesting implications for the entitlement programs Social Security and Medicare and economic growth.

As has been well reported, the Social Security Administration expects that there will be less money coming in than needed by 2033 to pay for our retirees. This is because the workforce is not growing as fast as our aging population. Social Security taxes in 2033 will only cover some 75% of payment obligations.

We are already experiencing how a shortage of workers and in part, this is what make the conversation around what artificial intelligence (AI) advances can do for humanity. For all the hand-wringing over which jobs will be slurped up by robots – everything from cashiers to truck drivers to waiters– we may really appreciate the AI because there may not be a better choice. However, tipping the robot server? That might be a little much.

Unpaused - Student Loans

One of the most wide-reaching economic pieces of the Covid-19 government relief was the moratorium on federal student loan repayments. Over 43 million Americans have outstanding loans and the option to postpone payments was a financial lifeline during a wildly difficult time. It has been over three years since the repayment freeze was first enacted. Now borrowers need to rework their budgets to make room for loan payments which will start again at the end of August.

The the debt-ceiling deal, passed this week, seemingly will end for good what the Trump Administration started and the Biden Administration extended. This is separate from Biden's loan-forgiveness plan, which remains tangled up and currently on the Supreme Court’s desk, where a decision soon will determine whether the government has the authority to wipe out $10,000 - $20,000 of student loan balances for millions of borrowers.

Throughout the moratorium only 1% of borrowers kept consistently paying their loans, despite the assurance that it was okay not to do so. Understandably, the other 99% probably only vaguely remember what their payment is or where to send it. If you are in that second group, we recommend that you get on the phone or jump online today to get reacquainted with those numbers and your lender. You will not want to be calling at the same time as the other 40 million borrowers in late August.

There is no judgment here on who or how much anyone has borrowed. Although young people hold most of the student debt in the country, it follows people into middle and later ages.

There has never been such a massive restart of a loan repayment program in our history, ever. As we know, being in any kind of debt has drag on a personal spending and growth opportunities. So it is not hard to imagine that redirecting spending from the economy into loan repayments will be a drag on the national level at a time when we are slipping on a dicey economic path already. Consumer spending will dip. The housing market will have one more strike against it, particularly for the first-time buyer market. It may also mean that borrowers will shift focus away from retirement and emergency savings. Not to say that loans should be ignored or delayed once more; rather, the sheer number of payments coming at all once during this slowdown in the economy will have an outsized impact this fall.