SHI 1/8/2020 – The Future is Looking Smaller.

SHI 1/1/2020 – Retooling and Reflecting for a New Decade
January 1, 2020
SHI 1/15/2020 – The Roaring 20s Are Here Again. Not.
January 15, 2020

“2019 saw the lowest annual US population growth rate in over 100 years.”

As reported by the US Census Bureau on December 31, 2019:

“While natural increase is the biggest contributor to the U.S. population increase, it has been slowing over the last five years,” said Dr. Sandra Johnson, a demographer/statistician in the Population Division of the Census Bureau. “Natural increase, or when the number of births is greater than the number of deaths, dropped below 1 million in 2019 for the first time in decades.” 

The last time this happened was 1919.   Further, 2019 caps off a decade that was likely the slowest 10-year population growth since the census was first taken in 1970.

What the point?

Growth is essential for economic vitality.   The greater the growth, the greater the chances for economic expansion.  Here in the US and around the world.  Growth is both the oil that lubricates our economic engine and the fuel that powers it. 

As the new decade begins, consider this thought:   Can you imagine a world with little or NO growth?   Or even worse:  can you imagine the economic and financial impacts and implications of a continuously shrinking population? 

Welcome to this week’s Steak House Index update.

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG:

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   This has been the case for decades … and will be true for years to come.

But is the US economy expanding or contracting?

According to the IMF (the ‘International Monetary Fund’), the world’s annual GDP is about $85 trillion today.  According to the most recent estimate, US ‘current dollar’ GDP now exceeds $21.53 trillion.  In Q3 of 2019, nominal GDP grew by 3.5%, following a 4.7% annualized growth rate in Q2.  The US still produces about 25% of global GDP.    Other than China — in a distant ‘second place’ at around $13 trillion — the GDP of no other country is close.   The GDP output of the 28 countries of the European Union collectively approximates US GDP.   So, together, the U.S., the EU and China generate about 70% of the global economic output.

The objective of this blog is singular.

It attempts to predict the direction of our GDP ahead of official economic releases. Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore related items of economic importance.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.


US population is not shrinking yet. 

But the rate of growth is:

‘Apple TV+’ has given us an interesting ‘science fiction’ TV series.   Called ‘See,’ the premise of the show is this:  In the distant future, a virus has killed the majority of the earth’s population.   We are not told how many of the 8+ billion folks currently occupying the globe remain alive, but I believe the number is quite small.   In the millions.  And those fortunate enough to survive have lost their eyesight.   The virus rendered every living human blind.  All other species can still see — only humans were impacted.   Interesting concept, right? 

Not only are the show’s characters sightless, but none live in cities or houses.   Their living conditions are downright prehistoric.   Cave-man like. 

So here’s a question for you:   What’s the value of your 3-bedroom, 2-bathroom home in this fictional world?   Zero.   Your home would have no value.  Nor does an office building, a shopping center, an industrial property, or hotel; in fact, no real estate has any value.   None.  Because there is no demand for any of these assets.  Without demand, real property assets have no value.   Zip.

Clearly this fictional world is farfetched.   But it does help us visualize the implications of a world with a dramatically smaller population.  A world where demand for the property, goods and services of today are valueless due to zero demand.  But this could never happen in the ‘real world’, right?   Clearly, this idea is preposterous — pure science fiction.  Or is it?  (right click, select open link in new tab.)

‘Ghost’ homes?   Hmmm … downright scary!  🙂

And consider this paragraph from the article:

“As populations decline in countries across the globe, the demand for housing will also drop as the number of households decreases. This is already happening in Japan, where the country’s dramatically ageing population is fuelling a massive inventory of vacant homes. Known as ‘akiya’, these are homes left abandoned without heirs or new tenants. A record high of 13.6% properties across Japan were registered as akiya in 2018, and the problem is predicted to get worse; not only do relatives want to avoid inheriting homes due to Japan’s second-home tax, but there are fewer citizens overall to occupy them.”

Frightening, right?  I’m sorry to say this is very likely our future, too.  Japan is simply leading the way.  Populations in parts of Japan are shrinking fast.  As a result, homes in these areas can find no one to occupy them — neither as an owner or a renter.   And so the akiya ‘ghost’ homes sit.  Vacant.  Empty.   What is the value of an empty home that no one wants to occupy or own?   Zero.  But this could never happen here in the US, right?   Sure it can.  Take a look at this graphic:

Negative population growth is already happening in Illinois, W. Virginia, Connecticut and Vermont.   This outcome is not an aberration or short-term trend.   This is a a factual, structural change in the United States and a likely future.   Just as it is the most likely future of all developed economies of Europe, North and South America, and Australia.   Only certain parts of Asia and Africa are presently exempt from this macro-economic challenge.  

OK … calm down.  don’t panic.  You don’t have to rush out and sell your house.  Not yet anyway.   Unless, of course, you live in Illinois. 

But you do need to start thinking about a future where populations in much of the world are growing slower, or even shrinking, as this long-term demographic trend continues to take root.  Because this condition will prove to be the greatest economic challenge and the greatest opportunity the world has faced since the end of the Second World War.   For example, in a region of shrinking population, real property ‘location’ and ‘utility’ will become even more paramount to value than they are today. 

The Point:  Demand patterns for all goods and services are changing across the globe. The future of your bank account, the value of your investments and the vitality of your business all depend on your ability to understand these changes and their implications. 

My opinion, of course.  After all, we’re talking about the future.  🙂

This is a theme I’ll revisit quite a bit during the year, so I’ll leave this here for now.   And we’ll head off the to steakhouses!

Well … this is a refreshing change!   Look at all that green!  Reservations demand in our new expensive eatery pool is strong.  This is a great change from the fairly consistent results we saw last year where week after week, reservations time slots in many of our pricey steakhouses were widely available.  The dynamism of these 40 restaurant choices in the 10 markets we’re tracking should make the SHI more responsive to economic changes.  That’s my hope anyway.  Time will tell. 

But the reservation demand over the 2019 numbers is obvious.  Take a look at our long-term trend chart:

Remember:  The range of potential SHI10 outcomes ranges from a low of negative 440 to a high of a positive 720. 

The lowest reading suggests none of the available reservation time-slots is sold-out.   In other words, a table of 4 can reserve a table this next Saturday night for any time-slot they desire.   The highest possible reading for the SHI10 is the exact opposite:   every time-slot is sold out.   Said another way, an SHI10 reading of 720 tells us that all 40 of the restaurants we track are fully booked.   So the reading this week of 177 — a significantly higher reading than just last week — is a welcomed change from the consistently low readings of 2019.   Speaking of which:  Take a look at the SHI10 reading from this week in 2019.   This week’s reading is 366 points higher!   Good.  Of course, the comparison is not statistically meaningful, as the source data has changed significantly.   But it is interesting nonetheless. 

Restaurant reservations at our extravagant eateries are in high demand.   The SHI is telling us that our US economy remains vibrant for yet another week!

  • Terry Liebman

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