Sorry Professor Ehrlich.  Your forecast was wrong.   Very wrong.  Not even close, as it turns out.  For example, in 1968 Ehrlich wrote, “I don’t see how India could possibly feed 200 million more people by 1980.”  India’s population was 530 million in 1968.   Today, they number close to 1.4 billion.  And while poverty and malnutrition remain problematic, according to the World Bank both are down about 90% since the country’s independence in 1947.    Mass starvation?   Never happened.   And since almost 80% of Indians are Hindus, who believe the cow is sacred, another thing that never happened in India is the ‘Steak House.’   That’s right:  “No steak for you!” in India.   Sorry.   We should probably stick with Mastros here in the US.  🙂

 

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: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

---

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.  

But is the US economy expanding or contracting?

Before COVID-19, the world’s annual GDP was collectively about $85 trillion.  Then it shrank … then bounced back!   We can thank global fiscal and monetary policy for the bounce.   According the the Q3, 2020 ‘preliminary’ numbers, annual US GDP is back UP to about $21.1 trillion.   And still, together, the U.S., the EU and China continue to 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.

---

The Blog:

OK.   I’m kidding.  India does have steak houses.  Phew.   So if you find yourself in New Delhi, hankering for a Filet, you’ll be good to go.   🙂

But I am not kidding about global population growth.   Sure, some of the world’s geographic regions are still growing rapidly — specifically Africa and Asia.   But while population growth on the African continent is forecasted to remain positive thru 2100 and beyond, population levels in Asia are expected to peak around 2050.  Thereafter, population in Asia is expect to shrink.  

Conversely, population in continental Europe has been declining for years now, and population growth in North America, while positive, is very slow by historic standards.  The United Nations predictions below forecast a very different future than Professor Ehrlich and the other neo-Malthusians:  Global population has not, and will  not,  explode exponentially. 

In fact, global population growth rates are dropping like a bomb from a plane, falling back to earth fast and furious, heading toward zero at a worrying clip.   Can you imagine a world with zero population growth?  Wow.  That’s never happened before. 

 

 

From the chart above, it’s easy to see the cause of Ehrlich’s concern back in the 1960s.  In his book, Ehrlich observed that since about 1930 the population of the world had doubled within a single generation, from 2 billion to nearly 4 billion, and was on track to do so again. He assumed that available resources on the other hand, and in particular food, were nearly at their limits.   Between the early 1950s and 1968, the annual population growth rate had climbed to about 2.1%.  One can understand the source of his concern … the growth numbers were alarming. 

But, in fact, soon after his book was published, population growth rates plummeted.   Why?   🙂

The regional growth-rate changes are also fascinating.   As you can see from the chart below, population growth rates peaked in every region on earth by 1990 and have been declining ever since.   And from just after mid-century, growth rates turn negative in Asia and Latin America, joining Europe in “shrinking” mode:

 

 

The US is one exception in the developed world.   Our population is still growing.   But the rate of growth is slipping far below historic averages, as you can see from the brand-new 2020 Census chart below.   In fact, only during the “Great Depression” decade (from 1930 to 1940) did the US population grow slower than it did between 2010 and 2020.   In the decade past, the US had the lowest population growth rate in 100 years:

 

By now, you may be asking why an economic blog is so focused on the massive decline in population growth rates?   Great question.  Let me explain. 

Foundational to all economic theory is the supply vs. demand paradigm.   Many factors determine price and value, but none as dramatically as supply vs. demand.   And nothing stimulates aggregate demand as much as population growth.  Think of it this way:  Imagine your local Ruths Chris restaurant has 150 fine-dining tables to “sell” each evening.  But inexplicably, one day, exactly half the local population moves from your home town to Canada.  What impact might that have on Ruths Chris reservations and sales of T-Bones?   Correct:  While we can’t determine the precise effect, we can state with a high degree of certainty that demand will fall.  How much?  We can’t say for sure.   But it is extremely likely reservations, sales, and revenue will decline precipitously. 

What impact might that sudden migration have on local home values?   Or sales at the local grocery store?   Or the mall?  Correct:  In all cases, a sudden decline in population would have an immediate and adverse effect on  all  economic activity. 

GDP growth is highly correlated with population growth.  It’s easy to understand why.   Population declines cause a number of adverse economic conditions:   Fewer people “buy” less stuff … a smaller labor force “earns” less income … fewer people make less reservations at their local expensive steakhouses … and the negative feedback loop continues.  This is why  adequate  population growth is critical to economic vitality.   Note the word ‘adequate?’    Too much growth and ‘supply’ cannot keep up with demand.   Insufficient growth and ‘demand’ is inadequate to maintain expected price levels.  

In this way, population growth really drives the grand-daddy of all inverted U curves.  If the annual population growth reaches zero, sometime in the next century, as the United Nations believes, developed and emerging economies could have serious problems coping.   Even a slowly, but continuously, declining rate of growth may have serious and sever implications.  

For example, consider housing.  Of late, home demand and home prices have been on a tear.   Driven by excess demand, values are way, way up.  Interestingly enough, this is not just an American phenomenon.   No, this is happening all over the developed world.    Consider this statement from an April 10th article entitled “House Prices are going Ballistic” in the Economist magazine:

 

In America prices increased by 11% in the year to January, their fastest pace in 15 years. In New Zealand prices are up by 22%. Among the 25 countries that The Economist tracks, real house prices rose by 5% on average in the latest 12-month period, the quickest in over a decade.

 

January-to-January, the one-year price increase is 8% in England and 9% in Germany.  Ballistic indeed.   But in some “mega-cities” where Covid has (temporarily?) caused population levels to decline — such as Manhattan — home prices have actually fallen.  Manhattan prices are down 4%, Y-O-Y.  Other “dense” cities have seen varied impact, but none have experienced price increases equaling those in less-dense areas. 

Clearly population growth rates matter.  At least where aggregate demand is concerned.   Too little and values fall; too much and markets become frenzied, causing price spikes. 

Which is why a slowing US population growth rate is concerning.  We should be concerned, as this longer-term trend has many economic implications.   Perhaps even more important, from an economic perspective, is the distribution of that population growth  within  America’s borders.  Where is state population growth the fastest?  The slowest?  Where is it negative?  Great questions, all.   Let’s take a look:

 

 

Texas and Utah are growing like weeds.   As is Idaho, Nevada and Colorado.  And human population in Florida is growing faster than the ‘gator population!   Actually, I have no idea what’s happening with the ‘gator population.  I just know the the state is littered with “Beware of Aligator” signs.   Got it.  Eyes are open.  🙂

California remains the most populous state in America at almost 40 million people.  And contrary to popular belief, the state population continues to expand, but at only a 6.1% clip over the past decade.   As we see above, only a handful of states saw their populations decline since 2010. 

 

The SHI10

 

Unlike global population, this week, reservation demand in the SHI steak houses across America has exploded!  

Even in the “mega-cities” like NYC, Boston and Chicago.  Demand for tables this coming Saturday is absolutely staggering.   Don’t plan on dining out around dinner-time this Saturday at a fine steakhouse in ‘Vegas.  Only one (1) time slot remains — and that’s at 9 pm!   ‘Vegas is back, baby!  Of course, capacity limits are likely in place in some of the 40 restaurants we’re tracking … so take this all with a slight pinch of salt.  But make no mistake:  Steaks are flying off the grill at our expensive eateries!

 

This week’s SHI10 reading of a positive 400 is the  HIGHEST  index reading ever for the SHI.  And the ‘spread’ between a similar week/date in 2019 (remember, 2020 everything was closed) is also the highest I’ve ever reported at 621.   Yes, the week of 4/17 during 2019 yielded an SHI reading of a negative <221>.   The difference is downright amazing.   Capacity limitations notwithstanding, demand for T-Bones, Filets and New Yorks is sizzling!

 

The longer-term trend report above — and the “spread” history — highlights just how strong steak demand is this coming Saturday.   We see no red ink anywhere.   Every city is experiencing exceptionally strong demand. 

 

---

THIS JUST IN:   An exceptionally large group of Texas ‘long-horns’ was spotted boarding a flight from Dallas to Mumbai, a known ‘sanctuary city’ for cattle.

---

 

Sorry.  Fake news.  I couldn’t help myself.   In truth, they were dairy cows who had heard compelling rumors about the fabulous ‘cow make-up artists’ all over India.    🙂

Let me summarize with these comments.   Population growth drives an increase in aggregate demand.  In a stable marketplace, aggregate ‘supply’ can only continue to expand if aggregate demand grows.   Stable markets and supply growth, in turn, generate GDP increases and, finally, improvement in the aggregate level of a society’s standard of living.   Around 2050, when the population growth rates really sink fast, I plan to start worrying quite a bit more about this problem. 

Until then, I say we enjoy our perfectly grilled New York’s and a fine bottle of wine.  Assuming you can find a reservation.  They are pretty scarce these days.   At present, by all indications, the economy is as hot as the grill at Mastros.

       <>  Terry Liebman