How to Profit From the Myth of Overpopulation: Johnson & Johnson (JNJ), Pfizer Inc. (PFE)

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If you asked the average person on the street if America is overpopulated and the birth rate is too high, you’d likely receive “Yes” as your answer. However, that answer is wrong. In fact, America is seeing a decline in birth rates and there is now real fear that an aging population may not being having enough children to replace today’s working force. Economically, this is bad and will present a number of challenges in the future. But from an investing standpoint, this demographic shift could prove beneficial to savvy investors, as companies that cater to the mature population stand to benefit from an increasing median age. Here’s what you need to know:

Johnson & Johnson (NYSE:JNJ)The shift
Between 2007-2010, the U.S. birth rate dropped 8% to the lowest it’s been since the 1920s, and the overall birth rate in 2011 was 63.2% per 1,000 women of childbearing age, according to the Pew Research Center. This is in comparison to the overall birth rate in 1957, which peaked at 122.7 births per 1,000 women, to make up approximately 78 million baby boomers.

Additionally, the population aged 18-44 had a growth rate of 0.6% from 2000 to 2010, while the population aged 45-65 grew at a rate of 31.5%, and the population aged 65+ grew at a rate of 15.1%, according to the U.S. Census Brief. These figures increased the median age of Americans to a new high of 37.3 years of age. Moreover, an increasing birth rate of males to females — 105 males to every 100 females — further complicates a declining and aging population.

The problems
There are a number of reasons why the above statistics are concerning. First, the Congressional Budget Office estimates that by 2037 the Social Security trust fund will be exhausted, and that in 2015 Social Security will run deficits through the CBO’s projection of 75 years. This is because between 2010-2030 the number of people age 65 or older is expected to increase 76%, while the number of people working will only increase 8%. The following table shows the breakdown of Social Security. Numbers are expressed in billions of constant 2010 dollars:

Year Tax Revenue Cost Annual Surplus/Deficit Cash Flow Surplus/Deficit Trust Fund Balance
2030 1,098.20 1,365.7 -152.3 -267.5 1,948.0
2031 1,117.50 1,397.3 -176.9 -279.8 1,718.1
2032 1,137.00 1,428.2 -201.5 -291.2 1,469.8
2033 1,156.70 1,458.1 -225.9 -301.4 1,203.9
2034 1,176.60 1,486.7 -249.8 -310.1 921.3
2035 1,196.90 1,514.2 -273.0 -317.3 623.3
2036 1,217.90 1,541.2 -295.9 -323.3 310.4

Source: CRS, based on data from the 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds; August 5, 2010; table VI.F7.

Understandably, the above information is concerning for anyone relying on Social Security for their retirement.

Second, if we examine these statistics in light of what’s happening in Japan — which is further along in terms of a declining birth rate and aging population, we see that the impact on the economy and companies is concerning. For example, Japan has projected that its economy will shrink, and that economic competitiveness and an aging population will hinder innovation and lead to deflation. This, in turn, will create a vicious cycle that will continue to negatively impact Japan, unless incentivizing couples to have more children can reverse it.  Unfortunately, this approach isn’t working, as Japan implemented incentives in the 1990s but still continues to face problems.

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