Central U.S. Manufacturing Maintains Expansion, But Prices Keep Rising Too

The Federal Reserve Bank of Kansas City said Thursday that its Tenth District manufacturing survey’s composite index was steady at 1.0 this month, maintaining the same level as July, when for the first time in three years the index pointed to expansion rather than contraction in the area’s manufacturing. (…)

Demand continued to recover, with production moving out of contraction territory, the index showed. (…)

With activity continuing to increases, price pressures also heated up. The index showed rises in both the prices manufacturers pay for raw materials, and the prices they receive for finished goods. (…)

The WSJ paints it rosier than it actually is. From the KC Fed data:

• Volume of new orders have been falling all year, faster in the last 2 months.
• Same for backlogs.
• Employment and the work week weakened measurably in the last 2 months.

Ed Yardeni:

The regional business surveys conducted by five of the 12 Federal Reserve district banks showed that inflationary pressures are building. The average of the prices-paid indexes jumped in August to 56.0, the highest reading since October 2022. The average of the prices-received indexes is lower at 24.5, suggesting that many companies are absorbing the increasing costs of tariffs and/or offsetting them with productivity gains. More companies may start to pass their costs on to consumers in the coming months.

Ed is also wondering “Is The Fed About To Stimulate A Hot Economy?”

Perhaps.

My August 22 post was titled Growthflation! following S&P Global’s flash US PMI:

S&P Global’s flash PMI rose to an eight-month high from 55.1 in July to 55.4 in August. The latest two months seeing the strongest back-to-back expansions since the spring of 2022. The last two months saw the the strongest back-to-back expansions in services since the spring of 2022. Employment rose for a sixth successive month, with the pace of job creation hitting the highest since January (and one of the strongest rates seen for over three years). Service providers took on staff at the fastest pace for seven months while factory job gains reached the highest since March 2022.”

Most large past divergences between S&P Global and the Employment ISM surveys ended up in favor of S&P Global. If this one is no exception:

• The ISM releases on September 2 (manufacturing) and 4 (services) could be surprising to many. If S&P Global is right, the US economy is actually quite strong and employment growth has strengthened in August.
• The FOMC would be wise to stay put a while longer, particularly since both surveys agree on accelerating inflation, fueled not only by tariffs but by strong underlying demand and limited supply.

This is supported by very strong real world data from corporate America in Q2: S&P 500 earnings are up 12.9% (14.8% ex-Energy), largely beating the July 1 forecast of +5.8%. Revenues are up 6.3% (7.4% ex-E) vs +3.7% expected. Corporate guidance remains solid.

Walmart’s US comps rose 4.6% in the quarter ended August 1, +3.6% in volume. The company raised its full-year sales guidance from +3-4% to +3.75-4.75%, a sign that back-to-school sales are solid.

• The Citigroup Economic Surprise Index jumped today to 26.8.

Higher Prices Are Coming for Household Staples Companies from Hormel to Ace Hardware forecast prices rising as the costs of Trump’s tariffs are passed on to consumers

Companies including Hormel Foods, J.M. Smucker and Ace Hardware said this week they would raise prices for reasons ranging from higher meat costs to tariffs. Large retailers like Walmart, Target and Best Buy said some tariff-related price increases are already in place. More are on the way.

“Some vendors are clearly communicating cost increases. Some are adjusting promotions. Some are planning to potentially increase prices with new product introductions, which always happens,” Best Buy Chief Executive Corie Barry said on an analyst call Thursday. She said price increases are much lower than the overall tariff rate. (…)

So far, tariff-related price increases have been muted, Walmart CEO Doug McMillon said last week. “But as we replenish inventory at post-tariff price levels, we’ve continued to see our costs increase each week, which we expect will continue into the third and fourth quarters.”

McMillon said price increases have led middle- and lower-income shoppers to pull back on some purchases. (…)

With tariffs driving up its purchasing costs, Ace said it plans to pass the increases through to its stores, which in turn will pass them along to consumers.

Food giant J.M. Smucker, which makes Folgers and Jif peanut butter, said prices will continue to go up for its coffee products as a result of the Trump administration’s 50% tariff on certain imports from Brazil, one of the world’s largest coffee producers. Smucker raised prices for its coffee in May and said it would raise them again this month.

Up to this point, many U.S. companies have either sold through existing inventory purchased when tariff rates were lower, absorbed the tariffs or negotiated with suppliers to share the burden. Other tariff-related costs haven’t arrived until now. (…)

Hormel Foods said Thursday that rising costs for beef, pork and nuts eroded its profit for the most recent quarter. As a result, the maker of Spam, Jennie-O turkey and Planters nuts began raising prices during the summer and plans to continue increases on some products. (…)

Tyson Foods, the largest American meat supplier by sales, said its average selling price for beef, chicken, pork and precooked products was up about 4% in the three months ended June 28 from a year earlier. Restaurant chains including Texas Roadhouse and Portillo’s have said they are hiking menu prices because of pricier beef. (…)

Retailers including Dick’s Sporting Goods, Victoria’s Secret, Dollar General and Williams-Sonoma reported higher quarterly sales in recent weeks, saying that while they and their suppliers have implemented some tariff-related price increases, that hasn’t slowed consumers’ purchases.

Dick’s Sporting Goods said shoppers are gravitating to new products and premium brands. “We have not seen a consumer having any issue with the price increases, the small level of price increases that have gone in,” said CEO Lauren Hobart.

At home-goods retailer Williams-Sonoma, which owns brands including West Elm and Pottery Barn, executives said higher prices and fewer discounts helped boost its profit in the most recent quarter. Apparel retailer Victoria’s Secret also said it continued to pull back on discounts, in part to offset the cost of tariffs. (…)

Dollar General CEO Todd Vasos said climbing consumer prices elsewhere could benefit his chain. While the company’s core clientele of low-income shoppers has increased spending at the chain, higher-income shoppers are trading down to Dollar General as they look for deals.

All are “seeking value at this point,” he said Thursday.

Trump Leans on National Security to Justify Next Wave of Tariffs Expanded steel and aluminum tariffs are just the start; new levies seen as likely for semiconductors, heavy trucks, commercial aircraft and more

(…) s on steel and aluminum were expanded this month, covering more than 400 new product lines with 50% levies and increasing compliance costs for companies. Those charges will likely be broadened further, along with expansions of existing tariffs on copper and automotive parts.

New levies on sectors like semiconductors, heavy trucks, pharmaceuticals and ingredients, processed critical minerals, and commercial aircraft and parts, among others, are also likely to be unveiled in coming months. (…)

Trump still holds near-unilateral authority over how national security tariffs are set or altered. That gives the administration an insurance policy if its reciprocal tariffs are struck down in court, people with knowledge of the administration’s plans say. (…)

At the same time, Trump’s team is considering ways to provide relief from some of those tariffs for a handful of large companies like U.S. automakers and tech firms, the people familiar with the plans say.

U.S. automakers have argued that despite 15% tariffs on Japan and Korea, it is still profitable to produce cars in those countries and ship them to the U.S.—in part because of higher input prices in the U.S. due to Trump’s steel, aluminum and parts tariffs.

Options the administration is considering for relief include expanding existing tariff rebates for automotive assemblers like Ford, Stellantis and General Motors, or applying quotas that allow a certain number of parts to enter the U.S. duty-free, according to people with knowledge of policy discussions. Trump has also floated exemptions from certain tariffs to large tech firms with U.S. operations, or giving some companies with U.S. operations more time before tariffs kick in. (…)

The additional items, announced Aug. 15, represent a major expansion of the national security tariffs on the steel and aluminum in finished goods that Trump imposed in March. Construction and farm equipment, factory robots, metal-cutting machinery, auto parts and other complex components are among the 400 items now subject to 50% tariffs on the metal contained in them.

The latest tranche of products brings the total value of imported finished products subject to U.S. metal tariffs to more $300 billion, according to Jason Miller, professor of supply chain management at Michigan State University.

“They’re just so sweeping in terms of their coverage,” Miller said. “We just keep picking up more and more. You’re now penalized for importing parts with a high percentage of steel and aluminum.” (…)

The administration plans to allow companies to petition for additional products to be covered by tariffs three times a year, with the next round opening in September, and another in January of next year. Additionally, the Commerce Department is considering inclusions for auto parts tariffs that could be unveiled in mid-September—one of four inclusion rounds planned each year—and the agency is also expected to open an inclusion process for copper tariffs by late October. (…)

Already, Trump has announced plans to expand the lumber tariffs to imported furniture products, which would significantly expand the scope of the levies to a number of everyday consumer products.

Trump rolled out the duties on metal derivative products after steel and aluminum producers complained that companies were buying finished products with foreign metal to avoid buying American-made products with domestic metal. (…)

Ken Fedor, a vice president for sales in the U.S. for transformer manufacturer SGB-SMIT Group in the Netherlands, said the U.S. doesn’t produce enough electrical steel or transformers to accommodate the surging transformer demand from data-center operators and utility companies. Expanding production of large transformers in the U.S. will take years, he said.

“You just can’t ramp it up. It’s a highly skilled process. Everything is customized,” he said.

He expects the tariff to increase the cost of the large imported transformers that SGB-SMIT builds by as much as 30%. The company makes them in the Netherlands and sells them mostly to U.S. electric utility companies for use at power generating plants and electrical substations.

The new tariffs on the metal in robotics gear will make it more expensive for U.S. companies to automate factory processes by deploying robots. The robot market in the U.S. is now largely supplied with hardware from robotics companies in Japan, South Korea, China and Germany. Automation to reduce labor costs has been an incentive for companies thinking about bringing manufacturing to the U.S. from overseas.

“If the costs go up, it’s going to make it harder for companies to justify bringing more manufacturing back,” said Jeff Burnstein, president of the Michigan-based Association for Advancing Automation, a trade group for robotics. “Right now, the tariffs look like this is a negative for the robotics industry and manufacturing in general for the U.S.” (…)

Texas-based construction and mining equipment maker Caterpillar said Thursday its tariff expenses this year could reach $1.8 billion, up from the $1.5 billion forecast earlier this month. The company said it raised its expense outlook in response to the expansion of tariffs. (…)

The Trump administration currently lets the automakers receive a rebate on the tariffs they pay for auto parts. But companies have asked the Commerce Department to expand the program to allow them to be refunded for other tariff costs as well, according to people with knowledge of the discussions. (…)

Centralized economy run by civil servants. Good luck. History rhymes as Mark Twain said.

BTW:

Agco for years has been trying to boost its business in the U.S., where it has held the No. 3 spot in essentially a three-company farm-equipment market. But a wave of new tariffs means it will be harder to boost its standing there.

The Duluth, Ga., company doesn’t have enough U.S. sales to justify moving more production out of Europe, where it has most of its production and sales, Chief Financial Officer Damon Audia said. And the likely need to raise prices to offset tariff costs could further depress sluggish demand for farm equipment in the U.S., where the company is continuing to invest.

Meanwhile, in Europe, where much of its supply chain and sales are aligned, the company could see a boost by avoiding many tariff costs that its peers Deere & Co. and CNH Industrial face. (…)

“All of us are looking at these costs trying to figure out how to keep it low for the farmers,” he said. “But ultimately, these are things that we’re going to have to try to pass through in some capacity over time.”

The company might spread out price increases across its brands, for example charging more for planters and sprayers made in the U.S. so it wouldn’t have to raise prices as much on tractors from Germany, Audia said, adding no decision has been made. (…)

“If what we really want as a country is more U.S. manufacturing, then making it harder for people to do that seems counterproductive,” Volkmann said. (WSJ)

US Tariff Impact Tracker

Goldman Sachs plots high-frequency data: China exports less to the US but more overall.

 

The Richmond Fed polled businesses in August:

According to our August surveys, almost 30 percent of firms were not at all certain about their input costs for the remainder of the year. The uncertainty went beyond just those firms affected by tariffs: Sixteen percent of firms that reported not importing products subject to tariffs were not at all certain about their input costs for the remainder of the year.

Thirty percent of firms were only slightly certain about input costs. That means that well over half of firms are relatively uncertain about what they will be paying for inputs in 2025. This was especially prevalent among manufacturing firms, where 44 percent reported that they were not at all certain about input prices for the remainder of the year.

A vehicle parts manufacturing firm reported, “Over the past 20+ years, we have developed good relationships and a reliable, stable supply chain. The tariffs and the threat of tariffs have completely upended that … we will have to increase prices to our customers or make less margin or, most likely, both.”

On the other hand, there was much more certainty among respondent firms about how they will price their own products and services. Although most firms were uncertain about their costs, over 60 percent of responding businesses were very or somewhat certain of the prices they will charge their customers, with service sector firms (66 percent) more likely to report certainty than manufacturers (52 percent).

Nonetheless, there were service sector firms that reported ripple effects of trade policy changes. For example, one professional services respondent reported, “My firm supports businesses that import materials from other countries, so we are impacted by their ability to invest in professional services based on increased costs and supply issues related to tariffs.”

Some firms remain in “wait and see” mode as uncertainty around tariff policy and input prices persists. However, most impacted respondents have begun passing along tariff costs to their customers by raising prices.

Of the roughly half of firms that reported direct tariff impacts, nearly 60 percent of them have already increased their prices due to tariffs, and most of these firms plan to raise prices again.

In contrast, about 25 percent of firms reported that they have been impacted by tariffs and plan to raise prices but have not yet. For example, a South Carolina transportation manufacturer plans to pass on tariff costs but has not yet due to concerns about demand for their product. As they explained, “Tariff cost transfer to customers is creating the largest earnings uncertainty in our 2026 business plan.” Fourteen percent of respondents who reported being affected by tariffs were unsure about whether to adjust prices.

Regardless of whether they have increased prices already due to tariffs, most impacted firms intend to raise prices. However, amid trade policy changes, over half of firms that plan to increase prices are mostly or entirely uncertain about their prices through the end of the year, casting uncertainty on whether and when these price increases will manifest.

Almost one-quarter of respondents that are impacted by tariffs have not increased prices but plan to. Roughly 50 percent of these firms expect to increase prices before the end of the year. Another 29 percent expect to start passing through in 2026, and 21 percent are not sure when they will start passing through costs.

Another 45 percent of tariff-affected respondents have already increased prices and expect to increase prices further. Nearly 70 percent of these firms expect to raise prices by October, and few anticipate waiting until 2026. In other words, firms that have increased prices already expect to increase prices again sooner than those firms that have yet to increase prices.

Still, many firms continue to be unsure about the timing of their next price increases. A North Carolina transportation company reported that they have begun passing through tariff costs, but they are waiting until next year to increase prices further, noting that “We have found demand softening, which has led … to much more price competition. …”

Canada’s annual job growth barely above zero in June, payroll survey shows

(…) The number of factory jobs fell 8,400 on a month-over-month basis, as manufacturers scaled back operations in the face of U.S. President Donald Trump’s tariffs on imports from Canada. Based on the payroll data, manufacturing employment has fallen every month since December, wiping out 26,600 jobs since then.

Meanwhile, employment at retailers suffered the next largest decline, dropping by 8,100 positions between May and June. (…)

NBF adds:

In its July Monetary Policy Report, the Bank of Canada stated that several labour market indicators point to growing slack but added that this weakness was limited to sectors sensitive to trade. (…)

According to the survey, total employment fell by 33,000 in June, bringing the total decline since the beginning of the year to 47,000.

Limiting our analysis to the private sector reveals an even more pronounced decline so far in 2025, with 69,000 jobs lost, resulting in the lowest employment level in 28 months. Unsurprisingly given current trade situation, the manufacturing sector has declined by 25,000 jobs, and the two major provinces that depend most on this sector have shown significant declines (Ontario: -39,000; Quebec: -24,000).

However, the weakness is much more widespread at the sectoral level than the Central Bank seems to believe. As today’s Hot chart shows, only 36% of private sector industries have grown over the past six months (i.e. since the beginning of the year), which is unheard of outside of a recession.

While the Federal Reserve has begun to show unease with a weakening U.S. labour market—evident in its increasingly narrow breadth of job gains—the outright collapse in Canada should be an even greater cause for concern at the Bank of Canada.

Notice how low is the US diffusion index. Still declining.

Alibaba Creates AI Chip to Help China Fill Nvidia Void Chinese tech companies spark market exuberance by signaling they are catching up to U.S.

Chinese chip companies and artificial-intelligence developers are building up their arsenal of homegrown technology, backed by a government determined to win the AI race with the U.S.

The latest example: China’s biggest cloud-computing company, Alibaba has developed a new chip that is more versatile than its older chips.

Alibaba was long one of the biggest customers of American AI-chip leader Nvidia. Now it and other chip designers are filling the void left after Nvidia ran into regulatory barriers to selling its products in China.

Industry insiders say China remains far from being able to make chips that can rival the most advanced American products, which Washington bars China from importing. Chinese factories are hobbled by U.S. restrictions on access to cutting-edge chip-making technology.

Still, companies are coming up with substitutes for Nvidia’s H20 chip, the most powerful AI processor it is allowed to sell in China. (…)

In July, Shanghai-based MetaX rolled out a new chip that it said could serve as a replacement for the H20. The chip has bigger memory than the H20, boosting its power for some AI tasks, although it consumes more electricity. MetaX said Wednesday it was preparing for mass production of the chip.

Another would-be Nvidia rival, Beijing-based AI-chip designer Cambricon Technologies, had a breakout April-June quarter, posting revenue of $247 million on robust orders of its AI-chip Siyuan 590. (…)

Alibaba, founded by internet pioneer Jack Ma, is sometimes compared with Amazon.com because its biggest business is e-commerce, but it makes much of its money from the lower-profile business of cloud-computing services—running applications and storing data for customers on remote computers. Alibaba competes with Amazon Web Services, Microsoft and Google for cloud business, particularly in Asia.

Corporate customers are increasingly demanding AI services, and Alibaba Chief Executive Eddie Wu has said “AI plus cloud” is one of Alibaba’s two engines of growth alongside e-commerce. In February, Alibaba said it would invest at least $53 billion over the next three years in the area. It also has one of the world’s highest-rated AI models, called Qwen. (…)

Previous cloud-computing chips developed by Alibaba have mostly been designed for specific applications. The new chip, now in testing, is meant to serve a broader range of AI inference tasks, said people familiar with it.

The chip is manufactured by a Chinese company, they said, in contrast to an earlier Alibaba AI processor that was fabricated by Taiwan Semiconductor Manufacturing. Washington has blocked TSMC from manufacturing AI chips for China that use leading-edge technology.

One challenge for Alibaba and other local players relying on Chinese chip factories is getting enough supply. These factories, which use older foreign machines and less powerful homegrown equipment, have struggled to increase capacity.

MetaX, the Shanghai startup, is getting around the bottlenecks by using an earlier-generation technology to make its new chip, people familiar with the product said. MetaX combines two smaller chips to make up for the loss of performance. (…)

The flag-bearer for Beijing’s push is Huawei Technologies and its Ascend AI chips. Earlier this year, Huawei showed off a computing system that integrates 384 Ascend chips. Some analysts said the machine, although a power hog, was more powerful on some metrics than Nvidia’s top-of-the-line system containing 72 Blackwell chips.

By combining chips, “we can achieve comparable computing results to the most advanced standards,” and “there’s no need to worry about the chip problem,” Huawei founder Ren Zhengfei told the Communist Party’s main newspaper in June.

Even within China, Huawei’s privileged status is raising some hackles. Many engineers are accustomed to the software and tools that accompany Nvidia’s chips. Huawei, subject to U.S. sanctions, didn’t design its chips to work with the Nvidia platform, whereas Alibaba’s new chip will be compatible with it, meaning engineers can repurpose programs they wrote for Nvidia chips.

Private-sector cloud companies including Alibaba have refrained from bulk orders of Huawei’s chips, resisting official suggestions that they should help the national champion, because they consider Huawei a direct rival in cloud services, people close to the firms said.

China’s biggest weakness is training AI models, for which U.S. companies rely on the most powerful Nvidia products. Alibaba’s new chip is designed for inference, not training, people familiar with it said.

Chinese engineers have complained that homegrown chips including Huawei’s run into problems when training AI, such as overheating and breaking down in the middle of training runs. Huawei declined to comment.

DeepSeek, a Chinese startup with models challenging OpenAI’s, recently prompted a stock rally in China by suggesting in a cryptic comment on social media that its software innovations could combine with improved Chinese-made chips to train some AI models.

Kevin Xu, founder of AI-focused fund manager Interconnected Capital, wrote on a blog that such adaptations may allow Chinese AI developers to narrow the gap with the U.S. “sooner than most people think, credibly challenging Nvidia and the American AI stack both at home and abroad.”

Not just to “narrow the gap” …

Europe Car Sales Gain Most in 15 Months as Consumers Warm to EVs

Registrations climbed 5.9% last month from a year earlier — the steepest gain since April 2024 — to 1.09 million units, the European Automobile Manufacturers’ Association said Thursday.

Plug-in hybrids made the biggest jump in July of 52%, as buyers increasingly opt for models that combine electric driving with a backup combustion engine. Sales of fully electric vehicles rose by more than a third, the best result since January.

The data is a boost for the region’s beleaguered industry following a sharp drop in June. European automakers continue to face headwinds as US President Donald Trump’s tariffs disrupt supply chains and Chinese brands led by BYD Co. gain ground with affordable EVs. (…)

Tesla Inc. continued to suffer. Sales of the Elon Musk-led brand slumped 40% last month, giving it a market share of just 0.8%. Volkswagen, Ford Motor Co. and BMW had double-digit gains, while BYD’s deliveries more than tripled.

Renewables investors are pulling back from the U.S.

Trump 2.0’s reversal of federal support is starting to show up in hard financing data.

The first half of 2025 saw the “reallocation” of investment dollars away from the U.S. begin, the research firm BloombergNEF found. U.S. spending fell by $20.5 billion, or 36%, from the second half of 2024 in what the firm calls a response to the U.S. presidential election.
It was the steepest drop of any country.

“There was a rush to construct toward the end of last year as developers sought to lock in access to tax credits, and then a sharp drop in the first half of this year due to worsening policy conditions, particularly for wind, and growing tariff uncertainty,” the report states.

The European Union saw a big jump, which “supports the idea that developers and investors may be reallocating capital out of the U.S. and into Europe.”

The U.S., in the first half of 2025, wasn’t among the world’s top-five wind markets for the first time since 2016.

Worldwide investment was $386 billion in the first half of 2025, a tally that’s largely wind and solar, but also includes biofuels, geothermal and more. (…)

How recent events sway U.S. investment trends.

• The Interior Department has unveiled fresh constraints on wind and solar projects, while the Commerce Department could impose new tariffs on wind blades and components.
• And just last week, Interior demanded that Ørsted halt construction on a big, nearly complete wind project off Rhode Island.

FYI:

Around 90% of renewables cheaper than fossil fuels worldwide, IRENA says

The majority of newly commissioned renewable energy is more cost-effective for electricity generation than most fossil fuels worldwide, a report by the International Renewable Energy Agency (IRENA) showed on Tuesday. (…)

Solar photovoltaic (PV) was 41% cheaper on average than the lowest-cost fossil fuel alternatives, such as gas, while onshore wind projects were 53% cheaper.

The cost of battery energy storage systems has declined by 93% since 2010, the report added.

MAGA?

WHY NOT?

Trump Ally Floats Norway Tariffs Over Caterpillar Divestment

A Republican senator closely allied with US President Donald Trump suggested imposing additional tariffs on Norway in retaliation for a decision by the country’s sovereign wealth fund to divest its holdings of heavy-equipment maker Caterpillar Inc.

Senator Lindsey Graham, a South Carolina Republican, in a social media post Thursday also floated halting US visas for leaders of the sovereign wealth fund and other “organizations that attempt to punish American companies for geopolitical differences.”

Norway’s $2 trillion sovereign wealth fund removed Texas-based Caterpillar from its fund this week based on Israel’s use of its bulldozers to destroy Palestinian property in Gaza and the West Bank. The fund held about $2.1 billion worth of shares in the company as of June 30. (…)

Norges Bank Investment Management operates under a mandate set by the Norwegian parliament with ethical guidelines on issues ranging from land mines to climate change. It is advised by an external ethics council, which assesses the portfolio on an ongoing basis and recommends companies for exclusion or observation.

More than half of the fund’s investments were in US equities and bonds as of June 30.

Trump Suggests ABC And NBC Should Lose Broadcast Licenses Over Negative Coverage Of Him

*** GONE FISHING ***

I am in Ungava salmon fishing until August 29.

Amid all the economic and financial uncertainties, demographics are the critical variable for longer term economic growth and standards of living. Investment strategies should be cognizant of the solid underlying trends.

McKinsey Global Institute

Our current economic systems and social contracts have developed over decades of growing populations, in particular working-age populations that drive economic growth and support and sustain people living longer lives. This calculus no longer holds.

A combination of higher productivity, more work per person, effective migration, and higher fertility rates can ensure global prosperity for the future. That said, no one of those levers alone will be enough, and each presents challenges. Bending the trajectory of the demographic shift will require society to rethink existing systems for work and retirement in ways that may compel a change in our social contract—no easy feat. (…)

As well-being and prosperity increase around the world, two outcomes—fewer children and longer lives—are reshaping global populations. Over the past several decades, families have shrunk in size virtually everywhere. In much of the world today, the total fertility rate, which we refer to as the fertility rate, is below the replacement rate of 2.1, which is the number of children needed to replace their parents. As a result, the global age mix is shifting. While many people call this phenomenon “aging,” in fact the declining number of young people—a youth deficit—is driving the bulk of the demographic shift

While declining fertility rates and changing population patterns are occurring everywhere, a first wave of regions, generally higher-income ones, has already begun to experience the effects of the demographic shift over the past several decades. Later waves of the same challenge will wash over many emerging economies in the next one to two generations. (…)

Working-age people account for the bulk of economic output, so their numbers relative to those of older and younger people determine a host of economic outcomes. All regions will see the share of working-age people in their populations decline, although at different paces and points in time. (…)

Among first wave regions are predominantly developed economies—Advanced Asia, Central and Eastern Europe, North America, and Western Europe—and Greater China, which has lower GDP per capita than other first wave regions but shares their demographic characteristics. These regions have an average total fertility rate of 1.2 children per woman today, and 67 percent of their combined population is working age, down from a high of 70 percent in 2010. In aggregate, this cohort is rapidly shrinking in these regions, where the share of the working-age population is projected to drop to about 59 percent by 2050.

There are two later wave groups of regions. A second wave has just reached the shores of Emerging Asia, India, Latin America and the Caribbean, and the Middle East and North Africa. Their total fertility rate is 2.2, and 67 percent of their population is working age today. This wave is still gathering momentum, however, and will peak in the 2030s in aggregate.

In Sub-Saharan Africa, the average fertility rate is 4.4 today, and just 56 percent of the population is working age. This share will continue to grow, peaking at 66 percent well into the second half of the century, when the third wave of the demographic shift hits its shores. (…)

For first wave regions, the declining share of working-age population is a relatively new development, and many companies, governments, and communities haven’t yet fully come to grips with the implications. Later wave regions, excluding Sub-Saharan Africa, still have time to prepare, but not much.

Globally, the support ratio was 9.4 in 1997. Put differently, there were more than nine working-age people to support one older person. Today, the global support ratio is 6.5. And by 2050, it is expected to fall to 3.9—that is, fewer than four people to support each senior.

This trend is starker in first wave economies, where the support ratio is already 3.9 today, down from 6.8 in 1997. The ratio is expected to fall to two working-age individuals for every person over 65 years by 2050. Among regions in the first wave, Advanced Asia, Greater China, and Western Europe will have the lowest support ratios by 2050; the ratio will fall fastest in Greater China.

The world reached its maximum number of annual births in 2012, when 146 million babies were born, and the global number of births will continue to slowly decline. According to the United Nations, the total number of people on Earth will peak in 2084, at just above ten billion, and start declining in the latter years of this century. (…)

Total population in first wave regions, however, peaked in 2020. On the current trajectory, the population of these regions will fall from 2.8 billion today to 2.6 billion by 2050 and to 1.9 billion by 2100. Only 22 of the 55 countries in these regions will have more people in 2050 than today, and populations in most of those countries will decline thereafter. Already, more people die each year than are born in 37 countries in first wave regions. Today, 60 percent of the world’s population aged 65 and older resides in these regions. By contrast, only 22 percent of those younger than 15 years live there.

Populations across later wave regions are still increasing. The second wave’s total population will reach its maximum by 2071, going from four billion today to five billion at its peak. Sub-Saharan Africa’s population will still be growing by the turn of the century and is projected to reach 3.5 billion by then, up from 1.3 billion today. (See sidebar “Predicting the future is hard, and demographers don’t agree.”)

These dynamics mean that the planet’s population is shifting toward later wave regions. By 2050, a quarter of the global population will live in first wave regions, compared with 35 percent of the world’s people today. According to UN projections, these regions could be home to less than 20 percent of the global population by 2100.

Even though Sub-Saharan Africa’s fertility rate is falling fast, almost 300 of the world’s next thousand babies will be born there. Nigeria alone will become home to 57 of the next thousand—or five more than the 52 born across Central, Eastern, and Western Europe combined. Similarly, 172 of the next thousand babies the stork delivers will be in India, where the birth rate overall has dropped below replacement but where the current population of women of childbearing age is still high.

By 2100, Sub-Saharan Africa will account for all of the net global population increase, doubling its current share to 34 percent. By contrast, Greater China’s share of the global population, today the second largest among the ten regions, will shrink by two-thirds, from 18 percent in 2023 to 6 percent by 2100. This would make Greater China’s population only 170 million larger than North America’s, according to UN estimates, compared with a difference of roughly one billion people today. (…)

By 2050, holding current hours worked per capita constant within each age group, later wave regions would account for more than two-thirds of all hours worked globally.

At that time, Sub-Saharan Africa alone could account for 18 percent of global hours worked, doubling its share of work hours today. The share of the world’s work done by Chinese workers, on the other hand, could drop to 18 percent by 2050 from 26 percent today, and every other first wave region’s share is set to shrink. This could create an opportunity for many later wave countries to progress economically. Opportunities span the entire tradeable economy—services as well as manufacturing.

At least for the next quarter century, countries in later wave regions will account for more than half of global consumption, too, due to fast-growing young populations and growing incomes. For example, World Data Lab projects that India and Emerging Asia will account for 30 percent of global consumption at purchasing-power parity (PPP), up from 12 percent in 1997. By comparison, Advanced Asia, North America, and Western Europe could account for just 30 percent of the world’s consumption then, down from 60 percent in 1997. (…)

Over the longer term, countries in first wave regions may face the challenge of depopulation. Populations in 26 countries in these regions are on track to decline by a third or more by 2100, while in countries including China, Poland, and South Korea, they are expected shrink by half or more. Projections suggest that some countries with fertility rates below replacement, including France, the United Kingdom, and the United States, will have continued population growth through 2100 based on positive net migration. (…)

Declining populations would also challenge debt sustainability and the social contract, not to mention the global geopolitical balance. (…)

Many first wave economies face a virtually unprecedented depopulation challenge toward the end of the century, according to UN projections. More immediately, they face another challenge: increasing dependency that could depress economic growth over the next quarter century. As population pyramids become bottom-light and top-heavy, the well-being of a growing legion of older people and of society at large will depend on a stagnant or shrinking number of people who work, which will increase pressure on public finances. Youth scarcity could also modify consumption and savings patterns. (…)

GDP per capita depends on the number of hours worked per person and how productive each hour of work is, or productivity. Hours worked, in turn, depend on how much individuals of each age work, or labor intensity, and the number of people in each age group, or the age mix. Thus, GDP per capita growth depends on productivity growth, shifts in the age mix, and growth in labor intensity among people in each age cohort.

Under current projections, a changing age mix—more older people and fewer working-age people—will result in slower growth in hours worked and thus reduce GDP per capita growth if left unaddressed. To maintain GDP per capita growth, countries will need to influence their age mix, increase labor intensity, or boost productivity growth—or, more likely, rely on a combination of all three. (…)

Across first wave regions, weekly hours worked per capita peak at about 50 years of age and decline thereafter (Exhibit 11). The primary reason is falling labor force participation rates—fewer older people continue to work—but on average, older workers who are employed also work fewer hours.

(…) over the coming 25 years, the number of older people living in first wave regions will continue to grow while every other age cohort shrinks. This shift in the age mix could slow the growth in hours worked per capita across first wave regions by 2.2 hours per capita per week on average, thus slowing GDP per capita growth. (…)

A 0.4 percent drag on GDP per capita growth per year may seem trifling, but it isn’t. The shift in age mix could slow GDP per capita growth over the next quarter century, for example, by an average of $10,000 in Western Europe and $6,000 in Greater China. (…)

Productivity growth is the other lever underpinning GDP per capita growth, and generally the most important one. Across first wave economies, it has been the largest contributor to growth over the past quarter century. (…)

Maintaining past economic progress, let alone increasing it, will require measures to address the impact of demographic headwinds. In this section, we explore the three levers available—labor intensity, productivity, and age mix—to neutralize the drag on economic growth caused by shifting age mix. The third lever, influencing the age mix by increasing the number of working-age people, can be pulled via migration and higher fertility. However, the impact of higher fertility rates by 2050 would be negligible, as a baby born today would be barely joining the workforce. So we only analyze the impact of migration here.

The conclusion is clear: pulling on only one of these three levers will be insufficient to achieve this goal in most countries, so using some combination of all three will be needed to maintain growth and raise living standards. (…)

(…) the target for each country is equal to its past GDP per capita growth, which in many cases is not high. Italy’s target, for example, is a mere 0.4 percent annual growth. Should Italy want to achieve a healthier GDP per capita growth of, say, 1.5 percent, similar to that of the United States or Australia, the growth in hours per capita required would jump from 2.7 to a whopping 7.9, assuming constant past productivity growth of 0.3 percent per year. (…)

Assuming hours worked per capita grow at the same rate as in the past quarter century, productivity in most first wave countries would need to grow between 1 and 2 percent a year to maintain past GDP per capita growth (Exhibit 19). That level of increase may seem modest, but in Germany, for example, it means doubling the past decade’s average rate of annual productivity growth of 0.7 percent. In Spain, productivity growth needs to increase by about four times, even assuming labor intensity grows at past rates. If labor intensity does not increase—a plausible scenario—productivity in Germany and Spain would need to grow by 1.5 percent and 1.9 percent, respectively, per year.

While productivity can grow by raising capital investment and harnessing digital and automation technologies, most first wave countries have long struggled to do so.³² In fact, productivity growth has slowed in many of those countries over the past decade. For instance, US productivity over the past decade grew 0.8 percent per year on average, much less than its earlier annual growth of 2.0 percent.

From the beginning of 2023 through the second quarter of 2024, productivity growth spiked in the United States to top 2 percent per year, while it flatlined in many Western European countries and Australia. This suggests that the United States may be better positioned to jump-start growth, although that remains an open question. The future holds opportunities and risks for productivity growth everywhere. For example, while AI promises to propel productivity, increasingly fragmented global value chains and the growth of traditionally low-productivity service sectors like healthcare due to increasing longevity could restrain productivity growth.

China faces a special challenge. It is a first wave country because of its current demographic profile, but its GDP per capita of $21,000 (after adjusting for purchasing power) is closer to that of later wave regions. The country’s population is aging faster than almost anywhere else on Earth due to its low and declining fertility rate. To achieve a 4.9 percent growth target, China would need to grow its productivity by 5.5 percent a year, on average, through 2050 to counteract the demographic shift. This target is challenging, though not unattainable. While Chinese annual productivity growth over the past quarter century has been impressive, above 8 percent, it has slowed down more recently. Since the pandemic and through 2023, Chinese productivity grew by 5.2 percent annually.As the country develops further, maintaining such very high rates of productivity growth will not be an easy feat.

All in all, relying on either of these levers, labor intensity and productivity growth, to offset the impact of the demographic shift on its own is unlikely to do the job. Fortunately, countries can use them in combination. The possible combinations of hours and productivity growth needed to maintain GDP per capita growth vary by country.

For example, Germany could achieve past growth by increasing productivity at 0.9 percent per year while also increasing hours of work per capita by 2.2 or, alternatively, by growing productivity at 1.4 percent and hours of work per capita by 0.5 hour. It could also attain past growth with a middle point of productivity and hours between these two outcomes, for example productivity growth of 1.1 percent and an additional 1.6 weekly hours per capita. What is clear is that most countries in the first wave will likely need to rely on both. (…)

While increasing fertility rates is critical for population growth over the long term, babies born today will barely have entered the labor market by 2050, reducing the potential impact of higher fertility rates over much of the next quarter century. Migration can more immediately help countries grow their working-age population. However, the increase in migration needed to maintain GDP per capita growth is significant. (…)

Other metrics illustrate the scale of migration required to maintain the economic status quo. For instance, new research estimates that if advanced economies relied on migration alone to maintain support ratios at today’s levels, in many cases as much as half of their populations would be foreign born by 2050, assuming each migrant brings one dependent. (…)

In the USA:

Why Americans Aren’t Having Babies The costs and rising expectations of parenthood are making young people think hard about having any children at all

Americans aren’t just waiting longer to have kids and having fewer once they start—they’re less likely to have any at all.

The shift means that childlessness may be emerging as the main driver of the country’s record-low birthrate. 

Women without children, rather than those having fewer, are responsible for most of the decline in average births among 35- to 44-year-olds during their lifetimes so far, according to an analysis of the Census Bureau’s Current Population Survey data by University of Texas demographer Dean Spears for The Wall Street Journal. Childlessness accounted for over two-thirds of the 6.5% drop in average births between 2012 to 2022.  

While more people are becoming parents later in life, 80% of the babies born in 2022 were to women under 35, according to the Centers for Disease Control and Prevention’s National Vital Statistics data.   

“Some may still have children, but whether it’ll be enough to compensate for the delays that are driving down fertility overall seems unlikely,” says Karen Benjamin Guzzo, director of the Carolina Population Center at the University of North Carolina at Chapel Hill.

The change is far-reaching. More women in the 35-to-44 age range across all races, income levels, employment statuses, regions and broad education groups aren’t having children, according to research by Luke Pardue at nonprofit policy forum the Aspen Economic Strategy Group.

Birthrates among 35- to 44-year-olds give demographers who study fertility an early look into millennials’ changing approach to parenthood. But these researchers also look closely at women over 40, reasoning that if a woman doesn’t have a child by then, she is more likely to remain childless.   

The number of American women over 40 who had no children was declining until 2018, according to Current Population Survey data, when it then began to rise again. Now, some demographers and economists expect the increase in childlessness will be sustained due to shifts in how people think about families. (…)

Throughout history, having children was widely accepted as a central goal of adulthood.

Yet when Pew Research Center surveyed 18- to 34-year-olds last year, a little over half said they would like to become parents one day. In a separate 2021 survey, Pew found 44% of childless adults ages 18 to 49 said they were not too likely, or not at all likely, to have children, up from 37% who said the same thing in 2018.

As more women gained access to birth control and entered the workforce in the 1970s, reshaping family life and expectations around gender, Americans began having fewer kids. By 1980, the average number of children per family was 1.8, down from a high of 3.6 during the post-Depression baby boom, according to Gallup.

Now, researchers say, having children at all has begun to feel optional. (…)

Nobody will dispute that kids are expensive. Whether they have become more so in recent years—and the extent to which that is driving down birthrates—is more complicated.

Parents are spending more on their children for basics such as housing, food and education—much of that due to rising prices. Another factor, however, is the drive to provide children with more opportunities and experiences.     

Middle-class households with a preschooler more than quadrupled spending on child care alone between 1995 and 2023, according to an analysis of Bureau of Labor Statistics and Department of Agriculture data by Scott Winship at think tank the American Enterprise Institute.  

Yet only about half of the increase is due to rising prices for the same quality and quantity of care. (Child care prices are up 180% overall since the mid-90s, according to BLS data.)

The remaining half is coming from parents choosing more personalized or accredited care for a given 3- to 5-year-old, or paying for more hours, Winship says.

“People say kids are more expensive, but a lot of this comes from parenting becoming more intensive so people are spending more on their kids,” says Melissa Kearney, an economist at the University of Maryland who researches children and families.

It has always been costly and time-consuming to raise kids, she says, and it has always come into conflict with other priorities. What’s changed is that more people are deciding not to have children at all. (…)

“With geopolitical issues, climate change, it’s like what are you bringing them into and then dropping them off and saying, ‘good luck!’” says Mills, who is 27 and works for a tech company. “There’s no real confidence that things are going to get better.” (…)

The couple’s other consideration is financial. Despite both having well-paying jobs, they say they haven’t been able to afford a house in Boston, where they live, amid low supply and high interest rates.

Laubenthal, a 27-year-old asset manager, calculated that they could retire at 55 with the same spending power if they don’t have kids. He then did the math to account for two children, factoring in costs of daycare, college, clothing and other essentials. That pushed their retirement back by 13 years, to age 68.

“That’s a big gap,” he says. His conclusion: Retire early, and skip kids.

Immigration will make the difference between future population growth or decline

(…) While much attention politically and otherwise has been given the racial diversity of immigrants and their contribution to making America “less white,” the new census projections make clear that the nation will become more racially and ethnically diverse regardless of immigration levels.

(…) over the entire projection period through 2060, white persons who do not identify as other racial or ethnic groups will see declines in their population under all immigration scenarios.  This is due to their older age structure, leading to what demographers call “natural decrease” (the excess of deaths over births), which overtakes their gains via immigration. Under all immigration scenarios, the nation’s white population declines each year.

Thus, all population gains are attributable to persons who identify as other racial groups, including persons who identify as two or more races.Of these groups, Latino or Hispanic Americans are projected to show the largest gains under each immigration scenario. While Latino or Hispanic Americans are projected to assume sizeable portions of future immigrant flows, their large share of the U.S. resident population at the beginning of the projection period (19%) ensures that their natural increase will contribute to future population gains even under the low and zero immigration scenarios.

Because of these dynamics, under each immigration scenario, the U.S. will experience a rise in the share of the total population that identifies as a nonwhite racial or ethnic group, above its 2022 level of 41%. By 2060, that share will grow to 57% in the high immigration scenario, 55% in the main scenario, 53% in the low scenario, and 49% in the zero immigration scenario. (…)

Already in 2022, people identifying as Latino or Hispanic, a race other than white, or two or more races comprise 51% of the under-18 population. (…)

Even with average immigration levels, the nation’s population will experience decade-wide growth levels far below any we have sustained in our history due to reduced fertility and increases in deaths in an aging population. Because immigrants and their children on the whole are younger than the rest of the U.S. population, they will help counter the decline and slow growth of America’s youth and working-age populations over future decades as our senior population continues to swell. (…)

Although the U.S. faces population growth and aging challenges in the decades ahead, we are still in a better position than many other developed countries such as Japan, Italy, Germany, and other European nations—due in large part to the healthy immigration levels we experienced over the past 30 to 40 years. While immigration remains a hot-button political issue that focuses on illegal immigrants and asylum seekers, it is crucial to move the discussion to a serious analysis of the importance of immigration for the nation’s demographic and economic growth, and how broad policies such as comprehensive immigration reform can address our future needs. (…)

Festivals and Parades Are Canceled Amid US Immigration Anxiety From LA to Pittsburgh, fears over immigration raids are dampening cultural vibrancy as events are canceled.

Pittsburgh had planned to host its first-ever local World Cup this summer, a community soccer competition inspired by the global tournament and aimed at celebrating the city’s cultural diversity. The weeks-long event, which was set to begin in June, would have featured teams made up of residents from the city’s vast immigrant community, who’d play under the flags of their national origins.

But city officials called off the games amid growing anxieties over President Donald Trump’s immigration crackdown. The city also canceled its annual International Parade and Festival, which previously brought out vendors and performers from dozens of cultural groups. In a statement from Mayor Ed Gainey’s office to Bloomberg, spokesperson Olga George said both events were canceled out of “an abundance of caution” after consulting with residents and community stakeholders.

Many in the city’s Latino community told Monica Ruiz, executive director of the local immigrant advocacy group Casa San Jose, that they weren’t planning to attend either event even before their cancellation. “They’re very vulnerable, and they didn’t want to be in a situation where they could go somewhere to have a great time — and then end up in a different country,” she said, referring to the Trump administration’s controversial method of deporting noncitizens to countries other than their own.

Similar concerns have prompted organizers across the US to reconsider holding public events that celebrate different ethnicities or that might draw large crowds from immigrant and refugee communities. (…)

The concern comes as federal immigration agents ramp up raids and arrests in order to meet the White House’s goal of detaining at least 3,000 undocumented migrants a day.

Earlier this year, organizers in Chicago and Philadelphia both called off their Cinco de Mayo parades, citing safety concerns from their respective Mexican communities that the events may become targets for raids. And in Los Angeles, several July 4 celebrations, including in predominantly Hispanic communities, were canceled amid a series of US Immigration and Customs Enforcement raids that prompted nationwide protest. (…)

As arrests have increased, so has the share of detained migrants with no criminal records. US citizens have reportedly also been swept up in raids amid accusations that the agency has engaged in widespread racial profiling during their operations.

And since the Trump administration reversed a more-than-decade-old policy in January restricting immigration officers from making arrests in sensitive locations like schools and churches, ICE has vastly expanded its targets to places outside the workplace, including parks, outdoor markets, small businesses and even parking lots.

In June, armed and masked agents swarmed a popular flea market in the Los Angeles County suburb of Santa Fe Springs, one that typically drew large crowds of vendors and shoppers on weekends. Witnesses to the raid at the Santa Fe Springs Swap Meet told the Los Angeles Times that several people were taken away, and that agents approached anyone who “looked Hispanic in any way.” (…)

Such raids have had chilling effects on communities nationwide, and the impacts go beyond the cancellation of organized gatherings, said Guttlein. Parks in heavily Hispanic neighborhoods — where families often met up for play dates and intimate celebrations — are now quieter than usual as many choose to stay out of public spaces. Many are skipping out on doctor’s appointments, school, work and even court hearings as families essentially go into hiding. Shops and restaurants in immigrant communities have also seen foot traffic plummet.

“This is a product of the Trump administration’s prioritization of meeting quotas for detentions and for removal, and not prioritizing the safety of our community,” Guttlein said. “We now as a society are having to assess the risk to our safety when it comes to normal things.” (…)