Tom GalvinChief Investment Officer | 2018

Developed Markets Equity Positioning

The second P we think is vitally important for successful economic growth is related to the POPULATION dynamics of a country, especially its growth and productivity levels.


The second P we think is vitally important for successful economic growth is related to the POPULATION dynamics of a country, especially its growth and productivity levels. We use six components in this factor. Total population growth is often a leading indicator for growth in the working-age population. This is important because there is a high correlation between growth in individuals in the 20-65 age group and the demand from this cohort for goods and services. With a recent pickup in population growth, the U.S. leads Germany and Europe ex UK. Japan is actually in negative territory in these measures. In looking at growth in the working-age population, the U.S. is the leader, followed by Germany.

Another important demographic component is the percentage of the population that is over 65. This is important because wage growth declines in this age bracket, and the need for health care and other services increases and must be supported by the rest of the population, constraining the ability of the economy to grow. Japan has the highest percentage of the population over 65, at 27%; the Europe ex UK is 20%, and the U.S. is the lowest at 15%.

The final important aspect in evaluating a country’s population and its impact on the economy is how productive the work force is. Over the last 10 years, productivity in the U.S. has been above that of Europe 73% of the time. In comparisons of the 10-year annualized growth of the working-age population and the 10-year growth in productivity, the U.S. handily beats Germany, many European countries and Japan by a wide margin.

It is also important to assess the savings rate of a country, as that has an influence not only on willingness to spend, which benefits economic activity, but also on the ability to fund overall debt levels from internal sources. In this regard, Europe is a bigger saver than the U.S. Finally, we believe the higher the degree of economic freedom enjoyed by individuals, the greater the propensity for spending and investments, because sentiment and confidence in the future is higher. For this metric, we look at the Economic Freedom Index produced by the Heritage Foundation, which generally reflects better regulations for business and stronger protections of property rights. In this measure, the U.S. is the top-ranked country, Germany second and Europe ex UK fourth.

In our combined rankings of the Population factor, the U.S. is the clear leader of the pack (see table).

See sources at the bottom of the webpage.

A nation’s economic potential is ultimately a product of its labor force’s growth and productivity. The math is simple: more workers plus higher output per worker equals stronger economic growth. 

The chart below (Figure 3) adds up productivity growth and labor force growth.  For each G-7 economy, the starting coordinate is the 1957-2007 average for productivity growth and labor force growth. The ending coordinates (near the arrowheads) mark the average productivity growth over the past six years and potential labor force growth for the next six years.

The key here is the slanting lines. In terms of the basic building blocks of economic growth, every advanced economy is heading in the wrong direction, but the U.S. is expected still to enjoy a significant positive growth differential over the next decade. 


The second P we think is vitally important for successful economic growth is related to the POPULATION dynamics of a country, especially its growth and productivity levels.

Sources and Disclosures

Sources for 4P Data

BCA Research


Bureau of Labor and Statistics


CIA World Factbook

Cornell University


Global Innovation Index

Goldman Sachs

Heritage Foundation


International Monetary Fund

Ned Davis Research


SC Johnson College of Business

St. Louis Federal Reserve


World Bank

Important Disclosures

City National Bank provides investment management services through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Returns include the reinvestment of interest and dividends. Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk.

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