How Population Growth Matters For Business

Business leaders should care about population growth, but it’s not as simple as focusing on the total gain or decline. Overall population growth in the United States crept up very slowly last year, relative to historical experience. Growth in the year through July 1, 2022 was the third lowest of the last 100 years, with the two lower years in 2020 and 2021. In simple terms, businesses see slower growth in the number of potential customers.

Some companies would benefit from more babies being born—diaper manufacturers—while others would benefit from seniors living long—retirement home operators. The key to understanding business impacts of population change is to focus on the demographic segments most important to a company.

Business minds typically come to customers first, but employees are also important. The United States now lies in the midst of a very tight labor market. For the years 2020-2030, the growth of the working-age population will be the lowest decade since the Civil War. (Details in The Scariest Chart for Business in the Coming Decade based on Census Bureau forecasts that will prove overly optimistic when complete data are available.)

Demographic change is often ignored because it comes on so gradually. Newspaper headlines don’t proclaim, in huge font, slower birth trends. But demographic forces are strong. Today’s labor shortage predates the pandemic. In December 2019 I wrote, “The labor markets have been tight for several years, and it’s only going to get worse in 2020.” Yet the retirement of the baby boom generation could have been predicted 60 years earlier. Minor details changed recently, such as the drop in immigration, but the big picture was clear long ago.

Companies can begin with a simple annual demographic assessment. What are the key demographics of customers? For consumer sales, the buyers may be the customers. But in business-to-business sales, the buyers may be intermediate between producers and end-users. For example, the Walmart toy buyer may be childless, but the Walmart purchase order is driven by the number of children and their parents’ financial condition. The Census Bureau has reams of data broken down by age and sex.

Businesses operating regionally can tap into state, county and metropolitan area data from the Census Bureau. Many states also have their own agency developing population estimates and forecasts.

Conducting the demographic assessment annually has at least two advantages. First, it forces the business to review its own demographic drivers of profitability. Over a year’s time, products and services may have changed, making customer demographics somewhat different. Second, managers’ attention often focuses on what is new, such as innovative opportunities or emerging threats. Demographics usually change slowly, so the annual assessment brings population forces back to the top of the manager’s mind. A third advantage is possible. Some demographics may change quickly, as with immigration or the impact of an epidemic.

Although demographic changes are seldom newsworthy, they are powerful. Consider how human resource policy might have improved if business leaders had realized ten years ago—when the unemployment rate was eight percent—that that an extremely tight labor would develop. Companies that adjusted their attitudes and practices in anticipation of the change would have strongly outperformed their under-staffed competitors.

Population change is tremendously important to business, even though it’s often not newsworthy.