Around the world, people are having fewer babies than in the past. A new report from McKinsey puts sobering numbers on that reality, a profound economic threat for the decades ahead.

Why it matters: The entire social contract in rich countries — of ever-rising wealth and the ability to retire and live comfortably in old age — is threatened by the reality of "youth scarcity," as researchers at the global consultancy put it.

• It implies that too few younger people in their prime working years are producing goods and services, relative to retirees consuming but not producing.
• Productivity growth achieved thanks to AI and other technologies could help lessen the dilemma, as could higher immigration rates from places where population is still growing. But both create their own risks of contributing further to societal strains.

What they're saying: "Falling fertility rates are propelling major economies toward population collapse in this century," a team from the McKinsey Global Institute, the firm's in-house think tank, writes.

• "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," they write.
• "This calculus no longer holds."

By the numbers: For a country's population to remain steady over time, absent migration, it needs a fertility rate of 2.1 live births per woman. Two-thirds of the world population lives in countries with fertility rates below that, McKinsey finds.

• In Western Europe, the fertility rate was 1.4 in 2023. In North America, it was 1.6; in China, 1.0; in Latin America, 1.8; and in India, 2.0.
• The major exception was sub-Saharan Africa, with a 4.4 fertility rate in 2023.

Between the lines: The structure of pension systems across rich countries is that when adults hit some advanced age, usually in their 60s, they stop working and become recipients of support. That's ultimately borne by the working-age population, typically aged 15 to 64.

• "Without significant changes, the world's aging population means a growing number of older people who aren't working will require the support of a shrinking number of younger people who are," the McKinsey researchers write.
• These trends cannot be changed quickly. Even if people around the world start having more kids tomorrow, it takes years for those progeny to contribute to economic output.
• Babies and small children, famously, are not very good workers.

Of note: "I think this will be a big, big source of tension because of the intergenerational burden," Anu Madgavkar, a McKinsey partner and author of the report, tells Axios.

• "Younger people are going to find that they will possibly have to work much longer and harder," she adds. "They will have to probably be taxed more at the same time, and they're probably going to wait longer for intergenerational wealth transfer to occur."
• "Negotiating that burden is not going to be easy or pretty," she says.

American shoppers increased spending in December, but at a more cautious pace.

Why it matters: The surprising strength of the consumer kept the U.S. economy chugging along in 2024.

• The question is whether consumers become increasingly hesitant to ramp up spending, a risk for economic growth.

By the numbers: Retail sales increased by 0.4% in December, slowing from the 0.8% jump in November that was slightly higher than previously thought. November sales were boosted by strong shopping in a single category: autos.

• In December, shopping was more broad. Spending last month surged more than 4% at miscellaneous store retailers — a catch-all category that includes florists, stationery stores and more.
• Spending at sporting goods stores and furniture retailers also jumped, while sales at gasoline stations rose 1.5%, helped by higher prices. The data is not adjusted for inflation.
• Two categories had a spending drop-off: building material stores (-2%) and eating and drinking establishments (-0.3%).

The big picture: Retail sales grew about 4% in 2024, a downshift from the 5% growth the prior year — suggesting a steady cooling in consumer demand, though lower inflation last year might have weighed on sales growth.

What to watch: A narrow slice of data that feeds into GDP calculations points to healthy spending on the part of the consumer in the final quarter of 2024.

• Excluding sales of autos, gas and building materials, retail sales rose 0.7% — a sign "consumers spent joyously in the wrap up of the holiday season," Kathy Bostjancic, Nationwide chief economist, wrote in a note.

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