Oh Baby! Is There a Recession Coming?
With the bull market in US equities well past its 9th birthday, an economy that's humming along and equity valuations that appear frothy, it's only natural that investors are nervous that these good times can't continue forever. And one area of concern is the possibility of recession.
An inverted yield curve, meaning short-term interest rates are higher than long-term rates, is the classic and most reliable predictor of recessions. Consumer sentiment surveys and initial claims for unemployment insurance are traditionally viewed as leading indicators. Even building construction permits and supplier delivery times are scrutinized for signs of recession. There's actually an index, LEI (Leading Economic Indicators), that aggregates these and other data points to give investors an early warning of economic downturns. (Note
we've included an LEI exhibit in the Economic News section below; and it currently shows a low probability of recession in the next 12 months.
But now there's a new data point that may predict a recession; and it's one you probably didn't see coming: Pregnancy Rates.
When the economy takes a turn for the worse, birth rates go down. This makes common sense and has been backed up by the numbers. But recently, a team of economists at the National Bureau of Economic Research (NBER),
took a closer look at the connection between fertility and recessions, and found that conception rates begin to drop before the economy starts its downturn - and could even be used to predict recessions.
When looking back to the Great Recession, we see that US conceptions were on the rise before the recession and fell in 2008 as expected. But in the middle of 2007, months before the recession officially began - a year before the collapse of Lehman Brothers - when unemployment was under 5% and stock prices kept hitting all-time highs, fertility rates were already declining.
Kasey Buckles, a research associate at NBER and one of the authors of the study says, "W
hile the best of the experts didn't see the Great Recession coming, it seems that families and households were feeling those tremors and responding to it."
The study found that the change in birth rates was driven by a drop in conceptions, not an increase in abortions or miscarriages, and the pattern held for recessions in 1990 and 2001.
Researchers suggest that the same factors that cause a recession also have a "profound and rapid effect on fertility decisions." They also suggest that
tracking conception in real-time might be useful for forecasting future economic events. It's not easy to track conceptions directly, but retail purchases (like pregnancy tests) or Internet searches (like for due date calculators) could provide a hint.
In other words: Just as your shopping habits allow Target to
figure out that you're expecting, that same data might be used by an economist to help calculate the future of the economy.
