“Intellectual growth should commence at birth and cease only at death.”
-Albert Einstein
We do a lot of things wrong at Hedgeye, but the one thing we’ve consistently done right over the years is continue to educate ourselves and improve our research processes. In that spirit, we thought we’d share some takeaways from a recent paper we’ve been reading titled, “Fertility Is a Leading Economic Indicator.”
It’s no surprise that fertility declines in a recession. When economic times are bad, families postpone having children. Primarily, of course, this is driven by job loss. If you don’t have a job, you are much less likely to start a family.
This paper is novel in that it postulates that fertility may actually be a leading indicator to a recession.
According to the authors:
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“Many papers show that aggregate fertility is pro-cyclical over the business cycle. In this paper we do something else: using data on more than 100 million births and focusing on within-year changes in fertility, we show that for recent recessions in the United States, the growth rate for conceptions begins to fall several quarters prior to economic decline.” |
This analysis is shown in the middle graphic, which has been extracted from their paper, and as the chart shows:
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“The almost prescient decline in fertility at the onset of the last three recessions is evidence that people react rapidly to changing economic conditions in even their most personal choices, such as whether or not to conceive a child.” |
The implication is that family planning decisions may actually be much more sensitive to more coincident economic indicators such as consumer confidence and durable orders. This flies somewhat in the face of the commonly held view that the long “production time” of creating babies makes their production less responsive to shorter term economic fluctuations. (Yes, that’s a very geeky way to talk about having a family!)
We aren’t quite ready to change out our multi-factor now-casting model of the U.S. economy to focus singularly on conceptions (which are by the way almost impossible to track until after the fact), but we do think the paper is worth a read and does lead to some interesting questions about how the consumer’s long term view of the economic future may be more significantly impacted by shorter term economic indicators.
Back to the Global Macro Grind...
One of the more interesting headlines this morning on Bloomberg is that short interest in the three largest high yield ETFs hit a record $7 billion this week. This comes on the back of record year-to-date outflows of $2.3 billion. If you didn’t know how consensus was leaning on high yield, now you know!
Coincident to this, as Keith noted to the team this morning in a note from London (he’s over there meeting with 20 money managers in 3 days), is that 10-year yields are now flirting with two week lows. The risk of Powell, “twin deficits”, and record treasure issuance, yet the U.S. 10-year yield is flirting with the low end of our risk range (2.80% - 2.94%) heading into February data being reported. #ReflationRollover anyone?
In terms of economic date this morning:
- January personal income came in at +0.4%, personal spending came in +0.2% and core PCE came in at 0.3%. All exactly in line with expectations; and
- U.S. jobless claims came in at 210K for the week, which was just slightly below expectations at 227K.
What’s the takeaway from that data? Probably not a whole lot. It’s a month old and basically as expected. But certainly not indicative of an economy inflating wildly above expectations. On the negative side of the ledger is that +0.2% in personal spending is an underwhelming consumption number to kick off 2018.
Now to be fair, on the jobless claims data front, this is continued indication of a tight and tightening labor market. At 210,000, jobless claims are now at the lowest level since 1969. Since 1969 occurred before anyone on the Hedgeye Macro team was born, we will rightfully call that a long time.
Switching gears and speaking of #ReflationRollover, WTI is down another -0.8% this morning to $64.20. That’s on the back of a 4.8% decline in February. In terms of oil fundamentals, the EIA showed an inventory build of 3.02MM barrels last week. Meanwhile, revised data from the EIA also showed U.S. production hit an all-time high of 10.1M bpd.
On that note, our Energy Policy team is hosting a call today at 2pm ET with Dr. Francisco Monaldi (a Fellow in the Latin American Initiative & Energy Economics at the Baker Institute at Rice University) to discuss the ongoing situation in Venezuela and well as potential new White House sanctions on Venezuela.
Given that Venezuela exports 500,000 barrels a day to US gulf coast refiners and the country produces north of 1.5 million barrels a day, these sanctions are relevant to the global oil market (and anyone owning Venezuelan debt!). If you are an institutional subscriber and would like to dial in, please email
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.80-2.94% (bullish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7035-7412 (bullish)
Biotech (IBB) 106-112 (bullish)
Energy (XLE) 66.04-69.77 (bearish)
REITS (RMZ) 1005-1060 (bearish)
Nikkei 21175-22432 (bearish)
DAX 121 (bearish)
VIX 15.05-22.78 (bullish)
USD 88.53-91.08 (bearish)
EUR/USD 1.22-1.25 (bullish)
YEN 105.81-108.23 (bullish)
GBP/USD 1.38-1.41 (bullish)
Oil (WTI) 59.84-64.21 (bullish)
Nat Gas 2.50-2.79 (bearish)
Gold 1 (bullish)
Copper 3.08-3.27 (neutral)
AAPL 168.04-180.65 (bullish)
AMZN 1 (bullish)
FB 173-186 (neutral)
GOOGL 1070-1145 (bullish)
NFLX 265-298 (bullish)
TSLA 315-360 (neutral)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
