Below is an excerpt from today's Early Look written by Daryl Jones.
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 graphic above, 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.
