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Birth Rates Can Be Used To Predict Recessions, Study Suggests

When the maternity wards go quiet, so does the economy.
Kwangmoozaa via Getty Images

Could it be that young people starting families know something the experts don't about the economy?

A new study suggests the answer may be yes.

Predicting a recession, as economists will tell you, is notoriously difficult. But economists from the University of Notre-Dame and the University of Kentucky looked at data on more than 100 million births in the U.S. between 1989 and 2016, and found an interesting pattern.

Conception of children dropped sharply in the U.S. just before the past three recessions, in the early 1990s, early 2000s and 2008. The researchers found that the drop-off provided a more accurate prediction of the upcoming recession than some other traditional indicators, such as consumer confidence or car sales.

This chart shows the birth rate (solid line) dropping precipitously before each of the last three U.S. recessions (the shaded areas).
Buckles, Hungerman, Lugauer, 'Is Fertility a Leading Economic Indicator?'
This chart shows the birth rate (solid line) dropping precipitously before each of the last three U.S. recessions (the shaded areas).

Previous research had suggested that there is a link between birth rates and recessions, but that research had suggested that the drop in birth rates followed the start of the recession. This makes sense, as people often react to bad economic times by delaying having children.

But the new working paper, distributed by the National Bureau of Economic Research, suggests the drop in baby-making precedes the recession, by as much as six to nine months.

"We are not arguing here that a decline in conceptions causes a recession," the authors wrote in the study. "Instead, we think that the factors behind the last three recessions also had a profound (and very rapid) effect on fertility decisions."

Somehow, it seems people who are considering having babies are able to sense harder times coming up ahead, and adjust their baby-making activities accordingly. That makes declines in conception a potential "early warning" signal for recessions, the researchers said.

Watch: Ray Dalio says recession risks are rising

"One way to think about this is that the decision to have a child often reflects one's level of optimism about the future," said Kasey Buckles, a professor at Notre-Dame and co-author of the study, as quoted at the Financial Times.

"The nature of each recession has differed and so what conversation goes on at the kitchen table might be different, but I do think that people talk about the future when they try to have a baby and in aggregate they seem to do a good job thinking about it," study co-author Daniel Hungerman told the BBC.

The researchers note it could be difficult to track conception of babies in real time, but they suggest that looking at sales of fertility-related products, such as pregnancy tests, could give analysts an indication of where the economy is headed next.

So can rising fertility rates also signal the end of a recession, and the start of better times?

The pattern isn't as clear in reverse, the researchers say, but they do note that it took a long time for jobs to recover from the Great Recession of 2008-09, and it took fertility rates long to recover as well.

"Along with being a 'jobless recovery,' the Great Recession appears to have been a 'baby-less recovery,'" the authors wrote.

The researchers did consider the possibility that abortions and miscarriages might rise when bad economic times hit, possibly affecting birth rates. But they say their research concludes definitively that it was a decline in conception of babies that took place before the recessions.

Not the only strange economic indicator

Over the years, economists have experimented with numerous unusual indicators in the hopes of finding a definitive way to predict recessions.

During the Great Recession a decade ago, some experts suggested that sales of men's underwear could predict downturns. The rationale was that, in good times, men's underwear was a necessity, but in hard times, it's an easy expense to cut.

In the 1920s, it was suggested that the length of women's skirts could predict the economy, with skirts shrinking in good times and lengthening in bad.

There is even a somewhat tongue-in-cheek "skyscraper index," which tries to predict economic downturns by looking at the height of buildings being built around the world. The index is based on the premise that an economy tends to turn down when it gets a new "tallest" building. For instance, the Empire State Building in New York City was completed at the start of the Great Depression.

Many economists have poured water on these theories, but the skyscraper index, more so than the others, has been largely discredited.

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