How do you feel about having a baby?
The answer to that question may be a predictor of the next recession.
A University of Kentucky professor, Steven Lugauer, is one of three authors of a new working paper for the National Bureau of Economic Research that suggests potentially child-bearing people have a gift they don’t know about — the ability to forecast a recession.
They do it by not getting pregnant, sometimes a year or more before the recession starts. That has been true for the last three recessions, which began in 1990, 2001 and 2007.
It’s not known exactly why people do this.
“Our work raises the question of whether non-traditional indicators — like conceptions — might be used for the purpose of forecasting,” the paper says.
The authors note that tracking conceptions in real time could be aided by using scanner data on retail purchases related to fertility and pregnancy, such as pregnancy tests and menstrual products.
“We are not arguing here that a decline in conceptions causes a recession,” the paper says. “Instead, we think that the factors behind the last three recessions also had a profound (and very rapid) effect on decisions. In fact, these factors seem to have impacted fertility decisions before large parts of the economy.”
The factors behind the recession had a fast and profound impact on conceptions and could be viewed as “a proxy or early warning for whatever shocks did create the recession,” the researchers argue.
Consider the “Great Recession” of 2008. The autumn of 2007 saw all-time highs in several stock markets, although the problems in the sub-prime mortgage market were starting to emerge.
The recession began in December. By then, the authors say, “conceptions had already been in decline for months.”
Why does a baby bust foretell a recession? Is a pregnancy a vote of confidence in the economy?
The team hasn’t made conclusions about that: “We don’t in the paper really latch onto one theory,” Lugauer said in a phone interview last week. “A family sits down and thinks about having another baby. That’s an important decision, and they’re thinking about the future.”
The degree to which uncertainty about job prospects, wages and buying ability play into that future may affect their choices, Lugauer said.
With “a sense of things a little bit less certain than they were ... one of the very first things they do is stop having children,” Lugauer said.
While the economy and the number of pregnancies may not have a causal relationship, for each of the last three recessions the downturn in conceptions coincides with or anticipates the indicators that signal a recession — such as a fall in durables sales, including washers and dryers. A fall in housing prices also appears to lead to a decline in fertility among current homeowners that is bigger than the fertility increase among renters and first-time home buyers.
Consider the most recent major recession: In spring, 2008, Bear Stearns collapsed. In September, 2008, Lehman Brothers collapsed.
“The total number of conceptions through the first three quarters of 2008 were already more than 100,000 lower than in the first three quarters of 2006, and they were falling rapidly,” the study says.
But even after Gross Domestic Product growth rates turned positive in late 2009, fertility rates continued to decline relative to the previous year: “In this sense, the recession has been followed by a baby-less recovery,” the paper concludes
In both the recessions of 1990 and 2001, conception growth fell below prior-year levels before the recessions began. Conception growth “does not tend to return to pre-recession levels until after the economic recovery is well underway.”
Authors are Kasey Buckles, University of Notre Dame; Daniel Hungerman, University of Notre Dame; and Lugauer. The paper is a National Bureau of Economic Research paper, which is circulated for discussion and comment purposes. It has not been peer-reviewed.
“We’re not saying households have a magical ability to see a recession,” he said.