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If pregnancy rates start to dip, watch out for your investments — the National Bureau of Economic Research (NBER) published a report Monday concluding that a falling conception rate in the U.S. has consistently preceded the economic downturns of the last three decades.
Calling it a "new business cycle fact," the NBER's paper, entitled "Is Fertility an Economic Indicator?" documented its finding that "the growth rate of conceptions declines prior to economic downturns and the decline occurs several quarters before recessions begin."
"Our findings suggest that fertility behavior is more forward-looking and sensitive to changes in short-run expectations about the economy than previously thought," the report said.
The research into this correlation is the first of its kind, and no prior work on fertility has produced this conclusion.
The NBER used high-frequency data from birth certificates to examine fertility trends across the 109 million births that took place in the U.S. between 1989 and 2016, tracking their changes in relation to business cycles.
The result was the bureau's stated belief that fertility rates can predict recessions just as well as — if not earlier and better than — conventional market indicators like equity prices and consumer confidence levels.
Basically, the organization is saying that economic contractions can be predicted by falling numbers of an entirely different type of contraction.
National Bureau of Economic Research
"The (2008) recession began in December, as later determined by the NBER, and by this time conceptions had already been in decline for months," the report said, adding that through 2007, all normal economic indicators were positive, consumer confidence was strong and the stock market was hitting record highs.
Not only did the decline in the conception growth rate precede the onset of the last recession, it even began several quarters before the collapse of Bear Stearns and Lehman Brothers.
"Bear Stearns did not collapse until the end of the spring of 2008. Several months later, in September of 2008, Lehman Brothers collapsed, an event sometimes considered a catalyst in the great recession," the economists noted.
Yet 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," they said.
National Bureau of Economic Research
"Once you examine monthly or quarterly data, the pattern becomes obvious," said Daniel Hungerman, one of the study's authors and an economics professor at Notre Dame University. "We show the existence and magnitude of this pattern before the Great Recession, and it's striking since that recession was famously hard to predict.
"None of the experts saw it coming," he added. "And in its first few months, many business leaders were convinced the economy was doing OK — even as the number of conceptions plummeted and had been falling for a while."
Fertility also beat gross domestic product (GDP) levels to the punch when it came to foreshadowing a downturn. The research discovered that while GDP growth declined in the last quarter of 2007 and went negative in mid-2008, "conception growth turns negative in mid-2007 and breaks from trend over a year before."
The NBER spotted the exact same trend before the two smaller recessions in the report's 30-year time frame, citing an "anticipatory drop in conceptions" ahead of both 1990 and 2001.
The study is not the first to find that fertility is a forward-looking decision — couples very often make the choice to conceive when they know economic conditions are positive, like during the famous baby boomer years following World War II that characterized a new age of American prosperity. Conversely, negative economic prospects often lead many couples hold off on having children.
But study is the first to reveal that fertility rates were actually predictive of economic downturn, falling several quarters before recession hit, often before markets and economists themselves predicted the contractions.
Still, the correlation isn't perfect. The researchers wrote that in the economic cycles between 1968 and 1988, they didn't find a "striking anticipatory drop" in conceptions before the recessions during that time frame. A host of other factors could also be influencing the fertility trends.
The analysis also only focused on the U.S. rather than the whole world. The NBER researchers stressed the importance of being discerning when choosing data frequency and economic performance measures in any future work on fertility and the economy.
Numerous attempts have been made in the past to correlate certain trends with the health of the economy, from food and cosmetics consumption to the length of women's skirts. Many of the more entertaining theories have been debunked. Nonetheless, given the expertise of the study's authors, this just might be something economists and investors could gain from paying attention to in the future.