All Financial Wisdom
Pregnancy – Now It Is A New Leading Indicator of the Economy
Economics is that discipline that perfectly explains why what happened happened, but fails again and again when it tries to predict what is to come. Economists have long been aware of this problem in the sector, and although we must assume that nobody can guess the future, the truth is that we have the leading indicators of the economy to try to predict the future one. And some work quite well.
Now there is a new leading indicator that takes strength when it comes to predicting when a recession is approaching. The new indicator is based on the statistics of pregnant women, and the truth is that the fundamentals behind it have a lot of meaning.
A new official study has triggered the interesting debate about pregnancies
Well, the truth is that, just a few days ago, the CNBC website published an interesting story that explained how the American National Bureau of Economic Research (NBER) has conducted a study to evaluate the correlation between the pregnancy rate and economic performance.
And the results of the study could not be more revealing. The correlation found specifically is that a decrease in the pregnancy rate temporarily precedes a recession. It is the first study conducted on this topic, and really the conclusions are totally novel and very significant.
The temporal term of this leading indicator is that it goes back to signaling the sustained decrease in the pregnancy rate several quarters before the economic indicators begin to show signs of deterioration. Therefore, the “leading indicator” lives up to its name in this case, placing itself as one of the indicators that previously signaled (and with greater reliability) an economic crisis in the making.
The pregnancy rate indicator hits where the others fail
The NBER analyzed the trends in the pregnancy rate based on the birth certificates and their dates of the 109 million births that took place in the United States between 1989 and 2016. Later, they made the correlation with the available data on the economic cycles of this temporary period.
The result of the correlation has shown that the pregnancy rate can predict economic recessions as equally or more effectively, and even earlier, than other famous leading indicators such as stock indexes or consumer confidence. It is public knowledge how these other indicators are widely used in the sector (I recommend that you see the graphs prepared by the CNBC).
Regarding the behavior of this new indicator in the most recent crisis, that of the terrible subprime mortgages and the fall of Lehman Brothers, the result is that, where the other leading indicators did not show any sign of what was coming, the rate of pregnancies very reliably signaled the budding crisis. The pregnancies fell abruptly and steadily several quarters before the fateful date, meanwhile the stock markets remained buoyant, and consumer confidence showed signs of strength.
This fact gives a special validity to this new indicator, since the subprime crisis is famous in the sector especially because of the impossibility of having predicted it based exclusively on the indicators available so far. This is where the indicator of the pregnancy rate acquires an essential relevance.
The “buts” to the study
The first “but” is important, and we said earlier that this indicator of the pregnancy rate has predicted correctly all the crises suffered in the last three decades. The fact that the indicator has not been extended for a longer period of time is not due to the absence of more statistical data, but because in the preceding economic cycles between 1968 and 1988, the indicator did not succeed in predicting it.
The explanation may come from a change of mentality in Western societies regarding how, when and why it is decided to bring children into the world. If we think retrospectively, the same birth control of those years has nothing to do with the current one, nor do those fertile 70’s and 80’s in which our parents were thrown into having children in a much happier, carefree way, and less planned so than at the present.cThe new generations of parents seek almost total stability when it comes to having children.
It is also true that today’s society demands more economic resources for new families for each new child, sometimes even due to legal obligations. But it is also true that there is also a very important part of self-imposed demands by the parents themselves, who have a logical obsession to feel they have a child when they can give almost all their best. It is another facet of hyper-protectionism with which many parents educate their children today, and which is widely known by psychologists and psychiatrists.
On the other hand, the analysis is strictly limited to the case of the United States, which is an obvious limitation for the application of its conclusions on a global scale. But it is no less true that certainly in Europe, or in other developed countries, the new indicator would yield similar results.
From the “predictor” to the strength (or deterioration) of the economy
Having a child is the most important decision that future parents can take. Hence, consumer confidence is less reliable. People are able to spend money before deciding to have a child, and this fits with the psychology that all parents have when deciding whether to have a child, comparing it with the decision to buy a new television, for example. Effectively, not by responsibility nor by level of expense, both decisions are comparable.
And regarding the recovery experienced after the Great Recession of 2007-2008, the truth is that the end of this terrible recession has been marked by the weakness in the creation of employment. Coincidentally, the study linked earlier has brought to light how this recovery has not been accompanied by a rebound in the pregnancy rate, which has made the Great Recession to be also known as “the recovery without babies.”
Strictly attending to reasons of relative weight in the family economy, having a child is a decision that, by economic parameters, can a priori be comparable only to the purchase of a home. But in reality, both decisions have nothing to do beyond supposing the two large investments of almost every family.
To begin with, an apartment is an asset, which also requires a significant investment (like a child), but can be revalued (something a father rarely looks for in a child: economic return). That is why the pregnancy rate is a much better indicator than the sale of flats, since in the case of children it is an indicator that in itself can not fall victim to a speculative bubble proper.
Moreover, parents either put the same interest or care in looking for the future of an apartment, that by the economic context in which they bring a new child. It can be said without a margin of error that the act of becoming pregnant is the decision-making process in which a couple looks more conscientiously at the conditions of the moment in which they bring their children. And now, all that capacity for analysis and perception of the economic climate that parents put on the board, can be exploited macroeconomically with the indicator of the pregnancy rate.
And keep in mind that it is not only analysis capacity, since, as we have told you in many occasions, the masses are also wrong oftentimes. As I have been saying for years now, more than just worrying about the economy, we should all worry a bit more about socioeconomics as a whole: a much more complete 360 degree concept and one that is… economically more effective.