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Money Observer: Fertility and other surprising ways to spot a recession

Economists look to house prices, GDP and retail sales to predict the next recession. But a new study says we could look elsewhere to know when the next downturn is due: by counting the number of women who are pregnant.

Previous research has shown that birth rates fall in a downturn, but the current study published by the National Bureau of Economic Research, found that the number of conceptions begins to fall at least six months before the economy contracts.

Using data on more than 100 million births in the US, Daniel Hungerman, Kasey Buckles and Steven Lugauer found that this was true for the past three recessions in the US.

‘Our findings suggest that fertility behavior is more forward-looking and sensitive to changes in short-run expectations about the economy than previously thought,’ say the authors.

‘We are not arguing here that a decline in conceptions causes a recession. Instead, we think that the factors behind the last three recessions also had a profound and rapid effect on fertility decisions,’ the study concluded.

In other words, people collectively perceive the signs of a recession and decide whether to have a child or not, months before these signs or a recession become clearly visible.

This is not the first study to look at non-traditional indicators that might predict the next recession. Economists have argued that anything from lipstick purchases to the length of women’s skirts and men’s underwear sales could be indicators.

The chairman of Estée Lauder, Leonard Lauder, proposed a ‘lipstick index’ in 2001. According to this theory, consumers will turn to less costly luxury goods in times of crises. So instead of buying fur coats, women would buy lipstick.

Meanwhile, the ‘men’s underwear index’ counts former head of the US Federal Reserve Alan Greenspan as one of its fans. According to this theory, the sales of men’s underwear are typically stable because they count as a necessity.

In times of financial strain, however, men try to stretch the time between buying new pairs, and therefore sales dip.

‘But these have largely not stood the test of time as far as predicting recessions,’ says Lugauer. While both ‘indicators’ have received some attention, they have not received substantial validation.

The current study on pregnancies is different. First, it is a robust study conducted by three academics using longitudinal data.

Second, previous studies have focused on small decisions like buying a lipstick, which is culturally dependent, will differ from country to country, and is dependent on the whims of fashion.

Meanwhile, giving birth is universal, and a much bigger decision. Lugauer says: ‘I do not know of any other non-traditional big decisions like this that people are using to predict recessions.’

Crucially, today there are large quantities of data on every aspect of people’s behaviour, thanks to the digital economy.

‘I have no doubt that there exist other (non-financial, but still measurable) ways that people change their behavior at the beginning of recessions,’ says Lugauer. ‘So, I think fertility patterns might just be the beginning.’

So is there any data on current fertility patterns that might tell us whether a downturn is imminent?

Of course, conceptions are hard to measure in real time. ‘As researchers, we really only see them 9 months later when there is a birth that generates a birth certificate,’ says Lugauer.

However, in the paper, the academics discuss ways to get around this: using the frequency of baby-related internet searches (like searches for the word ‘pregnant’) to track how many women are pregnant or trying to conceive. Or tracking the purchases of baby-related products.

‘In an era of big data, we might be able to find other observable changes in people’s behaviour leading into recessions,’ adds Buckles.

It’s only a matter of time for economists to decide whether or not to use big data for innovative and non-traditional ways to predict when the next recession is due. They may turn their noses up at first, but pregnancy rates are vital data points that should be considered given that most economists have a poor track record at forecasting recessions.

This article was originally published in Money Observer on 28 February 2018:

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