When it comes to unorthodox indicators of the business cycle - especially when the business cycle is the second longest in history such as this one - economists have always had creative ways of "calculating" where in the cycle we are at any given moment.
Starting in the 1926s, economist George Taylor came up with the "hemline index" which suggested that the length of women’s skirts tracked stock market performance — rising and falling in tandem. In good economies, we get such results as miniskirts while in poor economic times, as shown by the 1929 Wall Street Crash, hems can drop almost overnight.
Several decades later, former Fed chair Alan Greenspan used to track sales of men’s underwear, which he said fell at the onset of recessions as men delayed buying new underwear during tough economic times.
Then there was the lipstick index proposed by Estée Lauder chairman Leonard Lauder in 2001: he claimed that purchases of cosmetics were inversely correlated with the health of the economy (the idea was later discredited). The 2008 recession gave rise to the tie index, sales of which, it was claimed, rise as employees fear for their jobs.
Now, according to new research there is a new indicator that can warn of a coming recession: sex, or rather the 9 month consequences thereof: the rise and fall of pregnancies.
According to a paper paper published on Monday by the National Bureau of Economic Research, ahead of the past three US recessions, the number of conceptions began to fall at least six months before the economy started to contract. As the FT notes, while previous research has shown how birth rates track economic cycles, the scientific study is the first to show that fertility declines are a leading indicator for recessions.
Speaking to the FT, Daniel Hungerman, economics professor at the University of Notre Dame and one of the report’s authors, said it was “striking” that the drop in pregnancies was evident before the recession that came after the 2007 financial crisis, since it has traditionally been argued that this slump had been hard to predict.
It may be difficult for "experts" but apparently not for a couple deciding what to do next in the bedroom.
The analysis used data on the 109 million births in the US between 1989-2016 to examine how fertility rates changed through the last three economic cycles — in the early 1990s, the early 2000s and the late 2000s. A similar pattern emerged in all three cases.
The researchers focused on birth data from the National Center for Health Statistics, looking at clinical estimates for the month of conception. They compared that to the dates of the recessions, as calculated by the NBER, and to changes in the GDP. The change in birth rates was driven by a drop in conceptions, not an increase in abortion or miscarriage, the researchers found. In other words, less sex with the intent to procreate.
“One way to think about this is that the decision to have a child often reflects one’s level of optimism about the future,” says Kasey Buckles, another Notre-Dame professor and co-author of the study. Research published through the NBER is often conducted by academics at their own universities.
To the researchers' surprise, they found that falls in conceptions were a far better leading indicator of recessions than many commonly used indicators such as consumer confidence, measures of uncertainty, and purchases of big-ticket items such as washing machines and cars.
“None of the experts saw it coming and in its first few months many business leaders were convinced the economy was doing OK,” he says. The fertility statistics told a different story.
Take the Great Recession. The U.S. birth rate, rising before the recession, fell in 2008, as one might expect. But back up before that — to the middle of 2007. The subprime mortgage crisis was hurting the housing market, but the broader effect on the economy was not yet apparent. As the NPR notes, stock prices kept hitting all-time highs. Unemployment was below 5 percent. Analysts were confident, optimistic. In July, the chief economist of Standard & Poor's told NPR listeners that "the rest of the economy so far has been ignoring the housing crisis very nicely."
It was months before the recession began, as NBER later calculated it, and more than a year before the collapse of Lehman Brothers triggered a global panic.
But, the researchers found, the U.S. conception rate had already started to drop.
"That's what makes our results surprising," Buckle says. "While the best of the experts didn't see the Great Recession coming, it seems that families and households were feeling those tremors and responding to it."
The researchers suggest several possible explanations, including the natural time lag with attempting to conceive, the increasing age of first-time mothers and the growing popularity of long-acting birth control.
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To be sure, this may be just another case of spurious correlation, especially now that the Fed has killed the business cycle. Indeed, researchers admitted that the correlation between conceptions and recessions is not perfect, and there have been periods when conceptions have fallen but the economy has not.
Professor Buckles said: "It might be difficult in practice to determine whether a one-quarter drop in conceptions is really signalling a future downturn. However, this is also an issue with many commonly used economic indicators."
So what does the latest data indicate? Well, as the chart below shows, after peaking in some time in 2013, the US is now deep in its latest recession, at least based on pregnancy rates. Ironically, it is now up to the NBER - the author of the paper - to determine if that is indeed the case.