Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Baby Booms and Baby Busts

Another day and we have another thought provoking graphic from Calculated Risk.  This graph displays the U.S. birth rate over the past 100 years.

For enlarged image click here

The following graph shows my added annotations identifying the times of boom tops and bust bottoms.  (Sorry, I can not provide an enlargement of this image.)

The decline from 1990 to 1997 is approximately 9%.  This does not compare to the magnitude of the two baby busts, as shown in the following table:

Declines of the magnitude of the birthrate drop from 1990 to 1997 have occurred seven other times during the time spanned by this data.  The1990-97 decline may have been part of an incipient baby bust that never continued to maturity, but it is insufficient in size to be called a baby bust on its own merits.

The timeline of booms and busts is also interesting.  These are summarized in the following table:

The Baby Cycle

If we consider that the average interval between one generation and the next is between 20 and 30 years (median child bearing age generally fluctuates between the low twenties and around 30) the two of the three round trip cycles (boom to boom and bust to bust) are well outside the interval expected for pure demographic echoes.  Geopolitical and economic factors interfere with what might be called the "natural" cycle.  Without these "external factors", the natural dispersion over time would tend to wash out the echo effects until the birthrate curve over time would become quite smooth.

All this leads me to the qualitative conclusion that the baby cycle exists and persists only because of factors such as wars, recessions and depressions.  I would add a fourth factor to the list, as well, and that is immigration.

Distortions of the 'Natural' Cycle

Here is a brief listing of the primary factors driving the cycle displayed in the Calculated Risk graph:

*  Boom peaking in 1918:  Produced primarily by immigration.
*  Bust bottoming in 1935:  Produced primarily by recessions and depression.
*  Boom peaking in 1959:  Produced primarily by economic expansion following the Great Depression and World War II.
*  Bust bottoming in 1976:  Produced primarily by a combination of maturing of the low birthrate babies from the 1930s and 40s and the onset of severe recessions and inflation.
*  Boom peaking in 1990:  Produced primarily by an echo of the 1959 boom and a period of strong economic expansion.

The Missing Bust of 2007

Based on the previous cycles a bust should have been expected sometime in the years centered around 2007, but it did not occur.  The primary reason for this is probably immigration.  The decline in birthrate from 1990-97 was reversed as immigration from Latin America, documented and undocumented, was largely by people of child bearing age and approaching child bearing age.

The graph shows a downturn in birthrate associated with the Great Recession.  I attribute this to three factors:

*  Reduced conception rate due to economic concerns depressing desires for children.
*  Reduced immigration as joblessness has increased.
*  Reinforcement from the natural cyclic minimum expected about this time.

Paul Krugman has asked how a downturn in the birthrate in the first part of 2008 could be explained by a recession that didn't start until December, 2007.  After all, gestation takes nine months.  Well, I don't think I would have to screw around with the data too much to argue that construction was already slowing down well before the recession started.  Immigrants were disproportionately employed in construction and their reaction to economic factors would have been happening throughout 2007.  In addition, 2007 is right at the center of the  window for the expected cyclic minimum.  It is quite logical to expect that the birthrate should have started to decline by late 2007 and continue into 2008.  As the magnitude  and impact of the recession became more apparent, the decline continued.

A Bust (Possibly Muted) is Coming

The question of what to expect for the birthrate in the coming years is one that can be debated.  Calculated Risk has estimated that the decline in the coming years should not be anything like the 1920s.  But my review suggests that there could be a significant decline over the next five years or more to create a delayed "bust", where the birthrate declines to the 3.5 million area.  The expected cyclic minimum around 2007 was offset by a higher than previous birthrate contribution from immigration.  However, the minima in birthrate cycles are generally quite broad and last several years.  With economic factors from an extended period of low employment likely to suppress both the indigenous and the immigrant birthrates we are likely to see a delayed baby bust, although possibly muted to less than 20%, that will bottom in the current decade.
Disclosure: No stocks mentioned.