As some of you know, I have always been a student of demographic trends and the effect on birth rates and future consumer spending. It was no accident that the baby boom generation drove consumer spending to unheard of heights as we all moved through various stages of life. While we’re all familiar with that story, there were plenty of other generations along the way, each with their own particular characteristics. There have also been a lot of mini booms and busts along the way.
Some social behavior theories get stuck in our brains, even if they don’t always play out like we would think. One theory suggests higher births nine months after hurricanes and widespread electrical blackouts can be explained by people having not much else to do. I recall from my Army days that whenever a particular unit got deployed for training or combat for a period of time, once they came home you could pretty well set your calendar for a local baby boom about nine months later.
Which brings us to our current pandemic. In many states, citizens were required to stay home except for running essential errands for food and medicine. We still had creature comforts such as electricity, and we also had access to plenty of alcohol, because many jurisdictions allowed restaurants to deliver spirits to increase revenue. This created the perfect social setting for an increase in what is now euphemistically called “Netflix and chill.” Baby boom in 2021, here we come! Or maybe not.
The Brookings Institute recently released its birth rate estimate for the U.S., and the news is not good. The group dispels the myth of people having more kids when stuck inside, and then lays out the historical case that birth rates are more tied to the economic cycle. You can see where this is going with unemployment jumping to almost 15 percent (and almost 20 percent if people were classified correctly). With second-quarter GDP dropping 9.5 percent and an annualized 32.9 percent, the birth rate should take a serious hit.
From Brookings, “Based on the findings presented, this economic shock alone implies a 7 to 10 percent drop in births next year. With 3.8 million births occurring in 2019, that would amount to a decline of between 266,000 and 380,000 births in 2020.”
Not content with this piece of bad news, the organization estimated that if the economy remains weak past this year, the birth rate could drop by a full half million. That’s a lot of children who won’t be there to make their parents buy all the designer clothes and electronics you haven’t even heard of yet.
Maybe we’ll call this generation the “Coronials.”
Of course, we all know why this happens. Raising kids is expensive. The U.S. Department of Agriculture estimates that a child born in 2015 (the latest figures available) will cost $233,000 to raise, and that doesn’t include college.
Which brings up an interesting, and concerning, question. How fast will the economy and birth rates bounce back? If it takes the economy several years to recover, then we could lose one million or more potential births to economic concerns, which will affect everything from housing choices to schools. Eventually, the smaller groups of children will reduce the size of the labor force, which will affect tax revenues and social safety nets. Think of Social Security, which has future financial challenges anyway.
The present drop in FICA tax receipts should lead to Medicare running out of money in a mere three years and will pull the date that Social Security runs out of money from 2036 to 2033. Both entities will continue to receive tax revenue, so it’s not as if they go to zero, but we’ll have to make adjustments to keep them running at current levels. With this ominous news about birth rates, the adjusted requirements could be bigger than we anticipated just a few short months ago.
This next year and the pace of economic recovery will impact us all in many ways. Stay tuned as we monitor what happens. Thanks for reading.
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About Nick Massey
Nick Massey is President of Massey Financial Services in Edmond, Oklahoma. Nick can be reached at www.nickmassey.com. Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.